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The Daily Dow ALEXANDRIA, Virginia (December 13) -- Since the intra-day high of 6577.23 on December 3, the Dow has now corrected a little more than 4%. That's not a whopping correction, but the media attention is treating it as the next 1987 Crash. Nevertheless, let's put all that aside for now.
What happens if in the next few weeks we were to get a big correction of, say 15% to 20%, something the Dow hasn't seen in years? Let's take a look. A 20% correction from the December 3 high would take us all the way down to 5261.78. Now there's no doubt a 20% correction is going to make a lot of investors unhappy, some will undoubtedly sell out at the bottom, and others will claim they've called the "crash" all along.
But do you remember where the Dow was at the end of last year? 5117.12. That's right. Even a 20% drop doesn't wipe out the entire year's gains. And if you've been ahead of the market all year long, a 20% correction to your portfolio right now is still going to leave you sitting on a profit for 1996. So if your time horizon is many years in the future rather than a day-to-day obsession, you're likely going to see 1996 in retrospect as a pretty nice year.
Don't misinterpret me, though. I'm not suggesting we're in for a 20% correction here, or that we're not. My crystal ball only picks up Kentucky basketball games, not stock-market forecasts. But I just wanted to whisk you to a future vantage point in order to look back on 1996 with some distance. Even if the next two weeks were to bring on an intense and quick drop, the market will still have gained in 1996. And if this correction doesn't hit that level, it will have been a very good year for most Foolish investors. Kind of takes the pressure off, doesn't it?
One other stat to look at. Recently I've covered the Dow 30 estimates earnings for next year. The current total earnings estimate for the Industrials is $433.10 for 1997. With the Dow at 6300 today, the market is only trading at 14.5 times next year's estimated earnings. I'm no economist, but it's hard for me to get bent out of shape here with that kind of forward Price/Earnings ratio and benign inflation and interest rates. So, whether we get a big correction right now or not, it's been another successful year for the Foolish Four model and Foolish investing in general. Life is good! Today's Dow Numbers Stock Change Bid ------------------- DD + 5/8 91.38 CHV + 3/4 62.00 MMM +1 1/4 81.50 EK - 3/4 79.38 IMN - 5/8 31.88
Day Month Year History
FOOL-4 +0.71% -0.69% 25.63% 25.63%
DJIA +0.02% -3.32% 23.21% 23.21%
S&P 500 -0.09% -3.91% 18.30% 18.30%
NASDAQ -1.03% -0.60% 22.12% 22.12%
Rec'd # Security In At Now Change
1/2/96 142 DuPont 69.88 91.38 30.77%
1/2/96 149 3M 63.76 81.50 27.83%
7/16/96 14 Imation 26.16 31.88 21.86%
1/2/96 148 E. Kodak 67.00 79.38 18.47%
1/2/96 380 Chevron 52.38 62.00 18.38%
Rec'd # Security In At Value Change
1/2/96 380 Chevron 19902.50 23560.00 $3657.50
1/2/96 142 DuPont 9922.25 12975.25 $3053.00
1/2/96 149 3M 9500.09 12143.50 $2643.41
1/2/96 148 E. Kodak 9916.00 11747.50 $1831.50
7/16/96 14 Imation 366.21 446.25 $80.04
CASH $1942.85
TOTAL $62815.35
Transmitted: 12/13/96
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