The Dow Jones industrial average started in a small Wall Street office with a handwritten sheet of paper. That was in 1887, when Charles Dow, Edward Jones and Charles Bergstresser decided that investors needed a running account of how the fledgling stock market was behaving. The first "newsletter" included only 11 stocks -- nine railroads and two other industries.
Within two years, this primitive form of communication had evolved into a printed "Customers' Afternoon Newsletter," which eventually morphed into the Wall Street Journal. The Dow Jones Average made its debut in 1896, and has been a national financial icon ever since. It now includes 30 of the largest publicly held companies, although the roster is no longer strictly industrial.
In some ways, the Dow Jones provides a shorthand version of American economic and social history. On 1 November 1999, for example, it dropped Chevron, Goodyear Rubber, Sears Roebuck and Union Carbide in favor of Intel, Micosoft, Home Depot and SBC Communications. To many observers, this signaled the full bloom of the Internet age and the decline of industry.
A Dow Jones graph also closely follows the rise and fall of the American economy. From 3 September 1929 to 8 July 1932, the index plummeted from 386.1 to 41.22, mirroring the Great Depression. It took 22 years to regain its former altitude. The highest closing ever recorded was 14,164.53 on 9 October 2007, but a subsequent 2008 bust dragged the numbers below 8,000.
Of course, as many analysts point out, the reaction created by ups and downs in the Dow Jones does not always reflect economic reality. For example, if the stock in which you are heavily invested is not one of the Dow Jones 30, the number breathlessly reported on the nightly news is largely irrelevant. The index is a specific x-ray of one segment of the economy, not a complete CAT scan.
Also, because the index is price-weighted, a significant slump in one high-priced stock, which may be caused by a situation irrelevant to the rest of the index, can negate gains in a number of lower-priced public offerings. The Dow Jones price average is also configured to reflect such phenomena as stock splits. Thus, the Dow Jones average times 30 will sometimes produce a lower number than the closing Dow numbers.