Matt Phillips Interviews Historian Charles Geistt: Financial Historian on The Dow as 'Cultural Icon'

Historians in the News

[Charles Geisst is a professor of finance at Manhattan College. His new book, “Collateral Damaged: The Marketing of Consumer Debt to America,” was recently published by Bloomberg Press.]

Wall Street without the Dow?

It seems to be a possibility. We know Dow Jones & Co Inc. has been sounding out potential buyers for the company’s stock-market indexing business. The Journal’s story contains this tantalizing bit:

"A new owner might have the option to rename the Dow Jones Industrial Average, bringing the 125 year-old name to a close. The broad name recognition of the index, however, will likely be a reason to keep it intact. A person familiar with the matter said that any deal will likely require that the Dow Jones name remain."

Luckily we were able to catch Charles Geisst, a professor of finance at Manhattan College and author of “Wall Street: A History,” for a chat. Here’s a condensed version of our quick interview, with some verbatim in quotes.

MarketBeat: So when the Dow was first launched — 1896 — why was it considered valuable?

Geisst: At the time, let’s say from the Civil War to the turn of the 20th Century, the stock market had been dominated by manipulation, rumor, planted news stories and so on. But with the Dow, it was no longer possible for one financial writer to say, “It was a bad day” to encourage selling, when it really a wasn’t a bad day for the markets. Because at the time, no one really had any idea. “The index at least gave a measure, a disciplined measure, of how the market was behaving, rather than just leaving it to the whim of whatever financial writer happened to be covering the story.”

MarketBeat: So was the Dow the be-all-and-end-all for investors right off the bat?

Geisst: It really started to grow in importance during and after World War I. But it was in the 1950s and early 1960s that the Dow found its place. It was a time of post-war prosperity. Memories of the crash of 1929 were finally starting to fade and with the Eisenhower rally going, the average guy on the street began to invest in stocks again. Brokers began to put ticker machines in prominent public places like New York’s Grand Central Station so people could check the markets. “It’s a cultural icon certainly by that time.” MarketBeat: When did the Dow start to see its dominance challenged? Geisst: In the late 1960s and early 1970s a couple of things happened. The concept of portfolio theory had become a lot more elaborate and finance in general was getting more scientific. Portfolio theory looked to model the way different stocks and different sectors of the market behaved when juxtaposed against eachother. At the same time, it was really at that point when professional fund managers began to rise to prominence. As they were looking to implement some of the more scientific approaches to finance, they liked to look at broader measures of the market. As a result, indexes like the S&P 500 began to rise in importance.
Read entire article at The Wall Street Journal (blog)

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