Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

Dow Jones

The Dow Jones Industrial Average

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While much of 2018 has been slow and steady, let’s remember: the Dow Jones Industrial Average slid over ten percent in two weeks, between January 26th and February 8th.  Yes, the drops can happen quickly. The old cliche still works: markets usually climb up the staircase, but take the elevator down.

It does not change our overall outlook.  Five percent drops can happen at any point in time, even without news.

Another point of note: the Dow Jones began the year at 24,922 on January 3rd. It quickly ran up in January to 26,616 and then it dropped 10%. At the moment, it stands at 26,453 – about where it was in January.

Brendan likes to use the term “lumpy” when it comes to market returns, and he’s right.  Most investors want to see their accounts move up in straight, simple lines.  But it does not work that way. In fact, it never works that way.  I’ve seen years where we make all our gains in the last two weeks of the year, I’ve seen years where we make all the gains in January and tread water the rest of the way. And I’ve seen everything in between. You just don’t know.

But what we DO know if you won’t make anything if you decide to move to the sidelines, or don’t want to participate. Because when you are investing in the market, you are (for the most part) betting on America – and betting the future of business in general.

Below is a chart of the members of the Dow Jones Industrial Average around the time I got started as a broker. Take a look at it (as our friend Josh Brown often writes “click to embiggen”).

Dow Jones Members 1985

Although we’re “betting on America” realize that many (21 of 30) companies that made up the Dow Jones in 1985 are no longer on the list.  Or (for that matter) some are no longer even around. Apple was publicly traded back then, but not a member of the Dow Jones like it is today.  Microsoft was not publicly traded until a few months later, in March 1986. There was no Amazon. No Facebook.  Other than IBM, there was not another technology company in the index.

Haha, there wasn’t even a “Verizon” back then, for that matter (it was still called Bell Atlantic and had just been carved out of AT&T the year before)!

Of equal importance, while we’re “betting on America” and betting on the future of business, look at the companies no longer in the Dow Jones.  What kind of commentary does it say about the progress we’ve made – in just thirty-three years?  We’re actually investing in the progress of commerce. 

For example:
Allied-Signal started when five chemical companies merged to form Allied in 1920.  Allied bought Bendix in the eighties, pushing them into aerospace.  Signal was actually an oil and gas company, and even owned Flying Tiger at one point.  Allied and Signal merged in 1985.  They eventually bought Honeywell and changed their name (and stock symbol) to Honeywell (HON).

American Can was one of the largest manufacturers of tin cans.  Yes, tin cans in the Dow Jones Industrial Average.  The company later changed their name to Primerica and were ultimately merged into something today we call Citicorp.   A pretty interesting trip for a tin-can company!

Still a DJIA member, 33 years later:
American Express
Chevron (also acquired Texaco)
DuPont is now DWDP
Exxon
IBM
McDonald’s
Merck
3M (Minnesota Mining and Manufacturing)
United Technologies

Investing in the market is betting on the future, betting on progress. Period.
And that comes with all the bumps and bruises, all the good days and not-so-good days, and all the draw-downs that come with investing.

 

Dow Jones Industrial Average Celebrates 119th Birthday

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Yesterday the Dow Jones Industrial Average celebrated its 119th birthday! Charles Dow and Edward Jones created the index, and it was first calculated on May 26, 1896. While the Dow Jones Industrial Average is certainly the most discussed US market index, you may be surprised to hear that it’s actually only the second oldest. Dow and Jones created the Dow Jones Transportation Average first! Tom and I discuss the Dow Jones Industrial Average’s 119 year transformation, and point out a useful tip we can take away from it on this week’s podcast.

Back in 1896, Charles Dow and Edward Jones wanted to measure the performance of the industrial sector within the overall US economy. Their solution was the Dow Jones Industrial Average, which price weighted 12 stocks into an index. This price weighted index featured stocks from major US industries like tobacco, railroads, leather, and cotton. These 12 stocks were supposed to be the barometer that measured American industry. Somebody reading this information today might be surprised to hear of the Industrial Average’s roots. Many of today’s Dow stocks have little or nothing to do with the industrial sector.

Other than longstanding General Electric, the only constant in the Dow Jones Industrial Average has been change. There have been 53 stock changes in its 119 year history. Not only the index members have changed, as we’ve also seen the number of holdings increase over time. What was initially 12 stocks became 20 for a brief period, and ultimately ended up being the 30 stock index we know today. Lately, changes to the members of the Industrial Average have occurred with pretty high frequency too. The most recent change was Apple’s addition to the index in March of this year. The index’s price weighted methodology has remained in place throughout its history. This ensures that the highest price stock in the Dow Jones Industrial Average receives the heaviest weighting, and thus the most influence.

Just as we’ve seen the Dow Jones Industrial Average grow from 12 industrially based stocks into 30 major US companies, we can see changes and adaptation take place in our own portfolios. The number of holdings you have may not remain static over time, and you may not own an individual stock or fund forever. The only constant is change, meaning everybody should be periodically reviewing their portfolio and staying abreast of any changes that may need to take place.

Hey Buy-And-Hold Investors, DJIA Is Making Changes!

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For all you buy-and-hold investors out there, we just wanted to give you a heads up.  The Dow Jones Industrial Average is making some changes for the first time since 2013.  The technology powerhouse, Apple (AAPL) will be added to the DJIA on March 19th, and AT&T (T) will be removed.

David Blitzer, chairman of the Index Committee, weighed in on the move on Indexology over the weekend.  Some important comments from Blitzer included:

“One thing that Apple isn’t likely to get by joining the Dow is a pop in its stock … Not enough buying is likely to be generated to even briefly move a stock as large as Apple.”

This move will bump the average technical score of the Dow Jones stocks only slightly, but we will have to wait and see what kind of real effect this move will have on the DJIA.

Source:

http://www.indexologyblog.com/2015/03/07/inside-the-dow-apple/ 

IBM Technical Outlook October 2014

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In this week’s Mullooly Asset Management video, Tom takes a look at the point and figure chart of IBM. IBM reported subpar earnings this morning (October 20, 2014) and also reported paying one of their competitors to take a division off their hands. Not great news. IBM is a large component of the Dow Jones Industrial Average, and its negative earnings news has put a damper on the index so far today (as of 1 pm).

As Tom mentions in the video, we get all of our point and figure charts from Dorsey Wright and Associates. If you’re interested in learning about point and figure we highly recommend you visit their website: http://www.dorseywright.com

Watch the video for an in-depth analysis from Tom. The point to take away is that before this morning’s earnings new, IBM was already in a negative trend. When stocks are in negative trends, bad things tend to happen. In addition to being in a negative trend, IBM’s chart is a sell signal. It’s displayed poor peer and market relative strength as well.

Point and figure charts help us to stack the odds in our favor when we invest. We typically look for investments in positive trends, on buy signals, that display peer and market relative strength. Is this a perfect strategy? No, but it helps us stack the odds in our favor.

Dow Jones Industrial Average: Why the Volatility So Far in 2014?

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Over the first few weeks of 2014, the market has seemingly gone down nearly every day. Looking at things a little closer, we can see that the Dow Jones Industrial Average has been sloppy so far this year. However, many of the broader markets haven’t been down like the Dow. The stocks that make up the Dow get the most headlines though, so the sloppiness in that index has created a negative perception of the market as a whole. Tom and Brendan discuss a potential reason for the volatility we’ve seen in the DJIA so far this year.

On September 23, 2013 some changes were made to the Dow Jones Industrial Average, and they’ve had an impact on the way the index has behaved since. Bank of America (BAC), Alcoa (AA), and Hewlett Packard (HPQ) were dropped from the index. They were replaced by Nike (NKE), Goldman Sachs (GS), and Visa (V). So why is this significant? This change took three of the lowest priced stocks included in the Dow, and swapped them out for three highly priced replacements.

In a price-weighted index, like the Dow Jones Industrial Average, changes of this manner are a big deal. The high prices of Nike (NKE), Goldman Sachs (GS), and Visa (V) have created more volatility in the Dow than we’ve seen in recent years.

Tom and Brendan also talk about how some other market indexes have been doing in 2014. While it may feel like the market has been down every day, that’s not really the case. The Dow Jones Industrial Average has been down 1.23% so far. However, the S&P500 is down just 0.2%. The NASDAQ is up 1.59% and the Russell 2000 is up 1.52%. The overall picture looks a little less bleak when more indexes are taken into account. A point to remember is that the Dow is a price weighted group of 30 large cap stocks. It does not define the market as a whole, and it shouldn’t be treated as if it does.

Tune into this week’s Mullooly Asset Management podcast to hear more about the Dow’s volatility so far in 2014.

*All market data quoted through close on 1/22/2014, courtesy Dorsey Wright & Associates*