Charles H. Dow

Charles H. Dow (Nov. 6, 1851 - Dec. 4, 1902) developed his famous market philosophy while living a colorful life as a newspaper reporter, financial writer, broker, analyst, and editor.Born in Sterling, Connecticut, in 1851, the son of a farmer, little can be found regarding his early life and schooling. However, by 1872, Dow began to blossom out at the age of 21 as a promising newspaper reporter for The Springfield Daily Republican of Springfield, Massachusetts. It is interesting to note that this leading New England newspaper was edited by the spectacular Samuel Bowles who was well known and famous for his writing in this country and throughout Europe. No doubt, since Dow was only 21, this great editor strongly influenced young Dow, a budding newspaperman. From 1875 to 1879, Dow continued his newspaper work in Providence, Rhode Island. Here he soon became known as an outstanding reporter for another leading newspaper, The Providence Journal. Once again, a famous newspaperman, George W. Danielson, was editor. In those days, the greatness of newspapermen was measured by their style of writing and the appeal it had to the public. All writers worked to follow or to improve the pattern of literary expression set by the masters of the profession. It is assumed that Dow did the same. By the time, he was 27, he had the good fortune to have served under two of the nation's best known and most highly respected newspaper editors, and, no doubt, they did much to guide the upcoming Dow into the bright future which was in store for him. We will never know whether or not Dow planned to get this unusual training he received as a young reporter. By 1879, the fabulous mining boom in and around Leadville, Colorado, was on. It seemed that just about anyone in those days could go into the mountains in this area with a pick & shovel and become a millionaire almost overnight. The town had mushroomed in its growth from one lonesome cabin on the side of a mountain nearby to a thriving mining center of some 20,000 people in just a few years. Many newsworthy events were taking place in Leadville. Several New England newspapers felt that they should obtain more detailed information. In a united effort in this direction, they selected Dow to make a trip to Leadville. This trip, made in the summer of 1879, became a turning point in Dow's career. His writings from then on were to become more and more financial in nature. Being the most qualified reporter sent by some highly respected newspapers in the East, Dow gained admittance to the inner chambers of some important financial people, and it wasn't long before he became nationally known for his financial writings. In 1880, he moved to Wall Street as an experienced mining analyst and talented newspaper reporter. Tall and fully bearded at the age of 29, he joined the financial staff of the Kiernan News Agency. There he became acquainted with Edward D. Jones, and in 1882, Dow and Jones established the Dow Jones & Company, which operated as a financial news agency for a number of years, and later, in 1889, began publishing The Wall Street Journal, which was destined to become the largest financial newsgathering agency in the world. Another chapter in Dow's broad financial experience came in late 1885 when he became a member of the New York Stock Exchange. He became a partner of Goodbody, Glynn & Dow at that time, and acted as the firm's floor broker for a number of years. Six years later the firm's name was changed to Robert L. Goodbody & Co. Dow had severed his connections with the firm. With The Wall Street Journal now in its second year, Dow devoted his attention to it entirely. In the years that followed, until his death in 1902, Dow became the nation's leading financial writer in the eyes of many investors as editor of The Wall Street Journal. He was regarded as a seasoned, intelligent financial observer with a keen ability to judge human nature. Dow came up through the ranks with an excellent training in journalism, a wide experience in the field with financial affairs, a membership in the New York Stock Exchange, and editor of The Wall Street Journal, his own enterprise, which was to grow and grow for many decades after his death. This record of achievement against huge odds is to be noted. Dow was a self-made man and had to blaze his own trail in the business of analyzing market trends for investors. He had practically no market statistics to rely on, as we have today. His varied experiences, his seasoned insight into the psychology of investors, his close financial contacts during 22 years on Wall Street, and his patience and determination to get at the truth in his financial writing remain the backbone of his market philosophy. It was during these 22 years that Dow gained valuable knowledge of price movements and their relationship to the outlook for the overall economy. Here he could observe at first hand the full turn of a business cycle - and its effect upon stocks - from bottom to top to bottom again. This history tells us he recorded many facts and figures diligently, as a student of the market, so he could analyze how individual issues and groups of stocks reacted to business conditions and to other economic news. These were the days of unhampered manipulation on the floor of the Stock Exchange, masterminded by such operators as Jay Gould, James R. Keene, and "Bet-a-million" Gates, who got his nickname by wagering which raindrop would roll to the bottom of a train window first. The writings of Dow from 1899 to 1902 still amaze market students today. For example, Charles H. Dow once wrote that an investor

"...who will study values and market conditions, and then exercise enough patience for six men, will be likely to make money in stocks."
Penned some sixty years ago, this thought provoking observation is as important today as ever before. Dow knew that time itself had produced large fortunes for those who studied the market, had the temperament to buy low when a primary bull market was in its early stages, when good values were available, and held on patiently as a major bull market progressed upward over the years. Jay Gould, whose speculative forays into the stock market had amassed millions, was among them. Dow, who knew Gould well, and is reported to have enjoyed his confidences as much as any newspaperman of the period, wrote that the goateed New York plunger based his position primarily on "values" at times when the market's primary trend pointed higher. “Then," added Gould, "I exercise great patience in awaiting results." Dow correctly observed from his experience on the New York Stock Exchange that even the manipulation which then prevailed had little effect upon the long-term price movements of stocks, because the overall "primary" movement represented actions based on the sum total of all knowledge available to Wall Street. He noted that the movement of the market reflected either bullishness or bearishness as far ahead as the clearest vision in Wall Street could collectively see. These views were expressed time and time again in his editorials in “The Wall Street Journal." Dow's philosophy of investing has been described as “fundamental, axiomatic, sensible, and self-evident." He often said,

“that nobody in the world knew everything-but, that the price movement of the averages did because they represent the aggregate knowledge of all investors."
He was the first to observe that:

“the price trend is not saying what the condition of business is today, but what it will be months from now."
By the time of his death, Dow had lived through three financial crises in this country-1873, 1884, and 1893, and during the same period, he saw a booming United States economy outdistance every other country in the world in steel production, railway mileage and manufactured products. His broad financial experience plus the vast amount of information on business and economic conditions in this country and the rest of the world that passed over his desk daily as editor of The Wall Street Journal was the background from which now was able to draw and develop his concepts. It helped him form the basic elements of a market philosophy, which in the past six decades, has been studied, followed, or imitated more than any other forecasting technique ever devised. Dow logically reasoned that before guess could be formulated as to the expected direction of the majority of stock prices, it was necessary to decide whether the market was, at any given time, "high," "low," or somewhere "in between." But at this time, there was no real way to tell. You could look at the record of two or three stocks and form a subjective judgment. But your conclusions might be erroneous if, as well might happen, the two or three stocks you chose were not truly representative of market forces at that time. Union Pacific might be selling at a three-year high, but before you could judge the price level of "rail stocks" as a whole, in historical perspective, you would have to consider the price movements of a considerable number of representative issues. The more issues you included-and the more years you went back-the better you could view the "market" in its proper perspective. Because it would have been time-consuming for the average person to make such an analysis, investors generally relied on the memories and opinions of their brokers. Brokers, in turn, did not always agree on the state of the market as a whole. The investment business was characterized by a good deal of confusion, as there was no authoritative, published measure of the movement of stock prices. Charles Dow satisfied a widespread craving for such a measure when he formulated a statistical set of averages that was to become known as the "Dow Jones Averages." There is evidence that Dow experimented with various types of averages for many years. One article published in the early years of The Wall Street Journal implies that he had worked with an average of 60 rail stocks as far back as 1872. The first issue of The Wall Street Journal appeared on July 8, 1889 and it contained an average of 12 stocks with a discussion suggesting that Dow had been carrying this average forward from 1884, at least. The original Industrial and Rail Averages appeared in The Wall Street Journal on October 8, 1896. The Industrial Average was composed of 12 stocks and the Rail Average contained 20. Although the Industrial Average has been enlarged to 30 stocks and many changes have taken place in the make-up of both averages over the years, these averages have been published in The Wall Street Journal regularly since then. A third average, the Utility Average, composed of 15 utility stocks, was initiated in 1929. Dow apparently had no intention of formulating a system or theory of any sort when he invented his averages. After he had constructed them, however, he gave them careful study to see if conclusions could be drawn or if any sort of a pattern emerged from their behavior. He often commented upon the developments that took place in his averages, and, as a rule, he correlated these findings with the economic situation and mass psychology among investors. His findings soon began to exceed his wildest expectations, and later amaze those of his followers who were to continue and refine Dow's concepts. Dow never sat down to record all the principles of his Dow Theory in a single book or article. Instead, we must look to his whole collection of editorials from 1899 to 1902 to find his perceptive interpretations of the price movement, which form the background for what we regard as the Dow Theory today. One of Dow's close friends and associates-Samuel A. Nelson- publisher of five books on the stock market did attempt to persuade Dow to write a book on his investment ideas, but his efforts were to no avail. Consequently, even before Dow's death in late 1902, Nelson undertook the work of gathering material for the book, which he believed Dow should have written. Nelson spent many long hours digging through the "morgue" of The Wall Street Journal seeking out what he believed to be Dow's most informative and interpretive stock market editorials. Nelson's fifth and last book, The ABC of Stock Speculation published in 1903, gave voice to many principles of trading and contained a number of Dow's editorials, which he labeled as "Dow's Theory." The following excerpt is from Kenneth L. Fisher's book - One Hundred Minds That Made the Markets Charles Dow is one of Wall Street’s most significant legends for two very significant reasons- he created our financial bible, The Wall Street Journal (WSJ), as well as our first market barometer, the Dow Jones Averages. He is also the father of technical analysis. Ironically, Dow went relatively unnoticed for his achievements and died quietly at the age of 51 in his modest Brooklyn apartment in 1902---years before he was credited with revolutionizing the way we now talk about the stock market.