How Good is The Dow Theory?
by Bill Dunbar
An excellent article on the Dow Theory appeared in the December 1984 issue of this magazine, written
by Timothy A. Maguire. The present article may be looked on as an extension of that one but since
Maguire and I are two different people, you can expect from me a different treatment and a different
The whole Dow Theory idea started from a series of editorials appearing during the years 1900-1902 in
the Wall Street Journal, written by Charles H. Dow, one of the founders of the Dow Jones Company and
the first editor of the Journal. His observations were based on the market averages that he started in 1884
with eleven stocks, which he considered to be representative of the equities world of that era.
The list included nine railroads, the real blue chips at that time and a very important segment of the
market. In 1897 the list was expanded and split into 12 Industrials and 20 railroads, and in 1928 the
Industrials were extended to include 30, the number maintained to the present. In 1970 the Rails became
the Transportation average with the inclusion of other types of carriers.