Yes, the Dow Jones Industrial Average (aka the Dow or the DJIA) bounced like a pogo stick today. Many people were surprised because today looked like the fourth bad session in a row for U.S. stocks. Then an artificial floor was touched, and the frenzied purported wisdom of crowds kicked in and all was right today.
You’ll also read or hear about the 800+ point swing in today’s DJIA is the third largest on record. Please remember that this huge stock swing is not adjusted for inflation. More importantly, you should know that the DJIA is one of marketing’s most enduring successes.
Today’s Dow Jones averge has little to do with the U.S. economy. The number is a formula created over one hundred years ago by Wall Street Journal co-founder Charles Dow. The Dow Jones Industrial Average has nothing to do with industry, a “divisor” or fudge factor that only people who dig finance actually understand and was created to sell more newspapers. The DJIA is now owned by News Corp (NYSE:NWS), which also owns more media properties than you can imagine, including MySpace, Fox, Harper Collins Publishing and yes, The Wall Street Journal. Along the way, the company run by Rupert Murdoch made more revenue in 2007 than Google and Yahoo combined.
And why do we care? Because the Dow Jones Industrial Average is a number calcuated by figuring out stock prices and other elements related to the stock of 30 companies — 4 of which joined the DJIA this year.
That mainstream media continues to rely on breathless reports of “The Dow” when the rival Standard & Poors 500 (aka S&P 500) reflect similar variables, but for 500 companies. It’s important that both stock indices are comprised of only American companies. Now for the part no one ever believes:
Every company reflected in the DJIA is also reflected in the S&P 500.
Sure, go check. I’ll wait. While we do that, though, stop listening to headline hungry media folks yip about the “third biggest single session gain ever”. You may now knowing chortle when reporters actually use the phrase “third best”. This is the second important issue.
These point swings are not adjusted for inflation. If you’re reading this, chances are you were around when the Dow finished above 5,000 for the first time ever just 13 years ago in 1995. The Dow stands at just over 8,000 today. The number has gone high and low, but ultimately remains the province of rubes and media who insist on spoon-feeding financial information to the masses.
Charles Dow’s invention — a scorecard, if you will — is more than 100 years old and makes international headlines decades after his death. That is a true marketing success.
But calling the Dow a financial barometer is like believing that The Dark Knight is the second highest grossing movie of all time at U.S. box offices. Yes, it is true, that yet another Batman movie created more than $500 million in revenue in 2008. Thankfully the good folks at BoxOfficeMojo.com, one of my favorite movie sites, created a chart that accounts for inflation while reporting on box office revenue.
Their data shows that The Dark Knight has finally surged ahead of The Jungle Book and Sleeping Beauty and remains in 27th place, safely behind The Lion King, Grease and Thunderball.
Charles Dow must be beaming in the cosmos whenever a media report cites The Dark Knight as the second highest grossing film ever.