5 ms·

I wouldn't go so far as to call it useless - anachronistic perhaps, but useless no. When the Dow was first calculated, real time market capitalization for indi

by pk3 10y ago

I wouldn't go so far as to call it useless - anachronistic perhaps, but useless no. When the Dow was first calculated, real time market capitalization for individual companies wasn't a thing. Prevailing market price was a decent enough proxy that Charles Dow could make an index of leading industrial firms out of prices (and price changes) alone. As others have pointed out, over a long enough time period the Dow Jones has a high correlation with market cap weighted indices. Its annual volatility has been about 1.5 percentage points more a year, but average returns over any reasonable holding period are barely different than, say, the S&P 500. There's an even better argument against the Dow than the price weighting though - the somewhat arbitrary company inclusions. One of the more interesting pieces of history is IBM's 40-year 'vacation' from the Dow. If IBM had stayed in for the 40 years after 1939 you could tack on another 5 figure number to today's index price.

umanwizard 10y ago
> When the Dow was first calculated, real time market capitalization for individual companies wasn't a thing How is this possible? People were buying shares without knowing what fraction of the company they represented ??
- twblalock 10y ago
  They had a good estimate, but not in real time. All of the information was delayed.
  - umanwizard 10y ago
    (As I said on the other comment) wouldn't that also apply to prices?
    - twblalock 10y ago
      Yes. It still does, actually, but on a much shorter delay. If you make a market buy order with an online broker, it will execute pretty much instantly, but the price might have fluctuated between the time you pressed the button and the time the order was filled. It usually makes little difference, but people have ended up paying a lot more than they expected on some rare occasions. This is common enough with ETFs that some brokers advise their clients to always use limit orders.
- pk3 10y ago
  More in the sense that we don't realize how spoiled we are (and how the standards have improved). I don't even have to leave this table to see the effects of share issuance or buybacks from a public company, and it's all updated in close to real time for me. It's not that you couldn't make a _pretty-reasonable_ estimate, it's just that the ecosystem is much improved and easier to roll up for the indices we follow today. The Wilshire is from the 70s and the first flavor of the S&P came 30 years after the Dow (and was 'only' 90 firms). If you read Security Analysis (first edition: 1934) you can still see some of this in action; it mentions how only some statistical services (paid!) would calculate/estimate the current number of shares outstanding.
  - kgwgk 10y ago
    I don't know what is "updated in close to real time" for you, but normally companies disclose the number of shares outstanding and details about buybacks programs once per quarter.
  - deleted 10y ago
    [deleted]
- peller 10y ago
  Probably he's referring the "real time" part. Electronic ticker tapes were invented in 1867, and were relatively prevalent by the 1870s. (The Dow was first calculated on May 26, 1896.) But even still, for average investors, most information back then would have traveled at horse, train, or steamboat speeds.
  - umanwizard 10y ago
    Okay, but wouldn't that also apply to prices?
    - peller 10y ago
      Certainly it would. I'm not exactly sure how a longer-term investor would have gone about buying stock then, but probably there was a broker in their city that had a big ticker board showing the current prices (as quickly as some kid could write them up on it as they came in from the tape). And you'd walk up to a window and place your order, and just like today, you'd actually pay whatever price your order was filled at back on the exchange's floor (well, today it's an ECN, but you get my point). Eventually, your broker would deliver physical stock certificates to you. For shorter-term or smaller transactions, bucket shops were very common. https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) There's all sorts of shenanigans that went on with those - they were more like bookies; you never actually owned the underlying securities you were speculating on. It's also worth remembering that things were vastly less regulated and insider trading/outright manipulation were very common (the SEC didn't come into existence until 1934). Good reading on this time period if you're interested: https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera...
- kgwgk 10y ago
  Do you think people buying shares now know what fraction of the company they represent?
JumpCrisscross 10y ago
> I wouldn't go so far as to call it useless At this point, it's popular art. For any purpose one might use the Dow, the S&P 500 is better.
- zeroer 10y ago
  Any purpose? What about curmudgeonly criticism?

by pk3 10y ago

umanwizard 10y ago

> When the Dow was first calculated, real time market capitalization for individual companies wasn't a thing How is this possible? People were buying shares without knowing what fraction of the company they represented ??

twblalock 10y ago
They had a good estimate, but not in real time. All of the information was delayed.
- umanwizard 10y ago
  (As I said on the other comment) wouldn't that also apply to prices?
  - twblalock 10y ago
    Yes. It still does, actually, but on a much shorter delay. If you make a market buy order with an online broker, it will execute pretty much instantly, but the price might have fluctuated between the time you pressed the button and the time the order was filled. It usually makes little difference, but people have ended up paying a lot more than they expected on some rare occasions. This is common enough with ETFs that some brokers advise their clients to always use limit orders.
pk3 10y ago
More in the sense that we don't realize how spoiled we are (and how the standards have improved). I don't even have to leave this table to see the effects of share issuance or buybacks from a public company, and it's all updated in close to real time for me. It's not that you couldn't make a _pretty-reasonable_ estimate, it's just that the ecosystem is much improved and easier to roll up for the indices we follow today. The Wilshire is from the 70s and the first flavor of the S&P came 30 years after the Dow (and was 'only' 90 firms). If you read Security Analysis (first edition: 1934) you can still see some of this in action; it mentions how only some statistical services (paid!) would calculate/estimate the current number of shares outstanding.
- kgwgk 10y ago
  I don't know what is "updated in close to real time" for you, but normally companies disclose the number of shares outstanding and details about buybacks programs once per quarter.
- deleted 10y ago
  [deleted]
peller 10y ago
Probably he's referring the "real time" part. Electronic ticker tapes were invented in 1867, and were relatively prevalent by the 1870s. (The Dow was first calculated on May 26, 1896.) But even still, for average investors, most information back then would have traveled at horse, train, or steamboat speeds.
- umanwizard 10y ago
  Okay, but wouldn't that also apply to prices?
  - peller 10y ago
    Certainly it would. I'm not exactly sure how a longer-term investor would have gone about buying stock then, but probably there was a broker in their city that had a big ticker board showing the current prices (as quickly as some kid could write them up on it as they came in from the tape). And you'd walk up to a window and place your order, and just like today, you'd actually pay whatever price your order was filled at back on the exchange's floor (well, today it's an ECN, but you get my point). Eventually, your broker would deliver physical stock certificates to you. For shorter-term or smaller transactions, bucket shops were very common. https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) There's all sorts of shenanigans that went on with those - they were more like bookies; you never actually owned the underlying securities you were speculating on. It's also worth remembering that things were vastly less regulated and insider trading/outright manipulation were very common (the SEC didn't come into existence until 1934). Good reading on this time period if you're interested: https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera...
kgwgk 10y ago
Do you think people buying shares now know what fraction of the company they represent?

JumpCrisscross 10y ago

> I wouldn't go so far as to call it useless At this point, it's popular art. For any purpose one might use the Dow, the S&P 500 is better.

zeroer 10y ago
Any purpose? What about curmudgeonly criticism?