THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, February 24, 1995 TAG: 9502240569
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 101 lines
As he does every business day, Don Hays drew on several stock-market measures Thursday while mapping an investment strategy.
Among his yardsticks were the Standard & Poor's 500 Index, the Value Line Arithmetic Index, and the granddaddy - the Dow Jones Industrial Average.
``The Dow is very narrow, and it's outdated, but it still has a symbolism that stands out,'' said Hays, director of investment strategy at the Richmond-based brokerage firm Wheat First Butcher Singer.
That symbolism stood out Thursday when the Dow for the first time closed above 4,000, almost four years after reaching 3,000.
The widely watched measure of stock prices climbed to 4,020.49 before closing at 4,003.33, a gain of 30.38 for the day.
``When the Dow goes through one of these numbers, it sends a little bit of celebration through your pysche,'' said Hays.
But he played down the breakthrough. In parts of the securities world, the Dow's movement beyond 4,000 was even greeted with shrugs.
``It's been a much-anticipated event, so it probably will generate a lot of yawns,'' said Richard A. Dickson, senior technical analyst at Scott & Stringfellow Inc., a Richmond-based securities firm.
Among some securities traders, the reaction will be: ``We've been waiting for this for a long time, so let's sell,'' said Dickson.
Don Chance, a finance professor at Virginia Techin Blacksburg, predicted that the Dow's advance beyond 4,000 would provoke greater interest among individual investors but wariness among investment professionals.
``I personally don't think this has much significance, except for people who don't know a lot about the market,'' Chance said. ``For those who control large amounts of money, like pension funds and mutual funds, this is not an event.''
One reason for the subdued response among market professionals is the availability of much broader measures of stock-market performance, including the Standard & Poor's 500 Index.
The S&P 500, which reflects the combined value of 500 companies in several industries, has become the most closely watched index among analysts and portfolio managers.
``In the last 10 to 12 years, there has been greater reliance on the S&P 500,'' making it the benchmark against which many portfolio managers are measured, said Scott & Stringfellow's Dickson.
Meanwhile, those analysts and investors who concentrate on the stocks of smaller, faster-growing companies focus more closely on the NASDAQ Composite Index, a measure of 5,748 stocks in the National Association of Securities Dealers' NASDAQ system.
As the stock market has grown and as professional investors attempted to track specific parts of the market, stock-market indices have proliferated. Some that are routinely used in the investment community are the S&P Mid-Cap Index; the Russell 3000; the Value Line Arithmetic Index; and the Wilshire 5000.
Hays and other analysts acknowledged that the Dow industrial average still can be useful as an indicator of where pension funds and other institutional investors are putting their money.
``When you see the Dow moving, there is big money going into those stocks,'' said Hays.
But the public's reliance on the Dow is caused more by the powerful influence of its source than by the Dow's usefulness, said Chance, the Virginia Tech professor.
``This is put out by Dow Jones,'' he noted. ``They are the premier provider of financial information, and consequently they've been able to report that average to a lot of people.''
The Dow industrial average, one of several stock-market barometers that Dow Jones & Co. compiles every business day, has roots going back to 1884. That's when Charles Dow, the first editor of The Wall Street Journal, created a stock-market average from the shares of nine railroads, one steamship line and the Western Union telegraph company.
By May 1896, Dow had put together a separate industrial average from the closing prices of a dozen other stocks.
In recent years, the roster of companies making up the Dow industrial average has been broadened to include a handful of consumer-products companies like Philip Morris Cos., Procter & Gamble Co. and McDonald's Corp.
But the majority are still metal-bending giants like Bethlehem Steel Corp., Caterpillar Inc., General Motors Corp. and Boeing Co. ILLUSTRATION: Illustrations
WHY IT'S A BIG DEAL
It's a widely watched measure of stock prices that is seen by the
public as an indicator of market health,
WHY IT'S NOT A BIG DEAL
It's so narrow - just 30 companies - that professionals look to much
broader measures of market performance.
Graphic
DETAILS ABOUT THE DOW
What the Dow is: A measure of daily closing prices for the stocks of
30 large, blue-chip American corporations.
Where the Dow came from: Evolved from a stock-market average created
in 1884 by Charles Dow, the first editor of The Wall Street Journal.
The first Dow Jones Industrial Average, consisting of the closing
prices of a dozen stocks, was published in May 1896.
by CNB