How to Think About Current Market Gyrations

Back when dinosaurs ruled the earth—well, in the early 1990s—I had a nationally syndicated radio talk show heard on 168 stations on The Business Radio Network. (I was extremely big in Buffalo, for some reason.)
For three hours a night I answered questions from people about what they should do with their money. (How much would they need for retirement, what should they be saving for junior’s college education, what kind of mortgage would be best for them and the like.)
And back then, I was getting a lot of calls about huge moves in the market.
In the early ’90s, the Dow was in the 3,000s, and a big move was something like 50 points. If the market “plummeted” 45 points, people were extremely depressed.
What I told people then was instead of concentrating on the number, think about the percentage move. It was more important to see the 45 point move up or down as a gain or loss of 1.5%. The absolute number didn’t matter as much.
What was true more than 15 years ago is even truer today.
Many people saw the Dow Jones Industrial Average fall 225 points last Thursday and were horrified, thinking their retirement holdings in stocks had taken a severe hit.
Well, the drop really only represented a 1.9% fall. It was significant, to be sure, but certainly not worth losing a lot of sleep over.
Conversely, when the Dow bounced up 303 points on Friday, many people were euphoric. And it sure was nice, especially given how poorly the market has performed this year. But if you do the math, a 303 point gain represented a jump of “only” 2.6%.
Pleasant? Absolutely. Enough to upgrade that 22-foot boat you have to a 50-footer? Nope.
If you listen carefully to the Wall Street reports on the radio and television (Bloomberg, CNBC and Fox Business), increasingly you will hear them say, “the Dow rose 100 points today, or about 0.9%.” And I think that pointing out that percentage increase or decrease is a good thing. (I’d like to think I am responsible, but I am probably not.)
It will help everyone to keep all these seemingly large market moves we are experiencing in perspective.