The Original Dow Jones and Forever Investing

Happy New Year! Let’s kick things off right by uncovering a good look at what happened to some of the oldest members of the Dow Jones Index, way back in the 1890s.

The components that were part of the index in the 1890s may sound unfamiliar to some of you: Chicago Gas. American Cotton Oil. Laclede Gas. American Spirits Manufacturing. National Lead. Tennessee Coal & Iron. U.S. Leather. American Sugar.  U.S. Rubber. North American Company. American Tobacco. General Electric.

Having paid many utility bills to Laclede Gas, I’m all too aware that they are still with us. And obviously, we all know that General Electric is still with us. But still, it can be easy to take a look at lists like that and assume that nothing “lasts forever” and you need to constantly churn your portfolio.

The interesting, though, is that you if you take a hard look at the original components, the past 110-120 years tell a story of companies changing hats through renamings and mergers, but not bankruptcies. Those companies are still around and profitable, you just know them by a different name.

In the case of Chicago Gas, you will be sitting on a giant block of Integrys Energy stock right now. My research is incredibly shoddy when it comes to following the paper trails of mergers from over 100 years ago, but my back-of-the-envelope calculations trying to follow the stock splits and dividends indicate that a $1,000 investment in Chicago Gas back in the 1890s would be worth over $4.7 million today (although the figure would be lower when you adjust for dividend taxes). And when I say making a $1,000 investment back then, that is roughly the equivalent of making a $25,000 or so investment today.

As for American Cotton Oil, the company merged with “Corn Products” in 1959. Eventually, shareholders that bought and held onto American Cotton Oil would have eventually become part of the Unilever empire in 2000. Since the mid-1970s, I know those shares turned every $1,000 invested into almost $40,000 worth of Unilever stock today, but I can’t connect the dots during the 1890s through 1970s period.

Laclede Gas, which is my local utility, has had a unique history. Although they are a $1.5 billion company now, they ran into some troubles expanding into larger markets like Chicago due to interference from President Roosevelt, who was upset with some of the executives at Laclede that began to financially support Roosevelt’s one-time nemesis, Huey “Kingfish” Long of Louisiana. If Laclede executives had backed up the truck for FDR back in the 1930s, Laclede might be one of those supersized household-name utilities right now. But I digress. A $1,000 investment in Laclede in 1912 (it was in the Dow Jones originally before then, but I’m going with the traces I can find) would be a cool $20 million stake today. You would own 1.33% of the company today, and you’d be a natural gas tycoon (although those figures did not include taxation, which would be substantial, and might cut the stake down to $12-$15 million or so because it returns large chunks of its profits to shareholders as dividends, and dividends have been much higher than they are now for most of our 20th century history).

As for American Spirits Manufacturing, you’d be sitting on a giant block of Fortune Brands stock and Lyondell Basell stock (although I’m not sure whether it was a stock or cash transaction here). The numbers here were murky for me in my research, but at the very least, you’d be sitting on gobs and gobs of Fortune stock. You could hand out 100 share stock certificates every Christmas to family members, and still not deplete the wealth, given the historical performance of Fortune stock since the merger.

With National Lead, the company still exists today as NL Industries. I have no idea what the original performance there has been like, other than knowledge of the fact that it is still plugging along as a publicly traded company.

Then there is Tenessee Coal & Iron. That became part of US Steel. Without adjusting for dividends, your wealth would have increased 36,300% had you bought and held, and that is just speaking in terms of share price. With dividends, the results would be substantially better.

As for U.S. Leather, the shareholders got completely wiped out in 1905 and saw their investment turn into $0.

As for the shares of American Sugar, they got bought by Tate & Lyle in 1991 and then sold in a cash transaction to members of the Fanjul family in 2001. I do not have the numbers to tell a story on this one.

U.S. Rubber had a wild history of stock splits and wealth creation that saw shareholders witness several permutations over the course of the 20th century. It became Uniroyal in 1961, then it became part of Goodrich Tires, and then there was a buyout by Michelin. For the original shareholders, the story is that they got 100 years of continuous dividend payouts (though not always increasing) that ended with a nice stack of cash in the end when Michelin came along and opened the corporate wallet.

North American Company. This utility company would have made you rich many times over. A $100,000 investment in the North American Company back in the 1890s would make you a billionaire today. Of course, that’s like making an initial investment of $2.5 million today. The important thing is to remember that you would have increased your purchasing power by a scale of 400 without including dividends which would have been substantial for this utility company (but including inflation, while not including the effect of taxes). Again, it’s hard to trace companies for 100+ years, as the data is murky. Concrete data didn’t really begin until 1926. Anyway, the North American Company shares would be Ameren UE (my provider), Wisconsin Energy, DTE Energy, as well as Pacific Gas & Electric. A lot of utility dividends would be coming your way. As a fun historical aside, one of the spinoffs would have gone on to become Enron, but the failure there would have made you rich many times over by holding on to the other spinoffs.

American Tobacco eventually became a part of the Fortune Brands Empire, and I’m not sure how many Fortune shares you would have. Incidentally, I’m having trouble tracing General Electric back to the 1890s, which is funny because that is the company that is the most coherent of the original bunch in that it still retains its old corporate structure. I know that every $1,000 invested into GE in 1970 would be worth over $160,000 today, but I’m not sure what would have happened during the first sixty or seventy years of the compounding story.

Keep in mind that these numbers are of a very back-of-the-envelope variety. Take them with a grain of salt. The only real, cemented takeaway from this article should be that, of the old Dow components from the 1890s that I mentioned, the only shareholders that got truly wiped out were those that purchased stock in U.S. Leather. The rest of the companies renamed or merged into something that would still exist today and be returning cash to you, and in a few cases, you would have been bought out for cash along the way. The fact that the names from the 1890s are not what you see today does not mean that wealth stopped getting built, but rather, that the names got changed a bit. Buy-and-hold forever investing is not as bad as you’d think, even adjusting for the bustle of capitalism and the almost incomprehensible changes in technology over the past century.