The Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is composed of 30 blue chip stocks, is the most important indicator of the Stock Market. Charles Dow had created a stock average based on eleven companies for The Wall Street Journal, but his average was almost entirely comprised of railroad companies. For the Journal in 1896, Dow used twelve companies and expanded into the American economy's bustling industrial sector with companies such as National Lead and U.S. Rubber. The first measurement of the Dow Jones Industrial Average was 40.94, and it sagged back down close to that number at 41.22 points in 1932 during the throes of the Great Depression. The Dow reached 185 in 1929 before dropping to 41 in 1932. Forty years later the index broke 1,000, and today it is bearing down on the 8,000 mark.

When Charles H. Dow first unveiled his industrial stock average on May 26, 1896, the stock market was not highly regarded. Prudent investors bought bonds, which paid predictable amounts of interest and were backed by real machinery, factory buildings and other hard assets. Stocks, by contrast, were considered unsavory, not least because daredevil speculators, conniving Wall Street pool operators and corporate raiders did their best to stage-manage prices. Stocks moved on dubious tips and scurrilous gossip because solid information was hard to find.

Following the introduction of the 12-stock industrial average in the spring of 1896, Mr. Dow, in the autumn of that year, dropped the last non-railroad stocks in his original index, making it the 20-stock Railroad Average. The utility average came along in 1929 (more than a quarter-century after Mr. Dow's death at age 51 in 1902) and the Railroad Average was renamed the Transportation average in 1970.

At first, the average was published irregularly, but daily publication in The Wall Street Journal began on October 7, 1896. In 1916, the industrial average expanded to 20 stocks; the number was raised again, in 1928, to 30, where it remains. Also in 1928, the Journal's editors began calculating the average with a special divisor other than the number of stocks to avoid distortions when constituent companies split their shares or when one stock was substituted for another. Through habit however, this index was still identified as an "average".