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Wednesday, 9 October 2019

Charles Henry Dow: The Man Who Created Modern Economics


The day's numbers for the Dow Jones Industrial Average are displayed on a screen at the Nasdaq MarketSite in Times Square. Source: (Photo by Drew Angerer/Getty Images)
Every time you discuss stocks and the movement of the financial market, you probably refer to the Dow Jones, or maybe even just the Dow. The Dow Jones Industrial Average is a measurement of the stock performances of the 30 largest companies listed on the U.S. stock exchange. Contrary to popular belief, Dow Jones was not the name of the person who founded this organization. It was a merger of two of the last names of the three founders of the Down Jones Industrial Average. Those three gentlemen were Charles Henry Dow, Edward Jones, and Charles Bergstresser. Let's take a look at one of these men, Charles Henry Dow. 
Charles Henry Dow was a journalist turned financial analysis whiz. Source: (meudaytrade.com)

Charles Henry Dow Was a Journalist

Charles Henry Dow was born in November 1851. Although his name is now synonymous with financial markets, he was a journalist by trade. Even without a formal education, Dow was hired as a city reporter for several newspapers in Massachusetts. He had a knack for writing local history articles in which he explained how various businesses and industries impacted the growth of the area. He published an in-depth report in 1877 on the steam transportation industry between New York and Providence that included both the history of the industry and his perspective of the future of steam navigation. This work caught the attention of his editors, who sent him on assignment to Colorado with a group of bankers and investors to report on the silver mining industry. His articles delved into capitalism, investment strategies, and financial risk-taking. 
Even in the 1880s, New York City was the country's financial center. Source: (ephermeralnewyork.wordpress.com)

A Financial Reporter

Charles Henry Dow moved to New York City in 1880. He realized that his passion was in financial reporting, and the Big Apple was the only place to be in that world. He worked for the Kiernan Wall Street Financial News Bureau, a company that compiled financial information and delivered handwritten reports to financial brokers and banks.
Dow and Edward Jones became friends and business partners. Source: (wsj.com)

Dow Meets Jones

When Charles Henry Dow's editor, John Kiernan, asked Dow to help him find another reporter to hire, Dow suggested Edward Jones. Although Jones was a college dropout, he had a keen financial mind and could quickly analyze financial reports. He also believed strongly, as did Dow, that financial and market reports needed to be fair and unbiased so as to not influence the markets. Neither Dow nor Jones could be bribed to artificially inflate a company's worth to drive up stock prices. 
The first edition of the Wall Street Journal. Source: (thenation.com)

The Wall Street Journal

Dow and Jones realized that there was a need for an additional news service in the city, so they started a news bureau called Dow Jones & Company. (Charles Bergstresser, the proverbial "Company," agreed to be a silent partner.) By November 1883, they were ready for business. They published a daily financial report that quickly became the go-to source for investor information. Six years and 50 employees later, the report became an actual newspaper, The Wall Street Journal. 
Dow created his average by closely watching the movement on Wall Street. Source: (medium.com)

The Dow Jones Industrial Average

Charles Henry Dow spent a considerable amount of time researching market movements. He created an in-depth system for analyzing market trends that involved tracking the closing stocks of a dozen companies, adding up their stock prices, and averaging the amounts to come up with a figure. He called this figure the Dow Jones Industrial Average. It was the first time that a system was put into place to make it easy for investors to see the ups and downs of market movement. Today, the Dow Jones has expanded to include the averages of 30 companies. 
Dow developed a theory to aid investors. Source: (finance.yahoo.com)

Dow and His Theory

Charles Henry Dow is also credited with developing the Dow Theory. This is the idea that there is a relationship between trends in the stock market and other financial and business activities. For example, Dow posited that if the stock market's industrial average and the railroad average both moved in the same direction, an important financial shift was happening. Though Charles Henry Dow often said that his theory should be just one of many tools that investors used, many brokers and bankers came to rely on the Dow Theory for predicting economic trends.
Dow's name is now synonymous with the financial market. Source: (money.com)

His Name Lives On



Though Charles Henry Dow died in 1902 at the age of 51, his legacy---including the Dow Theory, The Wall Street Journal, and the Dow Jones Industrial Average---continues to this day.

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