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 While the Dow Jones Industrial Average might be the most well known, it's not the oldest index put together by Charles Dow. That title goes to the Dow Jones Transportation index, which also plays an important role in something called the "Dow Theory."
History of the Transportation Index
In fact, the Dow Jones Transportation Index, or Average, was first put together by Charles H. Dow way back in 1884 - a good twelve years before the Dow Jones Industrials first appeared. While today's index consists of 20 member companies, the original index consisted of just nine railroads - New York Central, Chicago Milwaukee & St Paul, Chicago & North Western, Delaware Lackawanna & Western, Lake Shore, Louisville & Nashville, Missouri Pacific, Northern Pacific (preferred), and Union Pacific. The index also contained two non-rail companies - Pacific Mail Steamship and Western Union.
As was the case with General Electric and the Dow Jones Industrials, Union Pacific is the only company included in the original index that still remains there today. The fact that Charles Dow chose to create an index of transportation companies is a testament to the importance this industry played in shaping the American economy.
Of course the Transportation Index continued to evolve with the advances in transportation technologies and the growing importance of companies that not just shipped large quantities of raw materials across the United States, but also delivered packages to homeowners and businesses alike. The member companies, or components, of today's Transportation index reflect these changes.
Dow Transportation Components
As previously mentioned, the Dow Jones Transportation index includes 20 members or component companies. Each of these companies is assigned a weight that is used along with the stock's price to calculate the Transportation Index. For example, Continental Airlines has a weight of around 3%. That means that approximately 3% of the movement in the Transportation index can be explained by the stock price of Continental Airlines.
Component weightings become important when a stock is replaced in an index - an event that does not happen frequently. By using a component weight method, this allows for the replacement of a company in the index without the need to restate historical price movements. This feature adds to the overall stability and long-term usefulness of the measure. The stocks included in today's Transportation index, along with their weights appear in the following table:
Dow Jones Transportation 20 Components
| Company Name |
Weighting % |
| Alexander & Baldwin Inc. |
5.23% |
| AMR Corp. |
2.18% |
|
Burlington
Northern Santa Fe Corp. |
8.70% |
| C.H. Robinson Worldwide Inc. |
5.26% |
| Con-way Inc. |
4.26% |
| Continental Airlines Inc. Cl B |
2.84% |
| CSX Corp. |
4.33% |
| Expeditors International of Washington Inc. |
4.67% |
| FedEx Corp. |
10.07% |
| GATX Corp. |
3.77% |
| J.B. Hunt Transport Services Inc. |
2.68% |
| JetBlue Airways Corp. |
0.71% |
| Landstar System Inc. |
4.01% |
|
Norfolk
Southern Corp. |
5.32% |
| Overseas Shipholding Group Inc. |
7.58% |
| Ryder System Inc. |
4.35% |
| Southwest Airlines Co. |
1.41% |
| Union Pacific Corp. |
13.14% |
| United Parcel Service Inc. Cl B |
7.68% |
| YRC Worldwide Inc. |
1.82% |
The above weightings are as of November 2007. You can also download a spreadsheet of the Dow Jones Transportation Average for free.
Dow Transportation Link to Dow Theory
Ever since it was first introduced by Charles Dow; the Industrial Average has been used by various theorists in an attempt to predict movements in the stock market. One of these theories is called the Dow Theory.
The Dow Theory is supposedly based on the early writings of Charles Dow; however this is often disputed and interestingly the first book on the subject appeared in 1902 - the same year he died. The most common and simplified version of the theory goes something like this:
A rise in the Dow Jones Industrial Average must be "confirmed" by the Dow Jones Transportation Average in order for the rise in the market to be sustainable. This theory is based on the simple relationship that exists between "industrials" that make products and the "transportations" that ship the product. An easy to remember version is that one "makes" and the other "takes."
In reality the interaction is much more complex than it appears on the surface; however, many investors today still closely monitor the interaction of the industrial and transports. You'll often hear talk of the Dow Theory when the Industrials and Transports diverge - a situation that should raise a warning flag for stock market investors.
About the Author - Dow Jones Transportation
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