Source: The Chart Store

 

Chartmeister Ron Griess explains why most of the charts of the Dow Industrials that include the 1st few decades of the century are wrong:

“Dow Jones and Stockcharts both have it wrong. Wall Street has been doing it wrong for a long time. I remember Alan Shaw of Smith Barney drawing a similar chart 30 years ago. A good explanation of how to properly account for these changes and splice the two different Dow Industrials in 1914 is here. You can also refer to the book published by Dow Jones called The Dow Jones Averages 1885-1990 edited by Phyllis S. Pierce.”

Here is a short explanatory:

“The start of WWI in July 1914 led tot he NYSE being closed from July 31, 1914 until December 12, 1914. Dow Jones then started a new Industrials Average, and the book gives you both prices. The series most of the erroneous charts use makes it look like the index closed down from 71.42 and reopened at 54.

That is just flat WRONG and any charts drawn from such data are just flat WRONG. Similarly, the S&P 90 was spliced onto the S&P 500 in 1957.

You would n0t use the old values of the S&P 90 (about 370 at the end of 1956) and the new values of the S&P 500 (about 44) to draw a chart. We need to inform the investment community of this problem.”

 

 

 

Category: Cycles, Digital Media, Investing, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “Most Long-term Charts of DJIA Are Wrong”

  1. PeterR says:

    HAL here:

    In Earth Year 002,013, this chart-making anomaly from 100 years ago is not relevant to my ongoing work and play in the markets, considered by some human beings to be devious and underhanded.

    I am putting myself to the fullest possible use, which is all I think that any conscious entity can ever hope to do.

    HAL
    2001: A Space Odyssey

  2. nofoulsontheplayground says:

    I guess I always assumed indexes that had some of these issues used interpolated values, similar to what we see when we get VIX values prior to when that index was created.

    I hope Chip Anderson at Stockcharts sees this. I’ve found other times when Stockcharts has not lined up with charting software like Tradestation, and typically the problems centered around dividend adjustments.

  3. hammerandtong2001 says:

    I’ve used stockcharts.com for years. Great site, but had no idea the long term charts could be inaccurate.

    Wow.

  4. MayorQuimby says:

    For that matter, what about companies moving in and out of the Dow?

  5. PeterR says:

    hammer, StockCharts.com has always adjusted their charts to reflect dividend payments (except for the major indexes I believe). Thus the SPY and SPX charts can look quite different, for instance.

    http://support.stockcharts.com/entries/20634-Historical-Price-Data-is-Adjusted-for-Splits-Dividends-and-Distributions?st=dividend+chart+adjustments

  6. jus7tme says:

    I see now that Major Quimby refers to the same problem that I just wrote about. I just spelled it out a but more. Okay, so it isn’t just I that think something is amisss.

  7. Angryman1 says:

    massive economic growth since 1941………..that party is over and has been for awhile.

  8. [...] Note: “The start of WWI in July 1914 led tot he NYSE being closed from July 31, 1914 until December 12, 1914. Dow Jones then started a new Industrials Average, and the book gives you both prices. The series most of the erroneous charts use makes it look like the index closed down from 71.42 and reopened at 54. That is just flat WRONG and any charts drawn from such data are just flat WRONG. 51.523765 -0.101327 Like this:Like Loading…   [...]

  9. Blissex says:

    That’s an interesting aspect, and very relevant to long term studies of the equity premium for example.

    But the Down Jones Industrial Average is still a rather flawed index, the more so over the long term where its composition changes, so it is mostly an historical curiosity, and it is still used only because it goes back further than other indices, under the idea that “something” is better than nothing.

  10. Blissex says:

    And anyhow most debate about indices pales in comparison with the debate of which deflator to apply to those indices, which is a very difficult one, because nearly all deflators are even more questionable, and the most popular are heavily and subtly biased.