“The great thing is knowledge; close, accurate knowledge of the company in which money is to be invested. Get the company’s reports, understand what they mean, communicate with the officers, know something of the nature of the business, and never forget that the larger the return the greater the risk.”
You could be excused for thinking that this is a quote from a noted value investor such as Benjamin Graham, or perhaps Warren Buffet. To my surprise I discovered it in one of Charles Dow’s Review & Outlook columns written August 8, 1902. This article is reproduced in the book “Dow Theory Unplugged”, edited by Laura Sether.
Incidentally this book contains the most comprehensive collection of Dow’s writings in the Wall Street Journal. This prestigious financial newspaper had grown from a two page news letter known as the Customer’s Afternoon Letter started in 1883 by the newsagency Dow, Jones & Company, which he established with the assistance of his friend Edward Jones the previous year.
On reading further I discovered that in Dow’s observations the importance of value is paramount. According to Dow devotee, E George Schaefer, his next most important consideration was the economic condition, and the third most important consideration the levels of the Industrial and Rail averages.
Dow’s columns and editorials from 1889 up until his death in later 1902 revealed a deep understanding of how Wall Street functioned, reflecting his first hand knowledge, having become a member of the New York Stock Exchange in 1885.
Dow himself did not coin the term Dow Theory, probably out of modesty; nor did he agree to distill his many observations into book form. His friend Samuel Armstrong Nelson, a reporter for the WSJ, in his book The ABC of Stock Speculation used the term Dow Theory, in publishing 15 of his editorials. Other, so called “Dow Theorists” have espoused, utilised, and added to his observations, adding their own perspective, over much of the 20th century.
Categories: History of Technical Analysis