Daily Archives: March 26, 2016

One Hundred and Twenty years Ago Today

Mr. Charles Dow published the first edition of the Dow Jones Industrial Average, a mere 12 years after Mr. Charles Dow composed his first stock average (of nine railroads and two industrial companies). And while there have been many averages, including a number created by Mr. Charles Dow himself, the Dow Jones Industrial Average (DJIA), the second oldest US market index (after the Dow Jones Transportation Average) is the most famous of these. The only index that come close in fame is the S&P 500.

It’s famous as many investors believe it can be used to describe the market, but all it can really be used for is a baseline to compare the return on specific investments in a historical period to the index. A good investor should beat the index, and a bad investor doesn’t hit it. However, simply judging a price against a price weighted index doesn’t really tell you much about the market, just the historical performance of a small portion of it. It’s a useful measurement of past performance, but not necessarily a good indicator of future performance of the market overall. But all analysis has to start from somewhere, and this did give rise to a new era in stock market analysis, which, for better or worse, did lead to new advancements in analytics and computing, we have to at least recognize it.