All very interesting but the author fails to discuss the survivor bias inherent in the Dow Jones Index (or any other index, for that matter). This is the results of the companies that survived. A lot of companies have dissappeared over this time, both through poor performance or going bankrupt. In fact, GE is the only company that has remained on the index since it's inception.
So unless you're buying index funds that track the DJIA, the chart loses it use. Because when we look at this, we see that the stock market always goes up with time. But what we are looking at is the fact that the 30 largest/most successful companies in the USA keep pace with inflation. Which is hardly a shock.
Note that I'm not arguing some of the authors points, I'm just encouraging an open mind when viewing graphics like this - you've got to know what you're looking for.
Keep in mind that the majority of the success and growth in the companies in the Dow happened BEFORE they were added to the index, so it isn't factored in. If holding the top 30 US companies was inherently a market-beating strategy, investing would be easy.
There is not actually survivorship bias in the DJIA, because changes to its composition are not retroactive. If an index member goes bankrupt, it will absolutely bring the index level down substantially.
That is if they are high flying one day, and bankrupt the next. What usually happens is that they slowly sink in size until they are excluded from the index, and some other up-and-coming company is included. It's not common for a company to go bankrupt and be delisted, but it is common for companies to sink lower and be removed, and then perform very badly from then on as index funds sell them down.
So you're correct in that bad performance by a firm in the DJIA will affect the index, however, really bad performance by a company will not be completely reflected in the index, only the first part of their decline. And that will be somewhat mitigated by the inclusion of their replacement, which is usually a growing company.
So unless you're buying index funds that track the DJIA, the chart loses it use. Because when we look at this, we see that the stock market always goes up with time. But what we are looking at is the fact that the 30 largest/most successful companies in the USA keep pace with inflation. Which is hardly a shock.
Note that I'm not arguing some of the authors points, I'm just encouraging an open mind when viewing graphics like this - you've got to know what you're looking for.