To be precise Rupert Murdoch's News Corp is making a bid of USD $5Bn for the ownership of the Bancroft's Dow Jones business. While this occurred a couple of months ago, News Corp has been battling accusations that the paper won't remain independent. Tomorrow the Bacroft's family will hold a meeting to discuss the latest offer by Murdoch and the very future of Dow Jones is tied to that outcome. The directors of Dow Jones are of course searching for a bidder to rival the News Corp pitch and for many reasons however no-one has come forward with an offer that puts a lid on News Corp's $60 a share.
So you are probably wondering what has any of this got to do with risk ... Well a hundred or so years ago the very reason Dow Jones existed was because of risk, perhaps today that still is still the case.
In November 1882 Charles Dow and Eddie Jones, two aspiring journalists with an analytical bent clambered into bed with a banker of that time known as Charles Bergstrasser. It certainly does sound like a precarious bunch for a brokerage publishing business but within two years they had their own hand cranked printing press and the company had so many clients they updated their brokerage news feed into an electronic news ticker which was originally referred to as 'broad tape'.
Peter Bernstein's book Capital Ideas puts it this way:
'At heart Dow was a scholar rather than a speculator. He was more interested in interpreting the history of the stock market than in devising a system for predicting its future. The world has read his interpretation otherwise.'
This journalist Mr Dow was a market publisher that contributed to the world of risk by creating the Dow Jones Averages. In its essence it consisted of closing prices grouped by company type to provide an overall measure of the performance from trading activity throughout each day on the New York Stock Exchange.
As Dow was known to put it 'The industrial market is destined to be the great speculative market of the United States' and the embodiment of a mean for daily risk taking that Dow published day in day out became the auspicious paper for traders both in and out of the United States. The approach was eventually coined Dow Theory and it attempted to explain trends in stock prices by aggregating indicator variables within the market.
Now many market risk people of today run around with Gaussian copulas and complex netting systems to explain volatility in overall trades and they are likely to see this as really quite a primitive explanation of what goes on in the market place. Yet, it was a very first publication attempt to introduce central limit theorem to investors when back then speculation printed on carbon paper was all the rage.
Some months before Dow died his analytical publication business was sold to Clarence Barron for the sum of $130,000. Barron was so proud of the business he was quoted saying 'Savings in the United States may become investments, when guided by financial knowledge' and apparently passed away holding the posts of the Dow Jones and Wall Street Journal. The business was handed down to Barrons daughter and has remained in the Bancroft family till today, well perhaps Thursday this week. A successful bid by News Corp will bring Dow Jones publications and the Wall Street Journal into the same realm as News Corp's New York Post and The Times in the UK.
One does ponder what Dow would think of such a deal if he were here today?
