an automated electronic market that began in 1971, has become the ex-
change of choice for technology companies. The Nasdaq index measures
the performance of such large technology firms as Microsoft, Intel, Cisco
Systems, Google, and Apple.
The rise of the Nasdaq did not go unnoticed at Dow Jones. In 1999,
for the first time in over 100 years, Dow Jones ventured off the Big Board,
as the New York exchange is called, and selected two Nasdaq stocks—Mi-
crosoft and Intel—to join its venerable list. Here’s the story of these three
very different indexes with three unique reflections of the stock market.
THE DOW JONES AVERAGES
Charles Dow, one of the founders of Dow Jones & Co. that also publishes
theWall Street Journal, created the Dow Jones averages in the late nine-
teenth century. On February 16, 1885, he began publishing a daily aver-
age of 12 stocks (10 railroads and 2 industrials) that represented active
and highly capitalized stocks. Four years later, Dow published a daily
average based on 20 stocks—18 railroads and 2 industrials.
As industrial and manufacturing firms succeeded railroads in im-
portance, the Dow Jones Industrial Average was created on May 26,
1896, from the 12 stocks shown in Table 3-1. The old index created in
1889 was reconstituted and renamed the Rail Average on October 26,
- In 1916, the Industrial Average was increased to 20 stocks, and in
1928 the number was expanded to 30. The Rail Average, whose name
was changed in 1970 to the Transportation Average, is composed of 20
stocks, as it has been for over a century.
The early Dow stocks were centered on commodities: cotton, sugar,
tobacco, lead, leather, rubber, and so on. Six of the 12 companies have
survived in much the same form, but only one—General Electric, which
in the summer of 2007 boasted the second-highest market value on U.S.
exchanges—has retained both its membership in the Dow Industrials
and its original name.^1
Almost all of the original Dow stocks thrived as large and success-
ful firms, even if they did not remain in the index (see the chapter ap-
pendix for details). The only exception was U.S. Leather Corp., which
was liquidated in the 1950s. Shareholders received $1.50 plus one share
of Keta Oil & Gas, a firm acquired earlier. But in 1955, the president,
Lowell Birrell, who later fled to Brazil to escape U.S. authorities, looted
38 PART 1 The Verdict of History
(^1) Chicago Gas Company, an original member of the 12 Dow stocks, became Peoples Energy, Inc.,
and was a member of the Dow Utilities Average until May 1997.