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Continued from...Cycles and Fundamental Laws of Wall Street
To judge from a large number of letters received
from readers of past discussions on Dow's theory of the averages, and on
panic and prosperity' cycles generally, that theory is assumed to be something
in the nature of a sure way to make money in Wall Street. It may be said
at once that it bears no resemblance to any "martingale" or system of beating
the bank. Some of the questions show more intelligence and understanding
than this, and one of them at least deserves an extended reply.
A Newspaper Man, and More"Who was Dow, and where can I read his theory?" Charles H. Dow was the founder of the Dow-Jones financial news service in New York, and founder and first editor of The Wall Street Journal. He died in December, 1902, in his fifty-second year. He was an experienced newspaper reporter, with an early training under Samuel Bowles, the great editor of the Springfield Republican. Dow was a New Englander, intelligent, self-repressed, ultra-conservative; and he knew his business. He was almost judicially cold in the consideration of any subject, whatever the fervor of discussion. It would be less than just to say that I never saw him angry; I never saw him even excited.His perfect integrity and good sense commanded the confidence of every man in Wall Street, at a time when there were few efficient newspaper men covering the financial section, and of these still fewer with any deep knowledge of finance. Dow also had the advantage of some years experience
on the floor of the Stock Exchange. It came about in a rather curious way.
The late Robert Goodbody, an Irishman, a Quaker and an honor to Wall Street,
came over from Dublin to America. As the New York Stock Exchange requires
that every member shall be an American citizen, Charles H. Dow became his
partner. During the time necessary for Robert Goodbody to naturalize, Dow
held a seat in the Stock Exchange and executed orders on the floor. When
Goodbody became an American citizen Dow withdrew from the Exchange and
returned to his more congenial newspaper work.
Dow's Caution, and His TheoryKnowing and liking Dow, with whom I worked in the last years of his life, I was often, with many of his friends, exasperated by his overconservatism. It showed itself particularly in his editorials in The Wall Street Journal, to which it is now necessary to allude because they are the only written record of Dow's theory of the price movement. He would write a strong, readable and convincing editorial, on a public question affecting finance and business, and in the last paragraph would add safeguards and saving clauses which not merely took the sting out of it but took the "wallop" out of it. In the language of the prize ring, he pulled his punches.He was almost too cautious to come out with a flat, dogmatic statement of his theory, however sound it was and however close and clear his reasoning might be. He wrote, mostly in 1901 and the first half of 1902, a number of editorials dealing with methods of stock speculation. His theory must be disinterred from those editorials, where it is illustrative and incidental and never the main subject of discussion. It is curious also that in one of his earliest statements of the price movement he makes an indefensible claim. Under the caption "Swings Within Swings," in the Review and Outlook of The Wall Street Journal of January 4, 1902, he says: "Nothing is more certain than that the market has three well defined movements which fit into each other. The first is the daily variation due to local causes and the balance of buying or selling at that particular time. The secondary movement covers a period ranging from ten days to sixty days, averaging probably between thirty and forty days. The third swing is the great move covering from four to six years."
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From The Stock Market Barometer by William P. Hamilton, published in 1922
| Charles H. Dow and his Theory | Dow and Stock Market Panic Dates |
| Dow's Account of United States Crises | Stock Market Speculation and Prediction |