The Dow: Then & Now

There's so much talk of the markets crashing, the Dow dropping, then rising, then dropping again. Under 9,000 today, over 9,000 tomorrow. But what do these numbers even mean? What is this "˜Dow' on which investors and the media fixate themselves? And is it really comprised of only 30 stocks?

The Dow is a market index, which is a listing of stocks that share some similar characteristic; they could belong to the same industry or they could all have similar market cap (how much a company is worth).

The Dow, the NASDAQ, and the S&P500 are the three main market indexes, providing the basic signal of how markets perform. The Dow is the most widely publicized and discussed, thus I'll follow suit.

First, some history.

The Dow Jones Industrial Average was started in 1896 by Charles Dow, the editor of the Wall Street Journal's precursor, the Customer's Afternoon Letter. Dow had a vision to create a benchmark that would project the general market conditions. Interesting to note that of the original 12 stocks of the DJIA, General Electric remains a part of the average (though it was taken out and reinstated twice). Today it is made up of 30 of the largest blue chip companies in the US that are traded on the NYSE, as selected by the editors of the Journal. The composition of the Dow changes fairly often. In fact, here's a list of the deletions and additions over the past 30 years.

936 points. So what? Even though it's called the Dow Jones Industrial AVERAGE, they don't simply add up the stock prices of the 30 companies and divide by 30. No, the average is price-weighted, meaning each stock influences the Dow in proportion to its share price. In order to account for stock splits (when a company's existing shares are divided into multiple shares making, for instance, a $100 share worth two $50 shares, which is typically done to make shares seem more affordable when a company's stock gets too high, or higher than that of other companies in the same industry) and stock dividends, they create a Dow divisor by which the sum of the 30 companies' prices is divided. That divisor is constantly changing depending on the stocks in the average, the splits and extra shares issued.

Can I buy the DJIA as if it were a stock? Well, not really. You can't buy the DJIA as if it were a security, but you can buy a Diamonds ETF, which basically gives you a small ownership of the 30 stocks in the Dow. An ETF is an Exchange-Traded Fund that puts a bunch of pieces of stock into one overarching stock. You may be more familiar with the SPDR—Standard & Poor's Depository Receipt, or Spider—which is an ETF for stocks in the S&P500. ETF's hedge your risk - if one stock does poorly, you have others to back you up. 

The Dow: Now and Then

Last week, the Dow almost crashed. Almost, but not quite - because by common definition a market crash is a 20% decline in a single day or several days. Last week, the Dow fell 18.2% or 1,874.19 points, making it the worst week in market history (prior to last week, the largest weekly percentage drop was the week ending July 22, 1933, when it fell 17%).

We saw a brief rebound, when history was made again. Monday, the Dow rose 936 points, the largest single day gain in market history. Then down again. Then back up. Then...

After the market crashed in 1929, it took twenty-five years to return to the pre-crash peak of 381.17 (late 1954). But this is not 1929. We have stronger governmental agencies to help fix the mess (The Fed has more power, and the FDIC provides deposit insurance.) We are coming down from an all-time high (14,164.53 a year ago). We acted fast and have allocated over $1 trillion (of our tax dollars) to fix this up. Despite these differences, however, history may not bode well for us.

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College Board Wants to Erase Thousands of Years From AP World History, and Teachers Aren't Happy
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One would be forgiven for thinking that the Ides of March are upon us, because Julius Caesar is being taken out once again—this time from the Advanced Placement World History exam. The College Board in charge of the AP program is planning to remove the Roman leader, and every other historical figure who lived and died prior to 1450, from high school students’ tests, The New York Times reports.

The nonprofit board recently announced that it would revise the test, beginning in 2019, to make it more manageable for teachers and students alike. The current exam covers over 10,000 years of world history, and according to the board, “no other AP course requires such an expanse of content to be covered over a single school year.”

As an alternative, the board suggested that schools offer two separate year-long courses to cover the entirety of world history, including a Pre-AP World History and Geography class focusing on the Ancient Period (before 600 BCE) up through the Postclassical Period (ending around 1450). However, as Politico points out, a pre-course for which the College Board would charge a fee "isn’t likely to be picked up by cash-strapped public schools," and high school students wouldn't be as inclined to take the pre-AP course since there would be no exam or college credit for it.

Many teachers and historians are pushing back against the proposed changes and asking the board to leave the course untouched. Much of the controversy surrounds the 1450 start date and the fact that no pre-colonial history would be tested.

“They couldn’t have picked a more Eurocentric date,” Merry E. Wiesner-Hanks, who previously helped develop AP History exams and courses, told The New York Times. “If you start in 1450, the first thing you’ll talk about in terms of Africa is the slave trade. The first thing you’ll talk about in terms of the Americas is people dying from smallpox and other things. It’s not a start date that encourages looking at the agency and creativity of people outside Europe.”

A group of teachers who attended an AP open forum in Salt Lake City also protested the changes. One Michigan educator, Tyler George, told Politico, “Students need to understand that there was a beautiful, vast, and engaging world before Europeans ‘discovered’ it.”

The board is now reportedly reconsidering its decision and may push the start date of the course back some several hundred years. Their decision will be announced in July.

[h/t The New York Times]

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North America: East or West Coast?
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