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How Relevant are the Dow and Dow Theory?

By Matthew Kerkhoff


It's been almost a hundred and twenty years since Charles Dow first created the Dow Jones Industrial average, commonly referred to as the Dow. Over that time the Dow has undergone a substantial transformation and now bears little resemblance to its prior form.


The Dow originally contained 12 industrial companies. Of those, the only company that remains part of the Dow is General Electric (GE). When initially formed, the Dow was truly an industrial index. All components in the Dow were intimately involved in traditional heavy industry, meaning they produced goods used in construction and manufacturing. Some examples include the American Cotton Oil Company, the American Sugar Company, the U.S. Leather Company and the United States Rubber Company.


During the 1920's the Dow was expanded to include 30 components, which has stayed the same to this day. The Dow also remains a price-weighted average, meaning each component's impact to the index ... Log in or subscribe to continue reading.

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