From The Stock Market Barometer by William P. Hamilton, published in 1922

Dow Theory and any Stock Market Averages

Continued from...Wall Street of the Movies

Dow's Theory True of any Stock Market

Let us be serious, and get back to our text. The law that governs the movement of the stock market, formulated here, would be equally true of the London Stock Exchange, the Paris Bourse or even the Berlin Boerse. But we may go further. The principles underlying that law would be true if those Stock Exchanges and ours were wiped out of existence. They would come into operation again, automatically and inevitably, with the re-establishment of a free market in securities in any great Capital. So far as I know, there has not been a record corresponding to the Dow-Jones averages kept by any of the London financial publications. But the stock market there would have the same quality of forecast which the New York market has if similar data were available.

It would be possible to compile from the London Stock Exchange list two or more representative groups of stocks and show their primary, their secondary and their daily movements over the period of years covered by Wetenhall's list and the London Stock Exchange official list. An average made up of the prices of the British railroads might well confirm our own. There is in London a longer and more diversified list of industrial stocks to draw upon. The averages of the South African mining stocks in the Kaffir market, properly compiled from the first Transvaal gold rush in 1889, would have an interest all their own. They would show how gold mining tends to flourish when other industries are stagnant or even prostrated. The comparison of that average with the movement of securities held for fixed income would be highly instructive to the economist. It would demonstrate in the most vivid way the relation of the purchasing power of gold to bonds held for investment. It would prove conclusively the axiom that the price of securities held for fixed income is in inverse ratio to the cost of living, as we shall see for ourselves in a later chapter.

The Fact Without the Truth is False

It is difficult, and with many observers it has proved impossible, to regard Wall Street comprehendingly from the inside. Just as it will be shown that the market is bigger than the manipulator, bigger than all the financiers put together, so it is true that the stock market barometer is in a way bigger than the stock market itself. A modern writer, G. K. Chesterton, has said that the fact without the truth is sterile, that the fact without the truth is even false. It was not until Charles H. Dow propounded his theory of the price movement that any real attempt had been made to elicit and set forth the truth contained in the fact of the stock market. Can we make it possible for the man whose business brings him into the, midst of that whirling machinery to understand the power which moves it, and even something of the way that power is generated? Apparently the only picture which has hitherto reached the popular retina is the distorted image which we have called the Wall Street of the movies.

Homage Vice Pays to Virtue

Why does the swindling oil-stock promoter circularize his victims from some reputable address in the financial district, and use all sorts of inducements to get his stock quoted in the financial columns of reputable metropolitan newspapers? Would he do that if the public he addresses, the investor and the speculator, - the investor in embryo, - really believed that Wall Street was the sink of iniquity which the country politician depicts? If that were truly the case the shady promoter would seek other quarters. But he uses the financial district because he knows that its credit and integrity are the best in the world. Hypocrisy is the tribute which vice pays to virtue. He would have no use for a Wall Street as rotten as himself. Indeed, if the financial district were one tithe as corrupt as the demagogues who abuse it there would be no problem for them to propound. The money center of the United States would fall to pieces of its own rottenness. All this is true, and yet if the exact contrary were the case the theory of the stock-market movement would still be valid.

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From The Stock Market Barometer by William P. Hamilton, published in 1922