Who Cares What The Dow Did Last Week?
Posted on March 5, 2010
Filed Under Personal Investing
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.