The All-Time-High In The Dow Jones Industrial Average Is A Hoax

Tyler Durden's picture

Authored by Wim Grommen ( @DowDivisor30 ), via The Burning Platform blog,

The Dow Jones Industrial Average (DJIA) Index is the only stock market index that covers both the second and the third industrial revolution. Calculating share indexes such as the Dow Jones Industrial Average and showing this index in a historical graph is a useful way to show which phase the industrial revolution is in. Changes in the DJIA shares basket, changes in the formula and stock splits during the take-off phase and acceleration phase of industrial revolutions are perfect transition-indicators. The similarities of these indicators during the last two revolutions are fascinating, but also a reason for concern. In fact the graph of the DJIA is a classic example of fictional truth, a hoax.


Every production phase, civilization or other human invention goes through a so called transformation process. Transitions are social transformation processes that cover at least one generation. In this article I will use one such transition to demonstrate the position of our present civilization and its possible effect on stock exchange rates.

A transition has the following characteristics:

  • it involves a structural change of civilization or a complex subsystem of our civilization
  • it shows technological, economical, ecological, socio cultural and institutional changes at different levels that influence and enhance each other
  • it is the result of slow changes (changes in supplies) and fast dynamics (flows)

A transition process is not fixed from the start because during the transition processes will adapt to the new situation. A transition is not dogmatic.

Four transition phases

In general transitions can be seen to go through the S curve and we can distinguish four phases (see fig. 1):

  • a pre development phase of a dynamic balance in which the present status does not visibly change
  • a take off phase in which the process of change starts because of changes in the system
  • an acceleration phase in which visible structural changes take place through an accumulation of socio cultural, economical, ecological and institutional changes influencing each other; in this phase we see collective learning processes, diffusion and processes of embedding
  • a stabilization phase in which the speed of sociological change slows down and a new dynamic balance is achieved through learning

A product life cycle also goes through an S curve. In that case there is a fifth phase:

  • the degeneration phase in which cost rises because of over capacity and the producer will finally withdraw from the market.

Figure 1. The S curve of a transition
Four phases in a transition best visualized by means of an S curve:
Pre-development, Take-off, Acceleration, Stabilization.

When we look back into the past we see three transitions, also called industrial revolutions, taking place with far-reaching effect :

  1. The first industrial revolution (1780 until circa 1850); the steam engine
  2. The second industrial revolution (1870 until circa 1930); electricity, oil and the car
  3. The third industrial revolution (1950 until ….); computer and microprocessor

Dow Jones Industrial Average (DJIA)

The Dow Index was first published in 1896 when it consisted of just 12 constituents and was a simple price average index in which the sum total value of the shares of the 12 constituents were simply divided by 12. As such those shares with the highest prices had the greatest influence on the movements of the index as a whole. In 1916 the Dow 12 became the Dow 20 with four companies being removed from the original twelve and twelve new companies being added. In October, 1928 the Dow 20 became the Dow 30 but the calculation of the index was changed to be the sum of the value of the shares of the 30 constituents divided by what is known as the Dow Divisor.

While the inclusion of the Dow Divisor may have seemed totally straightforward it was – and still is – anything but! Why so? Because every time the number of, or specific constituent, companies change in the index any comparison of the new index value with the old index value is impossible to make with any validity whatsoever. It is like comparing the taste of a cocktail of fruits when the number of different fruits and their distinctive flavours – keep changing. Let me explain the aforementioned as it relates to the Dow.

The False Appreciation of the Dow Explained

On the other hand, companies in the take-off or acceleration phase are added to the index. This greatly increases the chances that the index will always continue to advance rather than decline. In fact, the manner in which the Dow index is maintained actually creates a kind of pyramid scheme! All goes well as long as companies are added that are in their take-off or acceleration phase in place of companies in their stabilization or degeneration phase.

On October 1st, 1928, when the Dow was enlarged to 30 constituents, the calculation formula for the index was changed to take into account the fact that the shares of companies in the Index split on occasion. It was determined that, to allow the value of the Index to remain constant, the sum total of the share values of the 30 constituent companies would be divided by 16.67 ( called the Dow Divisor) as opposed to the previous 30.

On October 1st, 1928 the sum value of the shares of the 30 constituents of the Dow 30 was $3,984 which was then divided by 16.67 rather than 30 thereby generating an index value of 239 (3984 divided by 16.67) instead of 132.8 (3984 divided by 30) representing an increase of 80% overnight!! This action had the affect of putting dramatically more importance on the absolute dollar changes of those shares with the greatest price changes. But it didn’t stop there!

On September, 1929 the Dow divisor was adjusted yet again. This time it was reduced even further down to 10.47 as a way of better accounting for the change in the deletion and addition of constituents back in October, 1928 which, in effect, increased the October 1st, 1928 index value to 380.5 from the original 132.8 for a paper increase of 186.5%!!! From September, 1929 onwards (at least for a while) this “adjustment” had the affect – and I repeat myself – of putting even that much more importance on the absolute dollar changes of those shares with the greatest changes.

How the Dow Divisor Contributed to the Crash of ‘29

From the above analyses/explanation it is evident that the dramatic “adjustments” to the Dow Divisor (coupled with the addition/deletion of constituent companies according to which transition phase they were in) were major contributors to the dramatic increase in the Dow from 1920 until October 1929 and the following dramatic decrease in the Dow 30 from then until 1932 notwithstanding the economic conditions of the time as well.

Dow Jones Industrial Index is a Hoax

In many graphs the y-axis is a fixed unit, such as kg, meter, liter or euro. In the graphs showing the stock exchange values, this also seems to be the case because the unit shows a number of points. However, this is far from true! An index point is not a fixed unit in time and does not have any historical significance. An index is calculated on the basis of a set of shares. Every index has its own formula and the formula gives the number of points of the index. Unfortunately many people attach a lot of value to these graphs which are, however, very deceptive.

An index is calculated on the basis of a set of shares. Every index has its own formula and the formula results in the number of points of the index. However, this set of shares changes regularly. For a new period the value is based on a different set of shares. It is very strange that these different sets of shares are represented as the same unit. In less than ten years twelve of the thirty companies (i.e. 40%) in the Dow Jones were replaced. Over a period of sixteen years, twenty companies were replaced, a figure of 67%. This meant that over a very short period we were left comparing a basket of today’s apples with a basket of yesterday’s pears.

Even more disturbing is the fact that with every change in the set of shares used to calculate the number of points, the formula also changes. This is done because the index, which is the result of two different sets of shares at the moment the set is changed, must be the same for both sets at that point in time. The index graphs must be continuous lines. For example, the Dow Jones is calculated by adding the shares and dividing the result by a number. Because of changes in the set of shares and the splitting of shares the divider changes continuously. At the moment the divider is 0.15571590501117 but in 1985 this number was higher than 1. An index point in two periods of time is therefore calculated in different ways:

Dow1985 = (x1 + x2 +..+x30) / 1

Dow2014 = (x1 + x2 +.. + x30) / 0.15571590501117

In the 1990s many shares were split. To make sure the result of the calculation remained the same both the number of shares and the divider changed. An increase in share value of 1 dollar of the set of shares in 2014 results is 6.4 times more points than in 1985. The fact that in the 1990s many shares were split is probably the cause of the exponential growth of the Dow Jones index. At the moment the Dow is at 16,437 points. If we used the 1985 formula it would be at 2,559 points.

The most remarkable characteristic is of course the constantly changing set of shares. Generally speaking, the companies that are removed from the set are in a stabilization or degeneration phase. Companies in a take off phase or acceleration phase are added to the set. This greatly increases the chance that the index will rise rather than go down. This is obvious, especially when this is done during the acceleration phase of a transition. From 1980 onward 7 ICT companies (3M, AT&T, Cisco, HP, IBM, Intel, Microsoft), the engines of the latest revolution and 5 financial institutions, which always play an important role in every transition, were added to the Dow Jones.

Changes in the Dow, stock splits, and the value of the Dow Divisor after the market crash of 1929

Figure 2 Exchange rates of Dow Jones during the latest two industrial revolutions. During the last few years the rate increases have accelerated enormously.

Overview from 1997 : 20 winners in – 20 losers out, a figure of 67%

September 23, 2013: Hewlett – Packard Co., Bank of America Inc. and Alcoa Inc. will replaced by Goldman Sachs Group Inc., Nike Inc. and Visa Inc.?Alcoa has dropped from $40 in 2007 to $8.08. Hewlett- Packard Co. has dropped from $50 in 2010 to $22.36.


Bank of America has dropped from $50 in 2007 to $14.48.?But Goldman Sachs Group Inc., Nike Inc. and Visa Inc. have risen 25%, 27% and 18% respectively in 2013.


September 20, 2012: UnitedHealth Group Inc. (UNH) replaces Kraft Foods Inc.?Kraft Foods Inc. was split into two companies and was therefore deemed less representative so no longer suitable for the Dow. The share value of UnitedHealth Group Inc. had risen for two years before inclusion in the Dow by 53%.


June 8, 2009: Cisco and Travelers replaced Citigroup and General Motors.? Citigroup and General Motors have received billions of dollars of U.S. government money to survive and were not representative of the Dow.


September 22, 2008: Kraft Foods Inc. replaced American International Group. ?American International Group was replaced after the decision of the government to take a 79.9% stake in the insurance giant. AIG was narrowly saved from destruction by an emergency loan from the Fed.


February 19, 2008: Bank of America Corp. and Chevron Corp. replaced Altria Group Inc. and Honeywell International.?Altria was split into two companies and was deemed no longer suitable for the Dow.? Honeywell was removed from the Dow because the role of industrial companies in the U.S. stock market in the recent years had declined and Honeywell had the smallest sales and profits among the participants in the Dow.


April 8, 2004: Verizon Communications Inc., American International Group Inc. and Pfizer Inc. replace AT & T Corp., Eastman Kodak Co. and International Paper.?AIG shares had increased over 387% in the previous decade and Pfizer had an increase of more than 675& behind it. Shares of AT & T and Kodak, on the other hand, had decreases of more than 40% in the past decade and were therefore removed from the Dow.


November 1, 1999: Microsoft Corporation, Intel Corporation, SBC Communications and Home Depot Incorporated replaced Chevron Corporation, Goodyear Tire & Rubber Company, Union Carbide Corporation and Sears Roebuck.


March 17, 1997: Travelers Group, Hewlett-Packard Company, Johnson & Johnson and Wal-Mart Stores Incorporated replaced Westinghouse Electric Corporation, Texaco Incorporated, Bethlehem Steel Corporation and Woolworth Corporation.

Real truth and fictional truth

Is the number of points that the Dow Jones now gives us a truth or a fictional truth? ?If a fictional truth then the number of points now says absolutely nothing about the state that the economy or society is in when compared to the past. In that case a better guide would be to look at the number of people in society that use food stamps today – That is the real truth

Wim Grommen is a guest contributor to, “A site/sight for sore eyes and inquisitive minds”, and, “It’s all about MONEY” of which Lorimer Wilson is editor.

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So Close's picture

So you are saying it is rigged?

clooney_art's picture

Yup, it's rigged but people keep getting richer. Rich get richer. There is no stopping this hoax.

max2205's picture

Dont listen to these guys....just buy the new highs

Battleaxe's picture

Yeah, don't listen to the naysayers. Without the DOW how would we know that the economy is so good when it appears so bad first-hand?

SAT 800's picture

This is an excellent example of "rigged". Psychological manipulation of people by a fraudulent and on going deliberate over-valuation of an "accepted index". Obviously, it should not be an accepted index; but to the delight of the manufacturers of mass opinon; it is.

Kirk2NCC1701's picture

It's "rigged" insofar you got the "400 Club":  The Club of the year's richest 400 Families in the US. 

Being 401 doesn't cut it.  There tends to be a lot of "frothiness" (year to year change) in the 300-400 range, not so much in the sub-300 range.  The Top 40 are tight as ticks, in spite of occasional and PR-driven pretenses to the contrary.

myne's picture

Time for ZH to do an "all ordinaries" index for the USA.

Or is there already one?

DavidC's picture

In this instance, not rigged, but certainly manipulated.


FredFlintstone's picture

So right after US industry cratered in the 1970's (and never recovered), the Industrial average took off to the moon?

NoDebt's picture

It's not an industrial average at all.  Hasn't been for a long time.  It's chock-full of tech and finance (including our beloved Golman Sachs).  Probably half the companies have NOTHING to do with manufacturing physical products.

The word "Industrial" is still in the name because.... well, tradition, basically.

SAT 800's picture

Not tradition; psychology. Human beings know instinctively that manufacturing involves value added; the name "Industrial" is treasured by the professional psychologists who advise the opinion manufacturers.

old naughty's picture

"...took off to the moon"

why stop there?

Sokhmate's picture

Cuz we only landed on the moon. Keeping with Fictional Troof an' all.

NoDebt's picture

Never thought about it that way, but yeah, you could be right about that.

sessinpo's picture

NoDebt        It's not an industrial average at all.  Hasn't been for a long time.  It's chock-full of tech and finance (including our beloved Golman Sachs).  Probably half the companies have NOTHING to do with manufacturing physical products.

The word "Industrial" is still in the name because.... well, tradition, basically.


Which definition of industrial are you using?

1. of, pertaining to, of the nature of, or resulting from industry: industrial production; industrial waste.
2. having many and highly developed industries: an industrial nation.  
3. engaged in an industry or industries: industrial workers.
4. of or pertaining to the workers in industries: industrial training.
5. used in industry: industrial diamonds: industrial fabrics.
Wrong. One can be industrial without being manufacturing physical products. The most basic term I think they use is the companies that are most active or prominent at the time. Thus the index changes as the economy changes from say agriculture to manufacturing and then to information. Those changes to the index to create an upward bias, which is what they want. It looks better and encourages trading (for better or worse.)
fonzannoon's picture

I bet the fed would love to use food stamps as the index. They could stop worrying about rigging it because it is going parabolic on it's own.

Newsboy's picture

Shrinking denominator...



cowdiddly's picture

Not to mention their is only one company that is on it that is still industrial. Caterpiller, and its screwed with the price supression of mining metals. speaks volumes. Time to export some more of those likes and twitters.

And they still sell the idea that this is where to rotate your money when you want to seek safety or in a slowdown. Looks like a bunch of Nasdaq has beens in tech bubble to me.

sessinpo's picture

cowdiddly     Not to mention their is only one company that is on it that is still industrial. Caterpiller, and its screwed with the price supression of mining metals. speaks volumes. Time to export some more of those likes and twitters.


So if you are out mowing your yard, cleaning up your house, washing your car, doing repairs and maintenance on all you own, while your neighbors let their stuff decay to shit. Do you not realize you can be described as being more industrial? What are you producing? My point is there is more then one definition of industrial that so far 99% of the post on here miss.

Caviar Emptor's picture

Tim Geithner regrets: In new book, says U.S. should have done more to save Lehman Brothers and help homeowners.

I Write Code's picture

As if while in office he ever expressed a thought of his own, or that anyone would have listened to him if he did.  Of course that's exactly why he was selected.  That and his being Jewish, Obama loves putting Jews in any position involving finance. 

Fred Hayek's picture

So, I guess that book will be on sale at

Unknown Poster's picture

The fantasy stock team keeps changing, I can accept that. Times change. I've got grey hair and used to drive truck. In 2009-10 I had some CDs mature and felt the new yields were a ripoff, so I called a representative of the wall street casino. They gave me the speil about stocks going up 7-8% annually, on average. Apparently that wasn't totally true. Not to mention a buck doesn't buy much anymore.

SAT 800's picture

If you've been in the market since 2010; you've done okay; now all you have to do is get out. Right Now. Out; 100% out. then you will have done alright over the last four years and you can go into Silver which will be very good in the next four years.

Unknown Poster's picture

I didn't know shit when i jumped in, but after I started I figured I should learn something about it. I found ZH shortly after and been reading it ever since. Most of it is over my head, but I try.

My PMs used to be exclusively brass and lead, but I've diversified.

SAT 800's picture

Good for you; I had no way of knowing. I respect anyone who is learning and doing new things.

quasimodo's picture

I heard the same thing about silver four years ago, and unless you bought low and sold sub 50, it's all pops and buzzes from here pal

StychoKiller's picture

Do some searches on "Single Premium Deferred Annuity" and "Tax Lien Certificates"

kchrisc's picture

The Dow Jones Winston Smith Average.

I Write Code's picture

It's a silly article, or at least it just berates the obvious.

I still like the Dow as an index. 

cooky puss's picture

And what about that as an index?

That's the US population on foodstamp, 45.6 million as of the end of 2011.

Bear in mind Goldman Sachs is cashing in on that:

Have a nice day sir.

IronShield's picture

Yeah, and as long as we see articles like this, the market continues up.

How's that saying go?  Oh yeah, "the market can be irrational far longer than you can remain solvent."

mvsjcl's picture

Market? Doesn't exist. A real market is the last thing the manipulators want.

intric8's picture

The occasional flash crash also serves its purpose of alienating muppets from full participiation in the game.

Another thing i notice is that its like the market doesnt even need sheeple cash to drive equity prices up anymore. Something seems screwy about what drives price dynamics these days. No?

slightlyskeptical's picture

This article is retarded. The index changes and shares outstanding must be accounted for.  If Apple starts at $500 splits 4 times for an equivelant value of $31.25. Then Apple should only get $31.25 towards the index?

DDM, the Dow 30 ETf,  is at all time highs, unless of course you don't want to count reinvested dividends. Just about all mutual funds are at all time highs or have been in the last few months before the momo crash and small growth (related) crash.

 "If we used the 1985 formula it would be at 2,559 points."

No if we used the 1985 formula all the stock prices in the calculation would be higher by about 5-6 times.

The sad thing is that people will read this and believe it. Stupid motherfuckers. Hate the system but don't don't let the hate change the facts.

Edited to add (and to be mean): maybe a position over at Ultracoin would be a better fit than building a name on a completely fraudulent set of facts.

Citizen Keynes's picture

You were on the right track with your first sentence.


Outstanding shares are NOT accounted for in the dow, why do you think a $700 Apple is not in it?

slightlyskeptical's picture

No the divisor accounts for the outstanding shares otherwise there would be no need for a divisor. Which all makes it much more of a market cap based index than this article would want you to believe. The proof is in the money invested long term in the market. Values have never been higher. Are you saying that my brokerage statements, account values and fund prices are all just an illusion as well?

I really thought there would be more critical thinking on this website.

Citizen Keynes's picture

Only The Dow is fiction. The individual stock prices are fact, and should be adjusted for number of shares outstnding. The Dow does not. And some brokerages only use the FREE FLOAT of shares outstanding to calculate Indexes, not TOTAL SHS OUT. 


This is not an argument, its an awakening, check it out yourself.  

SmackDaddy's picture

you sum kinda abstract talkin nu yawk faggot. my dick will be real when youre choking on it.

NoDebt's picture

The problem with the DJIA has nothing to do with the divisor number.  It's completely irrelevant.  It's just used to keep the number from changing every time there is a stock split or a change in which companies are included in it.  In the modern era of index funds and ETFs, it would be unworkable.

The real problems with it are:

1.  It's price-weighted index (companies with higher share prices have a larger effect on the number, without respect to their market capitalization size) and....

2.  It's an actively managed index.  Who decides which companies are kept in the magic circle of 30 and which ones are put out to pasture?  Anyone, Bueller?  Bueller?  (S&P Dow Jones Indicies, owned by McGraw Hill Financial)

No index is perfect.  How about the NASDAQ?  It's weighted by market capitalization.  Which means Apple tosses it around like a rag doll.

As "statistically irrelevant" as the Dow is, it still tracks like .95 correlation with the S&P 500.  So go figure.

Citizen Keynes's picture

It is also adjusted for dividends.  Paid and GONE those dividends, yet the divisor calculates TODAY's average.



NoDebt's picture

It is not adjusted for dividends.  Just share price.

Citizen Keynes's picture

See WSJ they publish the weekly divisor. But that's the least of it. If each Dow stock went up $1 the index would rise by 192 pts. Calculate that for the S&P 500.

The point is, they didn't have CALCULATORS when the Dow was devised, let alone computerz that could calculate capitalizations for 500 stocks.



I'm kinda agreeing w/you, sorta.

NoDebt's picture

Link doesn't work.

For all it's shortcomings, it still tracks very closely with other more statisticially sophisticated averages.  

mvsjcl's picture

Which doesn't legitimize it, but rather calls into questions all the other "statisticially sophisticated averages."

Citizen Keynes's picture

Absolutely BRILLIANT!  The DOW Industrial Index IS a hoax, and for more mathematical reasons than the author listed. Interesting is his 1929 construct theory, yet he does not say anything about the period following. 

IF you were to list the 12 Companies comprising the Dow in 1929, and then compared that list to the 1945 list (when the Dow finally made a new high), you would see that most of the 1945 list was different from 1929.

Many companies from 1929 their stocks went to $0.00 because they went BK, kaput, out of business. Yet The Dow replaced the defunct stocks with new names, and a phoenix was born.

There is so much wrong with the 1-share computation vs. total capitalization of S&P500, I don't know where to start. If The dow weren't able to replace busted stocks, it would be at a fraction of where it is today.

PS- Putting Microsoft and Cisco in at their tops is hardly proof of being able to identify a "takeoff or acceleration" style stock. And letting BAC and AA stay in until they make their lows is equally ridiculous.


Great Post! I can't wait to read all the comments.



TN Jed's picture

That's my biggest gripe with Dow:Gold ratio talkers. What exactly are they comparing? It's like someone retelling a joke and forgetting the punchline.

SAT 800's picture

Exactly; it's completely absurd to discuss the history of the DOW-JONES prices. I refuse to look at charts like that; understanding as you do is a good ways towards understanding how manipulated our opinions are intended to be.

More_sellers_than_buyers's picture

Enough... hey barry, your wife is hanging a sign. bring back our girls.  Let me tell you waht dickface. If i was president >>>id have the full force of American might shoved up these Boku fukwads ass.  I would never admit to it publicly... I would le the word go out.... Free the girls, and put the rest of the fuckers on a plane to crimea. Really fucker???? the most powerfull country on the face of the planet since rome and your wife says hashtsag bring our girls back? fuck you you limp piece of shit