Who Cares What The Dow Did Last Week?

Posted on March 5, 2010

Filed Under Personal Investing

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So I’m driving home this past Sunday afternoon with my radio tuned to a New York City all-news station. The hourly 5-minute business report is on, and it wraps up with the “news” that the Dow Jones Industrial Average closed up 4.23 points on Friday, and the Standard & Poor’s 500 Index gained 1.55.

Who was this “news” aimed at? And what purpose did it serve?

At the time of the radio report, the stock market had been closed for almost two full days. Anyone who cared about whether the Dow gained or lost a few points surely knew it by then.

But more importantly, giving that two day old news could easily intimidate non-investors. They would think that those numbers are terribly significant – after all, they were still being announced days after the fact, and they were given to two decimal places.  

“Why else would that smart ‘business’ reporter say them? I guess I don’t understand finance.”

But the fact is, those numbers are not important. For everyone except professional day-trader type investors, the daily close of the Dow is merely noise, a snapshot of a fleeting moment, not worthy of concern for any rational long-term investor.

Worse, the numbers are given as, well, numbers. What in the world does “up 4.23” points mean to your portfolio?  Did the Dow do better because it was up more “points” than the S&P? The only numbers that should be announced on the news programs are percent changes. Anything else is nonsensical because it is presented without context.

In this case, the Dow gained 0.04% while the S&P gained 0.02%. In both cases, the net result would be that most broadly diversified portfolios barely budged from the previous day.

This has been a pet peeve of mine for years. The fashion of announcing point gains is a remnant from the days before calculators. Today there is no excuse for telling the public raw numbers which have no relationship to their nest egg, instead of the far more useful percentage gain or loss.

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COMMENTS

  • Ken Salzman

    I agree, and would go one step further. Reporting the latest “move” of the statistics again only serves those who have been diligently following the numbers on a daily basis. “The Dow gained 2.3%” is even still not relevant if I don’t know where it has been. The casual listener needs to know the actual Dow number as well, to compare with the last time they noticed the number. If the Dow two weeks ago was 10,870 and today “gained 7.5%”, I know nothing, really. I know more if it says, “…gained 7.5% to a close of 10,212″. NOW I know things have been going not so well in the Dow. Even then, the best interpretations are the long-term ones. The hoorah and cheering over the fabulous wonderful super fantastic gains in the market from 2005-2008 were not all that great given that they were just recovering lost ground from the 2000-2005 losses. All of which begs Ken’s original question: “For whom are these numbers being reported?”