March Madness and the Dow – Who Wins?
And can we see patterns from one year to the next?
Newspapers, radio, and TV news programs refer to the Dow Jones Industrial Average every day, calling it the Dow, sometimes the Dow Jones or even the DJIA. And economists and financial advisors pay close attention to its daily changes and the longer trends. But what exactly is the Dow Jones Industrial Average, does it really matter and can one see performance patterns from year to year?
A BRIEF HISTORY
The Dow Jones Industrial Average (“the Dow”) is a stock market index, used to assess movements in the market and its overall strength or weakness. It was created in 1896 by Wall Street Journal editor and co-founder of Dow Jones & Company, Charles Dow.
The Dow tracks the market performance of 30 large, American companies. Initially, the Dow had only 12 stocks and these included such golden oldies as American Cotton Oil Company, U.S. Leather Company, and Distilling & Cattle Feeding Company. In 1920, the Dow expanded to 20 stocks and then to 30 stocks in 1929.
Due to its age, the Dow Jones Industrial Average represents a continuous chart of our nation’s economic growth, along with its ups and downs. The Dow first hit 1000 in late 1972; hit 10,000 in March, 1999; and reached 17,000 in July, 2014. In January, 2017, the Dow closed above 20,000.
LET’S PLAY MARCH MADNESS WITH THE DOW
Some people think it’s a good idea to buy last year’s best Dow performers, figuring that they will continue to perform well and reward investors. Others prefer to buy last year’s worst Dow performers, thinking that their fortunes will magically reverse. So, we decided to play our own version of March Madness and rank all the companies in the Dow based on 2016 performance and then pit them against one another. So, using performance from 2016, here’s what we found:
2016’S WINNERS AND LOSERS
The Dow had a very good 2016, closing up about 13%, which was excellent given how the year started.
The best of the 30 stocks, however, climbed by more than 2 ½ times that, with Caterpillar and UnitedHealth Group both returning more than 36%! And of the 30 Dow stocks, 27 of them went up.
Let’s look at the Dow 2016 Madness winners:
Caterpillar returned 36.50%
UnitedHealth Group returned 36.00%
Goldman Sachs returned 32.90%
JP Morgan Chase returned 31.60%
Chevron returned 30.80%
The losers of the Dow 2016 Madness were:
Pfizer returned 0.60%
Visa returned 0.60%
Disney returned -0.80%
Coca-Cola returned -3.50%
Nike returned -18.70%
Compare the Dow 2016 Madness winners and losers with the winners and losers as ranked by 2015 performance:
Nike (up 31%)
McDonald’s (up 30%)
Home Depot (up 29%)
General Electric (up 28%)
Microsoft (up 23%)
The Dow 2015 Madness losers included:
Wal-Mart (down 31%)
Caterpillar (down 25%)
American Express (down 24%)
Chevron (down 20%)
United Technologies (down 16%)
See any patterns from 2015 to 2016? Because I don’t (other than Nike and Chevron saw some big swings from one year to the next).
But here is what I do know: every large, powerful company has good and bad years. And trying to determine future performance based solely on past performance is a bad idea.
So, who will the best performer for the rest of 2017? It’s anyone’s guess. Hence, the Madness.
And the reason mutual funds are so popular.
Copyright © 2017 RSW Publishing. All rights reserved.
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