--General Electric Co. is only original DJIA component remaining in the benchmark
--DJIA first published with regularity in 1896
--Benchmark has evolved to incorporate much more than "smokestack" companies
(Updates with ownership context for the DJIA in sixth-to-last paragraph.)
By Chris Dieterich
NEW YORK--As the Dow Jones Industrial Average reaches the rarefied air above 14164.53, its composition is almost unrecognizable from the collection of stocks assembled more than a century ago, when Charles Dow first published the indicator of stock-market prices that has morphed into the blue chips of today.
Of that original lineup, General Electric Co. (GE) is the last stock standing.
Mr. Dow, the first editor of The Wall Street Journal and co-founder of Dow Jones & Co., created the first average of closing prices of active stocks to help explain stock-market movements to his readers. Today, as then, the average provides a tool for taking the temperature of the market as a whole by aggregating stock prices of leading American companies.
"The average investor still thinks in terms of the Dow, almost exclusively," said Julius Ridgway, investment adviser at Medley & Brown, and investment advisory firm in Jackson, Miss. "Local and national daily newscasts report 'stocks were up/down X points today,' always referring to the Dow," he said.
Its first iteration averaged the closing prices of 11 stocks--nine railroads, along with Pacific Mail Steamship and Western Union--and was first published on July 3, 1884, in the Customer's Afternoon Letter, a two-page predecessor of The Wall Street Journal.
This early indicator was published irregularly. It wasn't until more than decade later that an average consisting entirely of industrial stocks was first printed in the Journal, with daily publication of this 12-stock industrial average beginning on Oct. 7, 1896.
While General Electric, originally known as Edison General Electric Co., has withstood the test of time, it was delisted twice--in 1898 and 1901. It has remained in the index since the stock's reinstatement in 1907.
Nearly a decade after its inception, the measure notched its first big performance milestone. The Dow first closed above 100 for the first time on Jan. 12, 1906.
The industrial average expanded to 20 names in 1916, and included firms that reflected the dominant industries of the era: American Beet Sugar Co., Studebaker and Baldwin Locomotive Works. American Telephone and Telegraph Co., an ancestor of today's AT&T Inc. (T), made the list.
In 1928, it broadened into a constellation of 30 stocks, the number that remains today. Included in 1928's round of additions was Standard Oil (N.J.), the antecedent for current Dow component Exxon Mobil Corp. (XOM).
The method for calculating the benchmark also changed in 1928. Originally the average of each members' closing stock price, the Journal's editors incorporated a "divisor" into their calculation to adjust for the effects of stock splits and substitutions. A divisor is still used today and is regularly modified so the average maintains historical continuity.
The speculative market of the roaring 1920s pushed the Dow to a peak of 381.17 on Sept. 3, 1929. But the measure withered in the crash a month later, then languished through the Great Depression that gripped the 1930s. The Dow bottomed at 41.22 on July 8, 1932, down 89% from its 1929 high.
A wave of failed companies and mergers shook up the average during the Depression, but current Dow components Procter & Gamble Co. (PG) and Standard Oil of California, now Chevron Corp. (CVX), also joined the fray.
International Business Machines Corp. (IBM), then an adding-machine company, was first included in 1932. It was dropped in 1939, and wouldn't re-enter the Dow until 40 years later. Coca-Cola Co. (KO) similarly joined in 1932, but was cut in 1935, resurfacing again in 1987, where it remains today.