Dow 20,000 is Just a Bunch of Meaningless Media Hype!
As the Dow closes in on the 20,000 milestone, and the media goes nuts about it as if it was going to be the greatest thing since sliced bread, Mark DeCambre at MarketWatch (www.marketwatch.com) penned an article that asks the question, is reaching 20,000 really that significant?
After all, the Dow Jones Industrial Average represents only 30 stocks out of the thousands that make up the broader market. Outsized moves in any of the 30 components can have a very big effect in the overall index.
As an example, the latest surge in Goldman Sachs has contributed about a third of the Dow’s recent 1,000 point move. In addition, 1000-point moves aren’t as meaningful as they used to be.
When the Dow moved from 1,000 to 2,000 it was a 100% move, and the move from 4,000 to 5,000 was a 25% move. But a 1,000 point move from 19,000 to 20,000 represents just a 5.3% advance.
Whether Dow 20,000 will be a ceiling or another milestone remains to be seen. But in any event, this 1,000 point marker is less of a Herculean feat than ever before, as the following chart illustrates.
And this leads me to the question I always ask when someone says something like “I made $75,000 on my investments last year”.
First of all, congratulations, but more importantly did you start with $75,000 and make 100% on your money or did you start with $750,000 and make 10% on your money?
Yes, it’s still $75,000 more than you started with, but the percentage of return is the key differentiator when deciding whether it’s a big deal or not. And that’s exactly what this Dow 20,000 is all about.
Makes for great media hype, and after all, isn’t that all the media folks care about….their ratings, them being first to a story – even if it’s not a story.
We’ve had clients over the years say that they get frustrated when then watch the financial news shows.
My advice for avoiding the frustration – don’t watch it in the first place!