Courtesy of Dr. Paul Price
Tuesday’s 243 point drop in the DJIA represented an unpleasant 1.82% daily decline. It came just days after the broad market set a post-2007 high. After the dip the DJ Industrial index is still plus 7.2% year to date. The S & P 500 was down a relatively lesser 20.71 points or (1.44%). It’s still ahead by 12.4% YTD.
Would you panic if a $10 stock went down 18 cents? Why, then, should you be getting sweaty palms when the DJIA makes the same percentage move to the downside?
Probably because of click-producing, real-time charts like this one…
While the charts above look vaguely similar, the ‘percentage change’ scales on the left side are totally non-equivalent. That makes for what I believe was an intentionally deceptive comparison.
A more realistic graph from the same data using a more apples-to-apples look can be seen below. I could not get a daily chart for 1987 so you’ll need to smooth out the 2012 chart’s look on your own.
When viewed accurately, most people would see why they are quite dissimilar.
I got the comparison for the DJIA from 1987 and the current year just to be complete. As with the S & P 500, the charts do not look at all alike when viewed with the same scales.
Bad news sells. Many media outlets are competing for your page views. You’ll need to consciously fight the media to avoid losing track of your investment goals.
Keep your head when others are not if you expect to make the best returns.
Paul earned a BS degree from the American University (Washington, D.C.) and a DMD degree from the University of Pennsylvania’s School of Dental Medicine. He served in the USAF as a dental officer from 1977 – 1985. After paying down student loans, he became enamored of the stock market and spent more and more time learning about stocks and investing.
Starting in 1978, Paul began buying shares and by 1980 he added options to his arsenal. After achieving very successful results, others began to come to him for advice on their portfolios.
In April of 1987 Paul made a career leap from dentistry to financial management when he joined Merrill Lynch. Over the next 13 years he achieved wonderful results for himself and his clients at Merrill, A.G. Edwards, Wheat First Butcher Singer [later renamed Wachovia Securities], and Ferris, Baker Watts. He specialized in value investing augmented with sales of equity options. These strategies and techniques have served him well over the past 31 years.
Paul has been a featured speaker recently at the Options and Forex Expo in LasVegas and the International Traders’ Expo in New York City. He is now a featured stock and options specialist writing every business day on the realmoneypro.com web site, a subscription service of the TheStreet.com.
Dr. Paul Price has recently become a member of our team at Market Shadows, dedicated to bringing you up-to-the-minute market observations.