The Dow Jones Industrial Average (DJINDICES:^DJI) made three big changes on May 6, 1991. That day, Disney (NYSE:DIS) became the first true production company to earn a place on the index since Paramount's removal in 1932. It replaced USX, an ill-fated combination of steel and oil companies that was removed following its decision to have shares in each subsidiary trade independently. Caterpillar (NYSE:CAT) also joined the index as its designated heavy-equipment manufacturer, replacing truck maker Navistar (NYSE:NAV), which had been part of the Dow since 1925. JPMorgan (NYSE:JPM) was also added, replacing Primerica, which had been the American Can Company until deciding to diversify into financial services.
Were the Dow's handlers right in making this swap? The numbers, which reflect two decades of growth since the day of the swap, should speak for themselves:
- Disney total gain: 410%.
- USX (as US Steel) total gain: 200%.
- Caterpillar total gain: 2,650%.
- Navistar total gain: 95%.
- JPMorgan total gain: 1,200%.
- Primerica total gain (as Travelers, acquired in 1993): 555%.
In every case, the replacement put forth double the gain of the replaced -- and in Caterpillar's case, many times more than that. And why wouldn't an investor expect outperformance?
Disney was entering the height of the Eisner era in 1991, fresh off the success of Beauty and the Beast and about to release Aladdin. Within the following decade, Disney began its phenomenally successful partnership with Pixar, bought Capital Cities/ABC, and launched its cruise line. The second decade after its Dow induction brought both Pixar and Marvel into the Disney fold. US Steel, hindered by an outdated manufacturing model and outflanked by low-cost foreign competition, was forced to separate from its more profitable oil segment in 2001.
Caterpillar was expanding internationally as much of the world entered a development boom that drove demand for its heavy industrial vehicles, which few other corporations had the scale to offer globally. In 1991, Navistar had recently divested much of its agricultural-machinery manufacturing, and despite renewed interest in diesel-engined, heavy-duty transportation during the 1990s, the company could not match Caterpillar's worldwide growth.
JPMorgan Chase has historically been one of the more conservative big banks, but it underwent a series of major mergers during the 1990s that reflect on its share price and balance sheet: Chemical Bank acquired Chase Manhattan to become Chase in 1996, and Chase acquired J.P. Morgan in 2000, adopting its present-day name. By the 20th anniversary of the Dow swap, JPMorgan was the largest bank in the U.S. by assets. Primerica -- or Travelers, rather -- also performed well but was hindered by multiple mergers, acquisitions, and divestitures that passed ownership of the Travelers name around the financial sector like a bowl of mashed potatoes at Thanksgiving. Primerica itself has only been publicly traded since 2010 following a spinoff.
Despite its recent tendency to be bought and sold like an old baseball card, Travelers has a long and storied history in (what else?) travel insurance. In fact, Travelers issued the very first air-travel insurance policy -- something that's now as easy as checking off a box when you reserve tickets online. That first air-travel policy was issued to none other than President Woodrow Wilson on May 6, 1919. He was not the first sitting president to travel by aircraft, however; that milestone came later, when President Franklin D. Roosevelt became the first sitting President to fly. FDR took a transatlantic flight to Morocco for a critical Allied Forces policy conference.
I hope they had air-travel insurance
The German passenger airship LZ 129 Hindenburg caught fire and was destroyed near Lakehurst, N.J. on May 6, 1937. There were 36 deaths (including one ground crewman) out of 97 people on board, and the event was highly publicized, with a legendary radio broadcast by Herbert Morrison coining the phrase that would mark the end of the airship era (emphasized below):
The back motors of the ship are just holding it just enough to keep it from ... It's burst into flames! Get this, Charlie; get this, Charlie! It's fire ... and it's crashing! It's crashing terrible! Oh, my! Get out of the way, please! It's burning and bursting into flames ... and it's falling on the mooring mast. And all the folks agree that this is terrible; this is the worst of the worst catastrophes in the world. ... Crashing, oh! Four or five hundred feet into the sky and ... it's a terrific crash, ladies and gentlemen. It's smoke, and it's in flames now; and the frame is crashing to the ground, not quite to the mooring mast. Oh, the humanity!
Thus were airships consigned to the dustbin of transportation history. This widely covered event, occurring only two years after the first flight of the transformative Douglas DC-3, pushed the traveling public away from slow-moving, combustible airships and toward the faster and more modern airliners entering service with Pan American Airlines and other long-haul airlines.
(Central banking) freedom!
British Chancellor of the Exchequer Gordon Brown freed the Bank of England from political control on May 6, 1997. In so doing, he enacted what the BBC described as "the most radical shake-up in the bank's 300-year history." It effectively made the Bank of England more like the U.S. Federal Reserve -- an independent central-banking entity with authority over British monetary policy, regardless of the political directive of whichever party happens to be in power. The BBC elaborated further:
Under the new regime, a monetary policy committee will be set up to decide interest rates with a view to achieving an initial inflation target of 2.5% or less. The committee will be made up of the Governor, his deputy, a new second deputy, two bank executive directors and four experts, appointed from outside the bank. It will meet monthly and each member will be entitled to one vote.
Has the Bank of England been successful in its independent era? Following enactment of the bank's independence in 1998, inflation in the U.K. was consistently below the new 2.5% target (since changed to 2%) until the end of 2006. Since that time, the Bank of England has had a difficult time coping with its mandate during one of the worst financial crises in modern times, and inflation has bounced in a range from 1% to 5% for several years. That's still quite a bit better than historical rates of inflation, which on a multicentury timeline resemble nothing quite so much as the seismographic recording of an earthquake.
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