On November 24 the Dow Jones index crossed the 30 thousand point mark. Practically just a year ago, on November 15, 2019, this column gave an account of the record by crossing 28 thousand points.
As we mentioned on that occasion, “Charles Dow began to calculate his Daily average of the 12 main stocks in the industrial sector …[el 26 de] May 1896, as a complement to the Dow Jones Transportation Average, launched in 1884… In 1916, 8 shares were added and 10 more in 1928, bringing the total to 30, an amount that remains to this day. »
It has been a roller coaster ride ever since. This index reached a maximum of a little more than 5,700 units on August 1, 1929, culminating the “roaring twenties”. By June 1, 1932, it reached a floor of 820 units, beginning the Great Depression in the United States but with worldwide repercussions. It is said that this event I take advantage of Hitler to seize power and did not release it until his death, murdering millions of people with his madness. It was not until October 1959, thirty years later, that it returned to 5,700 points.
By January 1966, it exceeded 8,000 points. Presented a « sustained » fall until reaching 2,200 points for March 1982 – more than fifteen years were lost with negative returns, crossing 10,000 points beyond October 1996. The next milestone, that of 15,000 points, occurs in March of 1999 and at the end of that year it reaches 17,700 points. However, the tech bubble From the late 90’s and early 2000’s it drops to 10,900 points in 2002.
To return to the 17 thousand point levels, it took five years, in 2007 but it was back to the eight thousand 600 points in February 2009, with the 2008-2009 economic crisis. It reaches 20 thousand points in 2015 – late 14 years to double the level, and it grows to almost 29 thousand points a year ago. The pandemic did its thing with the index falling to 22 thousand points in March this year and reaching 30 thousand, eight months later.
The calculation of the Dow Jones, and the Nikkei, is different from that of the indices valued by capitalization (market price per number of shares in circulation, considering those that the large investing public could actually acquire). The Dow Jones, for historical reasons, is calculated only with prices – without considering the number of shares in circulation – divided by a factor. Higher priced stocks have a greater influence on the value of the index. For example, Apple stock, even though it is the largest capitalization company, would have less influence on the Dow than a more expensive stock of a company not as large as Apple.
What makes there so many ups and downs? To begin with, the correct concept would be to call it volatility, which is nothing more than the standard deviation of returns (not of prices or levels in the case of indices) in a given period of time. The yield would be the concept equivalent to the average. The investment theory tells us that the higher the yield, the higher the risk -volatility-. One hundred and twenty-four years support this concept.
Either the Dow or another index, they vary according to the operations carried out in the markets, that is, investors really paid to buy a share and they do so because of their future performance expectations. That’s the keyword: expectations.
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