Unraveling the Dow Jones Industrial Average: History of Dow Jones & Company

While the companies listed in the DJIA have changed over the years to keep pace with the evolving economic landscape, the index's core objective remains unchanged: to provide a clear, simplified snapshot of market trends and investor sentiment. This adaptability, coupled with its longstanding history, cements the Dow Jones Industrial Average's status as a critical tool for investors around the globe. Its movements are closely watched, with rises and falls often considered indicators of broader economic shifts, influencing financial decisions across markets.

The Dow Jones has a market cap of about $11 trillion USD making it the smallest of the three major indices by market cap. The Dow also has a significantly lower number of constituents, limiting the blue-chip list to 30 different stocks that trade on both the NASDAQ and New York Stock Exchange. The word ‘industrial’ came from the original constituents being mostly industrial companies, however, over the decades the index has accommodated stocks from all different industries. Some current high profile stocks include Apple (NASDAQ:AAPL), Home Depot (NYSE:HD), JPMorgan Chase (NYSE:JPM), and Microsoft (NASDAQ:MSFT).

Price Weighted Index

The Dow Jones is a Price-Weighted Index Unlike the S&P 500 and the NASDAQ, the Dow Jones is a price-weighted index which means that the higher the price of the stock, the more it is weighted in the index. A quick example of this is if a stock is trading at $500.00, it will have a five times higher weighting in the index than a stock trading at $100.00 per share. This means that the current price of the stock is actually important to the weighting in the index than the market cap, which is generally seen as the public value of the company.

Why was a price-weighted index chosen for the Dow Jones? Most likely due to its simplicity considering there are only 30 different stocks in the index. Back in 1885 there were a lot less stocks to choose from as well, so the price-weighted decision makes sense in hindsight. While we as investors have always accepted the Dow for being unique, there are some economists and market analysts who take issue with the way the Dow is weighted. Common arguments against price-weighted indices like the Dow Jones is that the higher priced stocks have too much influence, despite being potentially smaller companies.

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Early Years: The DJIA originally consisted of 12 companies, predominantly in the industrial sector, including railroads, cotton, gas, sugar, tobacco, and oil.

Expansion to 30 Stocks: In 1928, the DJIA expanded to cover 30 stocks, which has remained its size since then, providing a broader representation of the U.S. economy's industrial sectors.

Shift from Industrials to Diversification: While initially focused on industrial companies, the index's composition has diversified over the decades to include companies from the technology, consumer goods, healthcare, financial services, and entertainment sectors. This shift reflects changes in the U.S. economy's dominant sectors.

Each change to the Dow Jones roster is indicative of broader trends, marking the ascendancy of new economic sectors and the diminishing prominence of others. Such updates to the index are carefully considered, taking into account a company's market capitalization, its role within the economy, and its ability to reflect key economic trends. Consequently, the Dow Jones Industrial Average remains a vital benchmark for investors and analysts alike, offering insights into the health and direction of the American economy.

Apple is the largest company in the world by market cap and has the highest weighted position in both the S&P 500 and the NASDAQ. In the Dow Jones, however, Apple plays a significantly smaller role and is outweighed by eighteen other stocks. Currently, the lowest weighted position in the Dow Jones is occupied by Walgreens Boots Alliance (NASDAQ:WBA) and the highest position is UnitedHealth Group (NYSE:UNH).

The history of the Dow Jones is marked by the inclusion and exclusion of companies that tell the story of American enterprise. For instance, General Electric, once a symbol of American innovation and industrial power, was removed from the index in 2018 after more than a century of inclusion. In August of 2020, three companies were changed which was the first time such a significant shuffle had been made since 2013. Leaving the Dow was Exxon Mobil (NYSE:XOM), which had been a member of the Dow for nearly a century, Raytheon Technologies (NYSE:RTX), and pharmaceutical giant Pfizer (NYSE:PFE). They were replaced by Salesforce.com (NYSE:CRM), Honeywell (NASDAQ:HON), and Amgen (NASDAQ:AMGN). While the Dow Jones is certainly more stable in its constituents, it generally lags the high growth sectors that are heavily weighted in both the S&P 500 and the NASDAQ.

This decision reflected the broader shift away from traditional industrial sectors toward technology and services. Similarly, the addition of Apple to the Dow Jones in 2015 replacing AT&T, highlighted the growing influence of consumer led software / technology in the American economy. As one of the world's largest and most successful companies, Apple's inclusion signaled a significant shift in the index's composition and exemplified how market forces can shape economic indicators.

Recent Changes

• Technological and Financial Industries Rise: In recent years, the DJIA has seen an increased presence of technology and financial companies, indicative of those sectors' growing importance in the economy. The adjustments made to the Dow Jones Industrial Average over the years serve as a historical ledger, chronicling the rise and fall of industries pivotal to the American economy. For instance, the inclusion of technology companies in recent decades reflects the sector's burgeoning influence and the shift away from traditional industrial and manufacturing businesses that once dominated the index. This evolution mirrors broader economic changes, underscored by the growth of the information technology sector and the digital revolution that has reshaped business models across the globe.


• Notable Additions: Companies like Apple Inc., Goldman Sachs, Visa, and Salesforce.com have been added to the index, replacing traditional industrial and basic materials companies. This highlights the shift towards technology and services.


• Removals Due to Mergers, Acquisitions, and Relevancy: Companies are often removed from the DJIA due to being acquired, undergoing significant business model changes, or no longer representing a substantial portion of the U.S. economy. For instance, General Electric, a founding member of the DJIA in 1896 and again from 1907 to 2018, was removed due to its reduced prominence and financial struggles.

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The composition of the DJIA is determined by the editors of The Wall Street Journal (owned by Dow Jones & Company). When considering changes, the committee looks at:

The Dogs of the Dow

You may have heard of this phrase before and wondered what it meant. The Dogs of the Dow refers to the top ten dividend yielding companies in the Dow Jones Industrial Average. Generally speaking, the higher the dividend yield, the less desirable stock is as a long-term investment. These high-yielding stocks are often referred to as dogs. In 1991, Michael B O’Higgins wrote a book called ‘Beating the Dow’, in which he outlined the Dogs of the Dow strategy. Essentially, O’Higgins argued that investors who buy a position in the ten stocks with the highest dividend yield in the Dow Jones, would significantly outperform the market.

NYSE. Many components of the Dow Jones are traded on the big exchange in NY

Ownership and Leadership

Dow Jones & Company is a subsidiary of News Corp, a global diversified media and information services company. News Corp acquired Dow Jones in 2007, integrating it into its extensive portfolio of companies operating in the realms of news, book publishing, digital real estate, cable programming, and more.

The leadership at Dow Jones has varied over the years, with CEOs overseeing the growth of its publications and digital offerings, ensuring that the company remains at the forefront of business news and information services.

Impact and Influence - Dow Jones Company

The influence of Dow Jones & Company on the financial world cannot be overstated. Through its publications and services, it provides essential information that investors, business leaders, and policymakers rely on to make informed decisions. Its commitment to journalistic integrity and quality reporting has made it a trusted source of news and analysis for more than a century.

Furthermore, the Dow Jones Industrial Average (DJIA), though not a direct product of the current Dow Jones & Company but named after one of its founders, has become one of the most watched stock indexes in the world, reflecting the economic health of the United States and influencing investment decisions globally.

In terms of historical performance, the Dow Jones has returned 4,107% since its inception back in 1885. This is better than the S&P 500, but lags the NASDAQ’s impressive 7,727% returns since it was established back in 1971. Since the Dow Jones only contains American companies, it has been widely used as a barometer of the strength of the US economy. Today, the S&P 500 has surpassed the Dow Jones as the benchmark index of American stocks, and has been adopted as the measuring stick against which annual rates of return are measured.

Dow Jones Industrial Average performance over the years. Src - Yahoo Finance

Changes in the composition of the DJIA are significant because they reflect broader economic trends and shifts in industry leadership. Additionally, inclusion in the DJIA can increase a company's visibility and attractiveness to investors.

Looking ahead, it is likely that future updates to the Dow Jones Industrial Average will continue to reflect the evolving landscape of American business. As technology continues to drive innovation and disruption in various sectors, we can expect to see more companies from this industry represented in the index. Furthermore, as the global economy becomes increasingly interconnected, it is possible that foreign companies may also be included in the Dow Jones, further expanding its reach and influence.

The Dow Jones Industrial Average is more than just a stock market index; it is a historical narrative, chronicling the rise and fall of industries, the emergence of new economic sectors, and the relentless drive of American innovation and enterprise. For investors, financial analysts, and stock market enthusiasts, it remains an indispensable tool and a symbol of the enduring strength and dynamism of the American economy.

Understanding the history and significance of the Dow Jones Industrial Average enriches our appreciation of the stock market's complexities and the economic forces that drive it. It reminds us that behind the numbers and fluctuations lie stories of human ambition, ingenuity, and the relentless pursuit of progress.