On this day in economic and financial history...
Five years ago, on Oct. 9, 2007, the Dow Jones Industrial Average (^DJI 1.22%) closed at an all-time high of 14,164.53. It was the first and only time the Dow has ever closed above 14,100 points. Exactly one year later, as the financial crisis deepened, the Dow suffered one of the worst point losses in its history, falling 679 points on Oct. 9, 2008.
The five years leading up to the Dow's all-time high saw the index nearly double in value. The five years following that peak were marked by a deep bear market and a long rebound. Five years later, the Dow is only 4% lower than its all-time high. Long-term investors know that a new record is inevitable. They only wonder when it will be reached.
The index might have been higher today had it not made several ill-timed replacements shortly after its peak. In February 2008, Altria (MO +1.76%) and Honeywell (HON 1.79%) were removed from the Dow and replaced with Bank of America (BAC 3.06%) and Chevron (CVX +3.12%). By this point, the Dow had already lost over 13% of its value from its 2007 all-time high.
Altria and Honeywell both went on to outperform the Dow since their removal, gaining 106% and 21% from the date of the change, respectively. Chevron has also outperformed, posting a 72% gain since its inclusion. However, Bank of America has been a massive weight on the index's performance and remains 76% below its price on the date of inclusion. Selecting the right stocks can make all the difference between setting new records and falling short.
Better together
Chevron had a milestone of its own on Oct. 9. The company completed its $45 billion merger with Texaco on Oct. 9, 2001, creating what was at the time the fourth-largest integrated oil company in the world. Since the merger, Chevron's stock has closed in on four-bagger territory, with net income improving a staggering 700%. Chevron is now the second-largest component of the Dow by weight, with nearly 13 times as much influence on the Dow's performance as Bank of America.
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