Why Do We Still Care About the Dow? (2012)(npr.org)
npr.org
Why Do We Still Care About the Dow? (2012)
http://www.npr.org/sections/money/2012/02/07/146546183/why-do-we-still-care-about-the-dow
13 comments
> Mobile devices tend to be much better at consumption than creation
Except when it comes to shooting videos.
Except when it comes to shooting videos.
That's more of a case of 'convergence' (handycam + phone + still picture camera) than one of transition, but yes, mobile devices have traditionally been much better at creating video and pictorial content because they can move to the scene rather than to have the scene move to them, but this has been true since the 'camera obscura' (literally: dark room) has gone out of fashion.
Good point, but that's mostly raw data capture. Sooner or later you'll want to sit down and edit it. Equally, they make great dictaphones, but you're not going to record a band with it.
I don't think anyone who knows a bit about finance focuses on the Dow.
However, since the news always reports it first, everyone takes note of it. Since everyone takes note of it, the news reports it first... and so on, and so on.
However, since the news always reports it first, everyone takes note of it. Since everyone takes note of it, the news reports it first... and so on, and so on.
I care aboutthem all and read it like the matrix. Tools like Mometic.com and stock-touch give me a much more visual read if you can handle the thought required. Otherwise just stare at a line chart!!!
The story missed the original purpose of the Dow with was a leading economic indicator... watch prices of the industrial giants to see broader market moves ahead of the market, at least optimistically. Not a terribly bad idea although info theory kicked in and once everyone knew and applied the theory the price results got baked into the cake of the prices themselves so it was no longer a money maker. That and changing the company mix from industrials to "big whos who mix of services and energy companies" pretty much eliminates the "industrial" part from the dow jones industrial average which makes it a useless leading indicator.
Another anecdote is in the 20s and 80s there was a lot of grown in mutual funds or I think the 20's term was stock cooperatives or whatever, the point is its "semi-unusual" for most equities to be owned by the equivalent of internet link aggregators, so other than index fund owners the dow doesn't really mean anything. My grandfather owned railroad stock, real railroad stock. Not a fund that owned a fund that owned 50 railroad stocks. You don't see that so much anymore. Diversification is good other than the immense parasitic load, which worsens at low return rates obviously... anyway investment has been abstracted away from the public, both by mutualization as per above and obviously by the destruction of the middle class (a stereotypical factory worker in 1970 probably owned some stock, at least in a retirement fund, but a stereotypical American of 2015 only gets minimum wage McJob or Walmart worker no benes no retirement savings at all therefore has little/no skin in the game anymore and no reason to care). So the public literally has no reason to care. Its not like they're going to startup and IPO and neither is their megacorp employer anytime soon. Equity markets are broken, don't matter much anymore. And with SOX compliance they suck for fund raising. We have a lot of capital sloshing around blowing bubbles and no legal way to apply it anymore.
Finally it was invented pre-central bank, and our equity prices now mostly represent central bank interest rates. Lower rates mean you get a lower return from riskless .gov bonds means equities need to return less, means in a constant dividend world, the price will explode once return rates around zero beat sticking the money in a mattress or .gov bonds. The PE ratio of our stock equities are controlled by the .gov centrally controlled interest rate, more or less, at least on a very long term. So obviously a multi-generational low in interest rates results in a multi-generational high in equity prices. How could it be otherwise? The market isn't going to tolerate a P/E ratio of "4" when the fed is only paying 0.25%, capital is going to flood into equities until you get a P/E ratio "similar" like maybe 100 or so.
Another anecdote is in the 20s and 80s there was a lot of grown in mutual funds or I think the 20's term was stock cooperatives or whatever, the point is its "semi-unusual" for most equities to be owned by the equivalent of internet link aggregators, so other than index fund owners the dow doesn't really mean anything. My grandfather owned railroad stock, real railroad stock. Not a fund that owned a fund that owned 50 railroad stocks. You don't see that so much anymore. Diversification is good other than the immense parasitic load, which worsens at low return rates obviously... anyway investment has been abstracted away from the public, both by mutualization as per above and obviously by the destruction of the middle class (a stereotypical factory worker in 1970 probably owned some stock, at least in a retirement fund, but a stereotypical American of 2015 only gets minimum wage McJob or Walmart worker no benes no retirement savings at all therefore has little/no skin in the game anymore and no reason to care). So the public literally has no reason to care. Its not like they're going to startup and IPO and neither is their megacorp employer anytime soon. Equity markets are broken, don't matter much anymore. And with SOX compliance they suck for fund raising. We have a lot of capital sloshing around blowing bubbles and no legal way to apply it anymore.
Finally it was invented pre-central bank, and our equity prices now mostly represent central bank interest rates. Lower rates mean you get a lower return from riskless .gov bonds means equities need to return less, means in a constant dividend world, the price will explode once return rates around zero beat sticking the money in a mattress or .gov bonds. The PE ratio of our stock equities are controlled by the .gov centrally controlled interest rate, more or less, at least on a very long term. So obviously a multi-generational low in interest rates results in a multi-generational high in equity prices. How could it be otherwise? The market isn't going to tolerate a P/E ratio of "4" when the fed is only paying 0.25%, capital is going to flood into equities until you get a P/E ratio "similar" like maybe 100 or so.
"Our equity prices now mostly represent central bank interest rates."
What are you talking about?. I fear you may be confusing the Fixed Income market with the Equity market.
Equities (in general, as a class), are negatively correlated with interest rates. Specific sectors though (e.g. Banks) may be more positively correlated to interest rates - but overall, the link is tenuous, at best.
What are you talking about?. I fear you may be confusing the Fixed Income market with the Equity market.
Equities (in general, as a class), are negatively correlated with interest rates. Specific sectors though (e.g. Banks) may be more positively correlated to interest rates - but overall, the link is tenuous, at best.
"Equities (in general, as a class), are negatively correlated with interest rates."
We're not disagreeing, although I was less clear than your line above.
We're not disagreeing, although I was less clear than your line above.
"None of these criticisms will come as news to finance professionals, most of whom use far more precise measures — like the S&P 500 or the Wilshire 5,000, which cover more companies more precisely — when making investing decisions."
Never understood the Dow. Never understood the importance of a healthy 3-5 percent interest rate until now. I used to make $500/yr. on my cd. I now make $9/year on a .1 percent rate. Have always been too scared to invest in the stock market. There's a small part of me thinking about putting my meager savings on Microsoft--and letting it spin? I've been able to call the huge downturns in the market, but always lost on predicting stock upturns. I feel a downturn now. I am always contrairianly wrong on stock picks--so much so, I think it might be a good strategy?
I don't see too many people talking about the money lost by the poor and middle class who rely on cd's? One other thing I noticed is the Indexes seems to go up on Mondays and down on Fridays? (I think the big boys take their risk out for the weekend and put it back on Monday?). I wonder if HF trading will mask the next downturn?
In college, I had a finance instructor let slip out something interesting. "Ah--in the end you would be surprised about just how much Insider trading plays a part." Students, "What?" Teacher, "Um--Um--the SEC regulates that! lets move on." And then there's that quote in that movie about the psychopath, in the 80's, who pushed penny stocks played by McCanawho, 'Noboby knows when the stock will go up, or down.'
(sorry about the ramble)
Never understood the Dow. Never understood the importance of a healthy 3-5 percent interest rate until now. I used to make $500/yr. on my cd. I now make $9/year on a .1 percent rate. Have always been too scared to invest in the stock market. There's a small part of me thinking about putting my meager savings on Microsoft--and letting it spin? I've been able to call the huge downturns in the market, but always lost on predicting stock upturns. I feel a downturn now. I am always contrairianly wrong on stock picks--so much so, I think it might be a good strategy?
I don't see too many people talking about the money lost by the poor and middle class who rely on cd's? One other thing I noticed is the Indexes seems to go up on Mondays and down on Fridays? (I think the big boys take their risk out for the weekend and put it back on Monday?). I wonder if HF trading will mask the next downturn?
In college, I had a finance instructor let slip out something interesting. "Ah--in the end you would be surprised about just how much Insider trading plays a part." Students, "What?" Teacher, "Um--Um--the SEC regulates that! lets move on." And then there's that quote in that movie about the psychopath, in the 80's, who pushed penny stocks played by McCanawho, 'Noboby knows when the stock will go up, or down.'
(sorry about the ramble)
Putting all of your money in CD's is like overpaying for insurance. Index funds are your friend as you get the market portfolio (important for risk minimization) with minimized costs.
WRT "market timing," the lay investor wins by NOT relying on market timing. Even if you think the market will move in a direction, it's impossibly hard to guess when. Don't believe me? Check out this study which shows that missing single days can adversely impact a 20-year holding.[1] In this study, researchers looked at 20 years worth ('95-'14) of daily returns and asked what'd happen if you missed the best days and/or ate worst days. Missing the top 10 days of gains -- out of 5,036 trading days -- cuts your portfolio value in half. Miss 20 days? Your portfolio doesn't move.
[1]https://www.ifa.com/12steps/step4/missing_the_best_and_worst...
WRT "market timing," the lay investor wins by NOT relying on market timing. Even if you think the market will move in a direction, it's impossibly hard to guess when. Don't believe me? Check out this study which shows that missing single days can adversely impact a 20-year holding.[1] In this study, researchers looked at 20 years worth ('95-'14) of daily returns and asked what'd happen if you missed the best days and/or ate worst days. Missing the top 10 days of gains -- out of 5,036 trading days -- cuts your portfolio value in half. Miss 20 days? Your portfolio doesn't move.
[1]https://www.ifa.com/12steps/step4/missing_the_best_and_worst...
Stock market is not that risky in the very long term, say, 10 years or more, if done well.
And by "done well" I do not mean predicting ups and downs, but having a diversified portfolio (investing everything in one company is not a good idea, does not matter how promising or established it looks), which is doable with all the investment funds out there that ask for a very low minimum investment.
Check these books:
http://www.amazon.com/Intelligent-Investor-Definitive-Invest...
http://www.amazon.com/Little-Book-Common-Sense-Investing/dp/...
And by "done well" I do not mean predicting ups and downs, but having a diversified portfolio (investing everything in one company is not a good idea, does not matter how promising or established it looks), which is doable with all the investment funds out there that ask for a very low minimum investment.
Check these books:
http://www.amazon.com/Intelligent-Investor-Definitive-Invest...
http://www.amazon.com/Little-Book-Common-Sense-Investing/dp/...
the part about ubiquitous insider trading is accurate. that's all I can say, after spending a big chunk of my life in finance.
The per-capita debt would be a good start.
Funny to see Apple named as Microsofts successor. I think they're roughly equal in terms of 'launch date', of course the context is successor in the Dow but if you just put the most successful companies in the index (which they do...) then that already causes it to lose a lot of its meaning because any structural 'bad news' will get filtered out.
The idea is to provide a sliding window over history to capture trends, such as to embody the trend of moving away from the Desktop to mobile devices (Microsoft -> Apple) but that's a very imperfect science because a lot of that trend will never materialize simply because a whole pile of stuff (creation, mostly) does not happen on mobile devices but on good old desktops.
Mobile devices tend to be much better at consumption than creation (which is entirely consistent with the trends in computing as a whole).