The Dow Jones Industrial Average:

What is it? What do you need to know about it?

By Ethan Pope

The Dow Jones Industrial Average (DJIA) has become the most recognized financial indicator in our economy. You hear it every day on the national news: the Dow Jones Industrial Average was up 105 points in heavy trading. Or, the Dow was down 10 points today in very light trading. The media reports the Dow Jones Industrial Average just as faithfully as they report the weather. In fact, reporting the weather is a great comparison. The DJIA actually reflects the economic weather of the stock market. The DJIA reflects if a financial storm has just hit Wall Street, or if the sun was shining on Wall Street. Many an investor has sweet dreams or nightmares after hearing how the DJIA performed that day.

Let me give you a summary of how the Dow Jones began, what makes up the Dow Jones, how it is calculated each day, and where the index is headed in years to come.

The Beginning

Charles Henry Dow and Edward Davis Jones formed Dow Jones & Company in 1882 and launched the Customer’s Afternoon Letter — a handwritten newsletter that was hand delivered by messenger boys to interested people in the financial district. Charles M. Bergstresser also joined the partnership in the early stages. Their first office was located in a basement office close to the New York Stock Exchange.

It is said that Bergstresser financed the publishing venture because Dow and Jones were cash poor, yet his name was not included in the company name (Dow Jones & Company) because it was too long. (In the ego-driven culture in which we live I can’t imagine that ever happening today. I don’t care if your name is Smithenhammerjensen. if you control the money, your name and picture will be on the billboards!)

In 1884 Mr. Dow began to publish in his newsletter an average of 11 stocks he had personally chosen to monitor (nine were railroad companies). This actually was not the Dow Jones Industrial Average, but rather its beginning.

The Wall Street Journal

On July 8, 1889, Dow Jones & Company stopped publishing their personal newsletter and began publishing a newspaper: The Wall Street Journal. It is believed that Mr. Bergstresser is the one who chose the name for the newspaper.