The World's Wildest Market and 2 Television Milestones
On this day in economic and business history ...
The Nikkei 225 began its calculations on Sept. 7, 1950, with its "birthday" retroactively backdated to May 16, 1949. On its first day in action, the Tokyo Stock Exchange termed it the "TSE Adjusted Average Price," but the name didn't stick for long. Like its American counterpart, the Dow Jones Industrial Average , it has always been calculated by a leading Japanese financial newspaper, the Nihon Keizai Shimbun, more popularly known simply as simply Nikkei.
The Nikkei, like the Dow, is calculated on a price-weighted basis, except that in the Nikkei's case all 225 stocks are adjusted based on a presumed "par value" of 50 yen per share. In reality, higher share values still result in a larger weighting. For example, the Nikkei's largest component at the end of 2012 was Fast Retailing, which comprised 8.4% of the index based on its price of 21,840 yen at the time -- equal to about $220.
The similarities between the two indexes bound them closely enough together to rebrand the Nikkei as the "Nikkei Dow Jones Stock Average" from 1975 to 1985. However, the Nikkei does diverge from the Dow in one crucial way: In theory, it is designed to fairly represent all sectors of the Japanese economy, but in practice, more than 40% of its weighting comes from technology stocks. In contrast, the Dow derives only about 15% of its value from the tech sector, and more than half of that weighting comes from one particularly high-priced stock.
On its first official day of retroactive existence (in 1949), the Nikkei and the Dow closed at nearly identical values: The Nikkei's recorded value was 176.21, and the Dow's was 175.76. However, by the time the Nikkei was actually calculated for the first time in 1950, the two indexes had diverged markedly, and the Nikkei was reduced to 110.82 points while the Dow enjoyed the early days of its postwar bull market surge to close at 218.33 points. By 1952, however, the Nikkei regularly closed above the Dow, and it would continue to outpace its American counterpart until suffering a downturn in 1955. The Nikkei finally surged past the Dow for the long term as 1956 gave way to 1957, and it would remain in the lead for 45 years. This period is marked by one of the greatest stock market boom-and-bust cycles in world history.
From the time the Nikkei broke out above the Dow in 1956 to its all-time high in 1989, the Japanese index rose at an eye-popping annual rate of 13.8% per year for 33 straight years. The Dow, by comparison, gained a far more modest 5.3% per year during that time. At no other time in the Dow's history has it even come close to matching this performance for such a long period of time.
The only comparable period in Dow history might be the secular bull market of the baby boomers, which continued for just over 17 years and produced annual gains of 17.3% per year. On a longer time frame (from 1982 to 2013) the Dow's annual growth drops to 10.2%. Over 33 years, the difference between annual gains of 13.8% and 10.2% would earn you an additional $4,660 on an initial investment of just $100. That's a big deal, to put it mildly.
However, as you're well aware, the Nikkei's post-1989 performance has been nothing short of abysmal. The Dow finally reclaimed higher ground in 2002 after the Nikkei bubble popped in 1989 and the Japanese index went on to lose 11% of its value per year for just over 12 years running. In the two decades following its peak, the Nikkei lost 6.3% per year. The only comparable period in Dow history occurred after the Roaring '20s -- in the two decades following its 1929 peak, the Dow lost a comparatively tame 3.7% per year.
The birth of television
Technical wunderkind Philo T. Farnsworth demonstrated the first working modern television apparatus on Sept. 7, 1927. Farnsworth was then 21 and a fairly recent graduate of Brigham Young High School. That high school now proudly claims Farnsworth as its greatest alumnus and has provided the following background for Farnsworth's first demonstration:
In 1926 Philo and [his wife] Pem Farnsworth went to California and built a lab in several rooms of a second-story rental space in San Francisco, at the base of Telegraph Hill.
On September 7, 1927, Farnsworth, George Everson, and other staff members [of Farnsworth's research partnership] sat in a room as Farnsworth slowly turned on the controls of his laboratory apparatus. Cliff Gardner, in another room, placed the smoked glass slide inscribed with a single line,into the projector. Cliff directed it toward the camera tube, then rotated it.
Back in the viewing room, an unmistakable line appeared across a small bluish square of light on the end of a vacuum tube. Although fuzzy at first, it became distinct with adjustment. Through the visual static, everyone could see the black line, then watched as it was rotated in the next room. It was a line, not a triangle, as is sometimes reported. This was the first "information" transmitted by electronic television.
"There you are," Farnsworth is reported to have said, "electronic television."
The lab journal entry was more prosaic: "The received line picture was evident this time."
Three years later, Farnsworth received a patent for his groundbreaking invention, and his legacy as the creator of television was secured for all time.
Are you ready for some football ... and baseball, and basketball, and ...
ESPN, the Entertainment and Sports Programming Network, began broadcasting on Sept. 7, 1979, exactly 52 years after Philo Farnsworth first created a visual medium for sports fans. Its first broadcast, SportsCenter, was a modest beginning for what would become the most recognized brand in American sports reporting. After brief introductions, the announcers reviewed half an hour of highlights capped off with an announcement of Chris Evert's U.S. Open victory.
The network had been founded a year earlier by Bill Rasmussen. It had originally been devised as a way to broadcast regional sporting events, but the growing popularity of satellite broadcasting persuaded Rasmussen and his partners to shift gears to become the first satellite sports network. ESPN got a major boost from the 1979 NCAA basketball tournament, as there was no dedicated sports network available at the time, and many cable subscribers called their providers to request a channel with "all the basketball."
Shortly after the tournament ended, ESPN raised $15 million in financing from Getty Oil and also signed the first million-dollar advertising contract in cable TV history with Anheuser-Busch . Interest was running high in the yet-unaired network, but Rasmussen was already losing his grip on the company, as Getty executive Stuart Evey had muscled his way to control.
Under Evey's leadership, ESPN built its launch-day broadcast team and made for its first day on the air. The audience numbers were underwhelming, as only 30,000 viewers tuned in to that first SportsCenter with Lee Leonard and George Grande behind the desk. ESPN relied on Anheuser-Busch for additional funding during its first two difficult years in operation -- by the end of 1981, the Bud brewer had sunk $6 million into the network. Anheuser-Busch exec Michael Roarty later called it "the best investment we've ever made."
ESPN's broadcast partnership with the National Basketball Association, which lasted from 1982 to 1984, helped the young network finally expand its audience. At the end of this deal, Getty sold ESPN to ABC, which helped build the network into a dominant force in sports broadcasting. A major deal with the National Football League in 1987 assured ESPN's success, and the framework of this deal would last until 2006, long past the point when it had become part of the Disney empire. Today, ESPN -- which now generates roughly $10 billion in total annual revenue across all its properties -- is estimated to be worth a bit less than half of Disney's entire market cap, which is a pretty incredible figure when you consider just how diverse Disney's empire actually is.
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