The Dow Jones Industrial Average: Wall Street's Broken Thermometer

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Every evening the news reports what the Dow did, as if it were a precise reading of the American economy. The number comes from a newspaperman's pencil arithmetic. Charles Dow, a reporter, and statistician Edward Jones founded Dow Jones and Company in 1882 and ran a two-page bulletin, the Customer's Afternoon Letter, around a Wall Street that was opaque to outsiders. That letter grew into the Wall Street Journal. On May 26, 1896, Dow added up the share prices of 12 industrial stocks, divided by 12, and published the first Dow Jones Industrial Average: 40.94.

That simple method made the Dow a price-weighted index, where a company's share price matters and its actual size does not. This episode explains the Dow divisor invented to patch over stock splits, why 30 companies make a narrow sample, and why advisors steer clients toward the S&P 500. It also explains why the index still tracks the wider market, and how a committee that swaps fading firms for rising ones keeps the long-run line climbing.

Dow's first average, in 1884, tracked 11 stocks, nine of them railroads. It later became the Dow Jones Transportation Average.
The divisor is now about 0.168, so a one dollar move in a single component shifts the Dow by roughly 5.94 points.
In 2008 AIG carried one of the highest share prices in the index, and its collapse dragged the average down out of proportion to the rest.
Goldman Sachs currently holds the heaviest weighting purely because its share price is the highest, not because it is the largest company.
The Dow closed near 59 in the depths of 1932, crossed 10,000 in 1999, broke 30,000 in 2020, and passed 48,000 in 2025.

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