By Bernard F. Pettingill, Jr. Ph.D. and Nils Westerlund, DPT
Buy the Dow-Jones Industrial Average in 2008- Here’s Why
The Dow Jones Industrial Average (Dow) made its debut on May 26, 1896, highlighting 12 “smokestack” companies. Smokestack companies were stocks of railroads, namely Chicago and Northwestern, Delaware, Lackawanna and Western, Louisville and Nashville, New York Central, Northern Pacific, Union Pacific, and Missouri Pacific.
One can research the history of the Dow by decade and immediately a number of observations become obvious. For example, a review of Table 1 indicates that between 1881 and 2006, the Dow Jones Industrial Average has increased 78 times versus decreasing 48 times. More importantly, the individual years of each decade tell a story unique to the positive or negative nature of the overall yields on the Dow; for example, the fifth year and the eighth year each decade are indeed remarkable. Except for the current decade 2001-2010, the Dow has increased every single year of each decade during the fifth year of that decade. Also, the eighth year of each decade has increased ten times and dropped only twice.
On the other hand, the seventh year of every decade is a tossup, increasing six times and dropping six times historically. Despite the fact that the Dow is up 8.6% for the year 2007, there is a 50-50 chance that it will end up by year end. In fact, overall, the index has dropped 3.28% over the years that the Dow has been measured in each of the seventh years of each decade.
Another observation involves the trend of the Dow, based on which president is transitioning into or already established in the Oval Office. Recent trends dating to the election of President John F. Kennedy indicate that some of the worst years of the Dow include President Nixon’s White House tenure; some of the best years include the years when Kennedy, Reagan, Clinton and George W. Bush occupied the Oval Office. Regardless of whether a Democrat or Republican has occupied the Oval Office, the increase or decrease in the Dow has remained nebulous. It is too early to tell what the fate of the current president may reveal with respect to his two terms in the White House.
However, the most significant observation regarding the Dow is that in each and every year in which there was a presidential election (except 1948 – down 2.1%), with no exception, dating to 1881, the Dow has risen. This would indicate that in the year 2008, the Dow should rise as usual, consistent with the fact that since1881, the Dow has risen 10 out of 12 decades and with the election in 2008, the Dow is certain to end the year on a positive note.
In the eighth year of each decade, the Dow has experienced a significant increase in the average rate of return, i.e. 18.55%. This compares favorably with the rise in the Dow during the fifth year of each decade, i.e. a yield of 28.31%.
As the table indicates, the eighth year of each decade in which an election took place, there was a definite increase in the Dow, i.e. between the years 1881-1890, 1901-1910, 1911-1920,1921-1930, 1931-1940,1961-1970 and finally 1981-1990.
Someone interested in investing in the Dow should wait until the year 2008 to benefit from its customary high rates a return, namely 18.55% and near certainty that during the election year, the Dow should end on a positive note.
Anyone who missed the chance to purchase the Dow in the year 2005, benefited from the fact that in that one single year, 2005, the Dow dropped for the first time in over a hundred and twenty years. Indeed, the fifth year of every decade is, by far, the best year in which to invest in the Dow. In 12 decades, the Dow has risen 11 times during the fifth year of each decade and declined only once. To repeat, the overall percentage increase per fifth year of each decade has been 28.31%.
Indeed, an election year, falling in the eighth year of this decade, with either a Democrat or a Republican gaining the presidency, it is a sure bet that the Dow will soar.
This and other relevant information is available online from the Dow Jones Company website @DJIA.com.