| It's amazing to me how I can get so worked up about something and then realize that it ALWAYS turns out to be nothing. I have effectively avoided the numbers listed next to the Dow, S & P 500, and the NASDAQ because I assumed that they were used to define some complex formula. When I found out what those numbers were…I was embarrassed. I found myself asking, "That's it? That's all it is?" So, let's look at exactly what that "it" is.
Since today is Tuesday, May 9, 2000 as I am writing this, I'm going to use the market indicators from today to hopefully explain these concepts. Please note that these figures change daily, hourly, minutely, and for those that lean towards the obsessive/compulsive camp…no doubt secondly, as well.
In essence, these numbers fluctuate from the time the big bell is rung every morning at 9:30 on Wall Street until the end of the trading day - at the sound of the bell again at precisely 4:00.
Remember to adjust your time zones for these hours. I'm in the Southwest, so when it's 9:30 in the morning in New York, it is only 7:30 here in New Mexico, Mountain Standard Time.
Let's start with the biggie…the granddaddy of them all: the Dow Jones Industrial Average (affectionately referred to as "the Dow.") Just a brief reminder first - the Dow is an indicator of the overall market based on 30 blue chip stocks. Check BUYandHOLD main page for a refresher definition of the Dow, NASDAQ, and S&P 500 at http://www.buyandhold.com. The index number that is listed next to the Dow started off in the year 1896 with the use of only 12 stocks, listed as a total index of 40.94. From that time until today, Tuesday, that number is now 10536.8.
I am using the front page of BUYandHOLD, The Market at A Glance table, at http://www.buyandhold.com for my examples. Remember though that I'm using a different day so the numbers will have changed, but the overall concept is the same.
So according to the Market Glance, the Dow ended the trading day on Tuesday, May 9, 2000 at 10536.8. Next to this number is a "Chg" column, listed at -66.9. The last column lists "Chg%" but let's ignore that for now. If numbers can give me the heebie-jeebies, percentages have been known to give me a severe case of the hives.
The number -66.9 is read "negative 66.9, as in "down from". Down from what? Down from the previous days trading number on Monday. So the closing bell on Monday, May 8, 2000 at 4:00 should have had a closing index of 10603.7 (10603.7 - 66.9 = 10536.8).
It is important to note that since we are investing for the long term, the Dow's daily antics are of little importance to us. It is important to me, however, to understand these daily fluctuations. For our intents and purposes, it is more important to note the overall trend of the Dow throughout its long history.
The best way for me to conceptualize this is with graphs. I love graphs! I am a visual learner and like to see things explained with pictures, not numbers. This web site shows a remarkable trend of the Stock Market in general. Since it's inception in 1847, it has steadily shown an upward trend, right up to today. Granted, there have been severe drops in this upward line, but overall, the trend has always been on the upswing.
Dow Jones Milestones has a few nice brief timelines showing how the Dow Jones Industrial Averages has increased throughout the years at http://ea.grolier.com/ea-online/wsja/text/ch05/tables/mi001.htm and at http://ea.grolier.com/ea-online/wsja/text/ch05/tables/mi002.htm How far can it go up? To infinity, no doubt. There is no limit as to how far the Dow can go.
This indicates to me that contrary to what occurs daily with the Dow, throughout history it has ALWAYS moved upward. This startling revelation is an indicator telling me not to panic when the Dow nose-dives. If it is true that history repeats itself, then hanging on for the long-term is my best bet. How long should I hold on before I bale? From my readings, these slumps can go on for up to 2 years.
The time and effort that I have placed in becoming a knowledgeable investor will now pay off. Slumps in the Dow will not deter me in the least. I will trust that eventually, it will recover, as history has shown.
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My compliance officer is pulling on my sleeve!! It is important to note that "past performance is no guarantee of future results." All investing has some risk involved. |
This same principal works for the NASDAQ and the S&P 500 as well. Ups noted with a + sign indicate up from the previous trading day. Downs with a - sign indicate down from the previous day. That's all there is to those numbers.
The lesson that I have learned from all this is that, over the long-term, these indexes have shown that investing in the Stock Market is a sound investment. Hang in there, don't panic, and don't pay too much attention to the daily fluctuations.
Next week I'll review ticker symbols and why companies are listed by acronyms. I'll also explore options for "playing" the stock market game with play money. It's got to be fun, spending a pretend $100,000.00.
Thank you for joining me
Joyce |
