Thursday, May 26, 2016

To Market, the Stock Market, to Grow a Nest Egg

May 26, 2016 is an anniversary of sorts. On this day 120 years ago (in 1896, you do not have to do the math!) the Dow Jones Industrial Average (DJIA) made its first appearance. The DJIA, a number representing a price-weighted average of stocks, allows investors to track whether the stock market is up or down over a specific time period. The DJIA initially listed 12 company stocks.

Americans today have a stake in the market. Whether individual stocks and mutual funds are invested in personal accounts, or money invested by an employer or insurance company for the employee’s future use, we count on long-term investments to fund vacations and college educations, rainy day events and retirement.

Although the financial markets received negative publicity, much of it deserved, following the dot-com bust and the Great Recession earlier this century, stock ownership provided a path to prosperity for individuals for generations, and not just in the United States. The Venetians began trading securities in the 1300s, and in the following centuries a number of European cities established exchanges. The Philadelphia Stock Exchange, established 1790, began the United States’ involvement in equity trading.

One example of a 20th century investor who believed the market a path to future security and prosperity was my Aunt Nettie.

A century ago – in the roaring 1920s - Aunt Nettie invested in AT&T stock. She was young, single, independent, hard working and smart. A lot of Americans invested in the stock market in the 1920s, many losing fortunes when the market tanked in 1929.

My aunt did not panic. She kept her stock, putting the certificates in a drawer and, for all practical purposes, forgetting about them. She reinvested dividends in additional shares.

Decades passed. Nettie married, returned to school, and always worked, eventually becoming nursing administrator of a New York City hospital.

Meanwhile AT&T survived the Depression and World War II. The company prospered as a growing middle class participated in a consumer-oriented society becoming addicted to the latest products and technological innovations.

AT&T did so well it caught the attention of federal trustbusters, forcing the company to split into smaller entities. The 1984 divestiture resulted in seven regional telephone companies dubbed baby bells, and an AT&T focused on long distance telephone service, manufacturing, and research and development.

Aunt Nettie received stock in all the new companies.

AT&T was not one of the original 12 DJIA companies (it was not publicly traded in 1896), but included in 1916 when the index expanded to 20 companies. Over the years other corporations were added, some removed, and currently the DJIA  comprises 30 companies . Other indices proliferate today, providing more financial information while at the same time confusing investors.

My aunt was one of millions of Americans willing to take a chance and invest in his/her future, and the country’s future, by buying stock in publicly held companies. Aunt Nettie left a legacy of confidence in a secure future while accepting the responsibility of planning for that future, ideas too many people do not adopt and practice today.

Happy anniversary DJIA!

FYI – General Electric is the only company of the original DJIA 12 still in existence trading under its original name.

Here are the rest of the original 12 DJIA companies and their status today:

American Cotton Oil Company - part of Unilever
American Sugar Company - became Amstar in 1970, then Domino Foods..
American Tobacco Company - Broken up in 1911.
Chicago Gas Company - part of Integrys Energy Group, Inc.
Distilling & Cattle Feeding Company - part of Lyondell Chemical Company
Laclede Gas Light Company - still in operation as The Laclede Group
National Lead Company – name changed to NL Industries 1971
North American Company - Broken Up in 1946 (not in the DJIA from 1896-1946; only in the index in 1896 and again 1928-30).
Tennessee Coal – merged with U.S. Steel 1907.
U.S. Leather Company – bankrupt in 1952.
United States Rubber Company – name changed to Uniroyal, acquired by Michelin 1990.

5 comments:

  1. Interesting history and personal story. A lot of Americans don't realize that they have a stake in the market, either directly or thru their pension or insurance plan. The investment community should not be a political football to kick around; it needs political support ... and also oversight to make sure it stays honest and above board.

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  2. I am always checking the stock market, I think mostly out of curiosity. I learned a LOT when I saw "The Big Short" about what happened to cause our recession. Thanks for this history lesson. :-)

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  3. My financial awareness needed this kick start.

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  4. Unfortunately, effective oversight has been sadly lacking. I'm not confident adequate safeguards have been instituted to adequately correct that situation. Whole swaths of our population are not educated to how the more advanced financial system works -- how they need to use it. There are quick easy answers to correcting that but not sure they're sufficiently working, so is there more that should be done to address that issue? Not all such long term investments as you describe are as successful it's important to know. That said, would like to see the capitalist system continue. What ethical lines will not be crossed in the financial and corporate worlds today?

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  5. We bailed out of stocks a few decades ago,way before the crash.Been getting puny interest rates and do not know what to do about that.We enjoyed an era of investing in bonds but when they came mature, interest rates were waaay down, so now..what to do!!?? We are extremely conservative, no stomach for risk..

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