The Dow Jones Industrial Average
Brian Trumbore
President/Editor, StocksandNews.com

[The following is compiled from pieces previously posted in 1999.]

On April 8, American International Group, Pfizer, and Verizon Communications replaced AT&T, Eastman Kodak and International Paper in the Dow Jones Industrial Average. These are the first changes since November 1, 1999, when Microsoft, Intel, Home Depot and SBC Communications were added, replacing Chevron, Goodyear, Union Carbide and Sears Roebuck.

But let's take a look at the history of the Dow Jones itself. The index is named after two folks, Charles Dow, a journalist who co-founded Dow Jones & Co. in 1882, along with his partner Edward Jones. The two later decided to convert an afternoon newsletter, titled "Customer's Afternoon Letter," into a full- fledged newspaper, The Wall Street Journal, that commenced publication on July 8, 1889.

One other individual, though, gets the shaft when it comes to the history of Dow Jones & Co., Charles Bergstresser. It was Bergstresser who bankrolled the cash-starved Dow and Jones, beginning in 1882. Bergstresser was not interested in working for the two, but he was a silent partner. The three thought about a few names; Dow, Jones, and Bergstresser. Berger, Dow and Jones. But they agreed these were too long and the trio settled on Dow Jones & Company. Bergstresser thus missed out on having his name somewhere when the Dow Jones Average was introduced in 1896.

Bergstresser was born in 1859, a Pennsylvania Dutchman. After graduating from Lafayette College in 1881, he moved to New York City and took a job covering the stock market as a reporter for the Kiernan News Agency.

In a 1996 article for the Journal, Vanessa O'Connell writes about Bergstresser and these times.

"Stocky with thick-lens glasses, Mr. Bergstresser easily won the confidence of Wall Street executives who were his news sources, and he wowed his colleagues early on in his career by landing an interview with the great financier John Pierpont Morgan Sr. A pugnacious reporter, Mr. Bergstresser had a knack for getting bigwigs to spill details of their deals. 'He could make a wooden Indian talk - and tell the truth,' Edward Jones used to say."

At the time, both Dow and Jones were working for Kiernan as well. The two of them were looking to start their own news agency when "Buggy" (his nickname) heard of their plans. He wanted in. It was within 3 months (July 1882) that the Customer's Afternoon Letter was first published from a basement next to the New York Stock Exchange.

Bergstresser's savings were the seed money. Professor Richard J. Stillman, author of a book on the DJIA, said that Buggy was "the driving financial force behind the company during its formative years." When Dow Jones & Co. turned its newsletter into a full-fledged paper in 1889, it was Bergstresser who dubbed it The Wall Street Journal. Incidentally, the Journal sold for two cents back then and had four pages of text.

And what of Edward Jones? While Charles Dow was known to be a rather calm, albeit tough journalist, Jones was a hot- tempered sort and the more visible of the two. He wrote and edited the bulletins while spending his nights looking for tips at the watering holes frequented by his racy friends, the wheelerdealers of Wall Street. Stillman writes of Jones that he was "excitable, emotional and you never knew when he might explode" in profanity.

It was Dow who eventually grew uncomfortable with Mr. Jones's circle of friends and both Dow and Bergstresser disapproved of his outbursts in the newsroom. Jones gradually felt estranged from his two partners. In 1899, he left the Journal for the glitter of Wall Street. But, no, sports fans, this Edward Jones has nothing to do with the present-day brokerage firm of the same name, Edward D. Jones & Co. That was an entirely different man.

As for the Dow Jones Average itself, it was introduced on May 26, 1896. Dow felt strongly that he needed to provide a way for outsiders to view the market. Wall Street types were welcome to use it, but they were not his chief concern.

Back then the investment market of choice was bonds. Investors liked securities backed by real machinery, factories and other hard assets and liked the predictability of income that bonds offered, as well as the specific dates of maturity when their principle would be returned.

Stocks were a different animal; dividends paid less frequently, prices fluctuating up and down, and no guarantee of getting one's money back. The stock market was where the robber barons operated, staging raids on each other, ripping up established companies and manipulating share prices.

Dow devised his average to make sense of the confusion. He actually started back in 1884 with an index of 11 stocks, most of them railroads, then the biggest companies in America. "Industrial" companies were deemed highly speculative at this time but gradually over the next 12 years he perceived the sector to be the emerging place to invest and he introduced it to his readers. ["Industrials" really meant all companies that were not railroads or utilities.]

So in May 1896, Dow's original average became the 20-stock railroad average (renamed transportation average in 1970). [The utility average came along in 1929.]

The first stocks in the actual Dow Jones, May 1896:

American Cotton Oil
American Sugar
American Tobacco
Chicago Gas
Distilling & Cattle Feeding
General Electric
Laclede Gas
National Lead
North America
Tennessee Coal & Iron
U.S. Leather pfd.
U.S. Rubber

There were a slew of changes to the index in the early years, a few being:

U.S. Cordage replaced North America. U.S. Cordage was then replaced by Standard Rope & Twine, all in 1896.

Pacific Mail Steamship replaced U.S. Rubber.

Peoples Gas replaced Chicago Gas.

U.S. Rubber replaced G.E. in September 1898. [True, but all the stories you see today say that G.E. is the only original member of the Dow Jones. Also true, but for the record G.E. was replaced a number of times.]

The Dow Jones Average expanded to 30 issues on October 1, 1928.

Sources: "The Dow Jones Averages" John Prestbo; The Wall Street Journal - various articles, including one by Vanessa O'Connell.

Brian Trumbore

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