In the mid-1970s, while attending graduate school at the University of Chicago, Warren Schmalenberger asked himself why no index had ever been devised that would measure the overall value of the U.S. capital markets. Equity indices—as exemplified by the well-known Dow Jones and Standard & Poor's indices—were immediately recognizable and broadly accepted. But no one was tracking bonds or money market investments - much less the total value of U.S. capital markets.

As Mr. Schmalenberger considered this possibility, he became convinced that a capital markets index would have value not only among the professional investment community, but also among individual investors.

In the ensuing years, Mr. Schmalenberger gave additional thought to the idea, even as he was building a career in the financial-services industry. Several new and innovative indexes were developed and launched during this period, and creative variations such as exchange-traded funds (ETFs) and index mutual fund gained huge popularity among investors. However, a capital markets index was not among those developed.

In 1995, Mr. Schmalenberger founded Dorchester Capital Management Co. in Houston. By that time, bond indexes were firmly established within the fixed-income markets, but there was still no index tracking liquidity, the total value of the U.S. capital markets or the asset allocation among equities, bonds and money market instruments.

He continued to believe that a capital markets index made sense—both intellectually and from a commercial standpoint. He also believed—and subsequent research would validate his conviction—that there would be strong market demand for a more-sophisticated measure of the performance of the entire capital market, an improved measure of risk-reward ratios, and better tools with which to make asset-allocation and investment decisions.

The process of building the Capital Markets Index, known as CPMKTS, thus was under way.

The index-building process has been an enormous task and Dorchester has, over the past six years, collected more than four terabytes of historical data—including government statistics and market changes—which now are stored in the company's computers (two systems in Houston and a redundant system in Chicago). Each day, an additional 200 million pieces of new information—from various industry and government sources—are added.

The data is organized, processed and updated every 15 seconds, using Dorchester's patent-pending, rules-based methods, to formulate the index. This statistical selection removes the subjectivity associated with other indexes and more accurately represents the history, mix and behavior of the capital markets.

As with any successful new endeavor, it takes many people working together to achieve something extra special. We have been fortunate to have over thirty world class professionals working to bring CPMKTS to market including IT architects, website design and programming consultants, mathematicians, statisticians, auditors, system collocation experts, patent and trademark counsel, marketing research and advertising agencies, and public and financial relations consultants, along with many dedicated personal friends and family members. Mr. Schmalenberger has built up the breadth and depth of Dorchester's management team by adding Paul Stockton and Jay Smyre as partners.

Mr. Stockton is a highly experienced executive with a broad and diverse background comprising research, marketing, sales, general management and consulting for global market leaders. He worked for more than 22 years at IBM, and also held research positions at General Electric and DuPont. Mr. Smyre is an accomplished sales and marketing executive, with extensive experience in leading consumer packaged goods companies. Prior to joining Dorchester, he held numerous positions with Unilever, The Coca-Cola Company and Twin Laboratories.

Mr. Schmalenberger believes the following four factors allowed Dorchester to be the first to bring CPMKTS to market:

"We believe the CPMKTS index has compelling commercial potential as it presents immediate and enduring new-product opportunities for a wide variety of market participants," Mr. Schmalenberger states. "There are several logical users, including the professional investment community—such as brokers, fund managers, traders and exchanges. We also expect it will appeal to individual investors, academic and research institutions and even government institutions."

Going forward, Dorchester's strategy begins with a successful launch of the domestic U.S. index. The company's plans are to follow the successful launch in the U.S. with similar products for Asia and Europe. Dorchester also is engaged in developing "custom" indexes and tools for private use.