As optimism over the post-pandemic U.S. economic recovery drove the investment narrative heading into the Memorial Day weekend, it may behoove us to remember that May 26th marked the 125th year anniversary of the Dow Jones Industrial Average (DJIA). For the first time on May 26th 1896, the Dow made up of just 12 companies, closed at 40.94. The ride, since then, to ~34,000 has been nothing short of astronomical.
Created by Charles Dow, the editor of the Wall Street Journal, the index expanded to 30 companies in 1928 and has remained at that level although many companies have been added and dropped from the index since 1928. However, the value of DJIA has since grown with the US economy climbing above 100 in 1906, topping 1000 in 1972 and crossing 10000 in 1999 posting an average return of 7.69% since its inception.
While much of the attention of investors, more recently, has been on the S&P 500 and the Nasdaq, the DJIA continues to be a bellwether indicator for the stock market and the economy as a whole.
Future Wealth’s View
One cannot but be in awe of the creation of the DJIA and the wealth that it has produced to millions of investors since its inception. Until the second half of the 20th century, access to stock trading was extremely limited to a select few. Once the doors opened to the masses, wealth creation has enabled millions of investors to a quality of life that would not have been possible without the appreciation of the DJIA.
Can you imagine being curtailed to bank savings and CDs versus investing in the stock market? The returns would be orders of magnitude lower which in turn would have curtailed the lifestyle and expenses that go with it. While we can lament that we didn’t have the good fortune to be at the receiving end of $1,000 or $10,000 worth of stock in the DJIA companies from our fathers and grandfathers bought during their lifetimes which would be worth a lot of money now, it would behoove us to ensure that our children and grandchildren don’t have the same regret.
In 2017, Warren Buffett predicted that he expects the DJIA to hit 1 million while immediately confessing that he doesn’t expect to be around to take a victory lap on his prediction. It took the Dow 49 years to go from 1000 in 1972 to 34,000 in 2021. While it is impractical to expect a similar appreciation in the next 49 years that will put the Dow at 1,156,000 by 2070, the fundamental notion of a 1 million DJIA cannot be questioned. Unfortunately, many of us along with Warren Buffett won’t be around to see it.