Little Bits of History

July 8

Posted in History by patriciahysell on July 8, 2017

1932: The Dow Jones Industrial Average (DJIA) reaches its lowest point during the Great Depression. The Dow was created by the Wall Street Journal editor Charles Dow and was first calculated in 1896. Dow and his business partner, Edward Jones, brought together an index showing how 30 large publicly owned companies in the US were faring in the stock market. The average is price weighted to compensate for stock splits and other adjustments. It isn’t a true average of the thirty prices of the stocks, but is the aggregate of the thirty stocks divided by a divisor based on these compensations. This has given a more consistent value for the index. It was devised to give an indicator of the performance of the industrial sector of the market.

The thirty industries have changed 51 times in the years since The Dow was invented and General Electric has had the longest continuous presence on the list from 1907 to the present day, but it was also included in the original list, fell off, and was added back. The most recent addition came in 2015 when Apple was added. Microsoft has been part of The Dow since 1999. The Great Depression began in 1929 and most economists believe the precipitating factor was the collapse of the US Stock Market on October 29, a day known as Black Tuesday. A minority of economists believe the collapse was a symptom and not the cause of the largest worldwide depression in the 20th century.

The Roaring Twenties, the years after World War I ended, was a time of excess and wealth. Optimism gave a look into a brighter future. Many rural people abandoned their farms and moved to the cities to find a more prosperous life. The families who remained on the farms were faced with financial woes while their city cousins were wildly speculating in the markets. In the spring of 1929 there were already warnings of an impending collapse and the market and The Dow were both fluctuating. As money tightened, the economy grew tighter as well. And then the collapse came and domino effects spread the crisis around the world.

On this day, The Dow reached its lowest point, but rallied slightly before closing. At its lowest, The Dow was 40.56 and the day closed at 41.22. This was a 90% drop in the value of the index from the high point of 1929. There was panic selling due to a drop in consumption which led to lower productions and more unemployment. While the markets and economies would eventually recover and slowly inch upwards, it took nearly a decade to do so. President Roosevelt came to power during this time and his policies, along with the anticipation of the US entering World War II finally led to an economic recovery and The Dow slowly followed in its wake. Today, The Dow is over 20,000 and continues to fluctuate as do the markets worldwide.

Market forces and capitalism by themselves aren’t sufficient to ensure the common good and to limit the concentration of wealth at levels that are compatible with democratic ideals. – Thomas Piketty

Lost wealth may be replaced by industry, lost knowledge by study, lost health by temperance or medicine, but lost time is gone forever. – Samuel Smiles

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. – Warren Buffett

A business that makes nothing but money is a poor business. – Henry Ford

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