Reading the Dow Jones

I wrote a blog on this subject early in 2011, but it needs to be mentioned again. So here is an updated version.

Everyone is excited that the Dow Jones broke a record again. But here are some things to remember:

  • The media always reports the day’s activity. If you are a day buyer, that’s fine. But most millionaires tell you to leave your money in the stock market and don’t look at it every day.
  • Most news reports don’t give the DJIA number on a daily basis. So find an internet site where you can get that information. Gauge your confidence in the market by the daily total of the DJIA.

As we look at the 10-year increments shown below, as long as the market doesn’t double between 2006 and 2016 we should be okay. In December, 2006, it was 12,445. That means in six years we have gained less than  2000. This is good—slow, constant growth is fine. So don’t be frightened when stocks dip back below 12,000. We will be fine.

Here is a quick history of the Dow Jones Industrial Average:

From the Depression until 1976, the Dow hovered around 1,000. Breaking 1,000 was an indicator to sell.

This was only 35 years ago! It took 46 years to surpass 1,000.

By the end of 1986, the Dow had climbed steadily to 1,930.

A decade later, end of 1996, it was 6,484.

By December, 2006, it had doubled to 12,445, then back down to 10,1423 in 2010, with a high point of 14,093.

In my opinion, the Dow was artificially high for a long time; so when it drops, don’t worry. It is healthier for it to hover at 11,000 than to constantly rise. I am happy it is at 12,000, but I hope it does not artificially take off, as it did during the Enron and WorldCom days. So remember—hover is good.

“A depression is when you don’t have a job; a recession is when your neighbor doesn’t have a job.”


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