Loading...
Symbols:
Authors:

The Dow Falls 226 Points: Predictably, Hysterical Headlines Follow

by: Todd Sullivan July 25, 2007 | about stocks: DIA / IYY    
Todd Sullivan

Todd Sullivan

About this author: Subscription newsletter:
Become a Contributor Submit an Article
  • Font Size:
  • Print
About 4:15 on Tuesday afternoon my Blackberry started buzzing as the end of the day emails came pouring in. They contained the words "tumbles," "plummets," "free fall" and other dramatic phrases.

My initial reaction in seeing them was to think the market collapsed and there was blood running in the street. After reading the details of a 226 point drop in the Dow Jones Average, my reaction was "are you kidding me?"

Gang, 200 points stopped being a big deal a real long time ago and a whole lot of perspective is needed here. Look at it this way, if you owned a $140 stock and it dropped $2.26 today, would you panic? That is exactly what the Dow did. A piddly little $2 drop. Now, you might be slightly annoyed at the $2 drop but if anyone ever asked you how your stock did today, would you say it "plummeted" or "collapsed" ? Me either.

We need to stop looking at the number gain and loss for the Dow and start focusing on its percentage gain or loss. As we climb higher and higher, not only are 200 point swings either up and own more insignificant, but mathematically, they are more likely. Both these scenarios diminish the importance of the event. It also stands to reason that as we climb towards 15,000 and then 20,000 (FYI, 20,000 is only 35% higher than today) not only should we expect more 200 point swings but we should logically expect the occasional 300 point swing to appear.

Again, this is really no big deal. It does makes for a snappy little headline, though, and those who live off inducing market panic for news purposes will start using colorful adjectives to describe these days. I mean, "Dow Plummets 226 Points" will attract more readers than "Dow Slips 1.6%", right?

Stop looking at the points and start following the percentages; it will save you some unnecessary angst.

Related Articles

This article has 1 comment:

  •  
    Jul 26 06:18 PM
    Mr.Sullivan, you are so right. We love mtaphors that dramatize the end of the world; they make everything so real and so serious and oh so critical, and such a load of malarky. As the numbers get bigger the swings get bigger, and so what. It isn't the swings that bother us, it is our refusal to own the truth that we don't run jack sh--. Being in the market without knowing control is a mytyh is like sailing a 50 foot schooner with no sailing lessons. You can study the market for life and if you don'tr accept the truth that over and beyond market knowledge, it will do strange things because it is run by the psyche, and the psyche defends fictions as facts until the sh-- hits the fan. If you don't like the game, get out of it!
    Reply
More Comments on DIA ยป
More by Todd Sullivan

Investment Resources
Money Management 

Research 

Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Bonds 

Dollar/Currencies 

Earnings 

Economy