The Daily Dow
Wednesday, September 3, 1997
by Robert Sheard
LEXINGTON, KY. (Sept. 3, 1997) -- A lot of readers are nervous of late. Of course, when it comes to investing hard-earned life savings, nerves are natural. Along with nerves comes a very frequently asked question: is now the right time to invest in the Dow stocks?
Let's look at the facts. The Dow has been a bit more volatile recently (a 3% move in a day is a significant move for most people), but it's not nearly as volatile as the mainstream press is making it sound. A lot of noise was made about yesterday's "single biggest gain" for the Dow, but we lose perspective if we just look at points without looking at percentages. A 100-point move today is only about 1.25%, whereas five years ago the same 100 points would have represented a move of more than 3%. The media sometimes reports these point changes as if we're still in the middle of the 1980s. The overall volatility of late -- in percentage terms -- is not extraordinary.
The market is near all-time highs, so it has to be over-valued, right? What goes up must come down, right? Well, maybe. The logic that because the market is "high" right now we must be facing a crash doesn't really hold true. Our economy is not a zero-sum model. It expands regularly and with it, the value of the stock market also increases. This regular growth is behind the fact that for almost a century now, the Dow has grown at roughly 11% a year. It obviously doesn't grow in a straight line, and individual years can vary wildly from that average, but we're not working with gravity here.
In addition, the same "theory" was in vogue two years ago when the market was also at "record high" levels. Investors everywhere were expressing doubts about the market because it was "too high." Those investors waiting on the sidelines for the expected correction are still there. Meanwhile, the Dow has increased by 70% since September of 1995.
The real lesson here is that no one can time the market consistently well, and we don't think it's worth attempting. The long-term investor who gets into the market and stays there, updating his holdings periodically but not jumping in and out of the market overall, has powerful historical momentum on his side. Don't let the frightening rhetoric about crashes scare you out of a long-term approach. Remember, the Foolish Four investor who was fully invested through the last awful bear market in 1973-1974 actually made a handsome profit while the market swooned. Likewise, the Foolish Four investor who was in the market for all of 1987 ended the year with a profit, despite the October "crash."
Let the Wise make predictions; it's how they make a living. But don't be taken in by the bluster. The Foolish alternative takes all of that doubt away: save regularly, invest for the long run, and avoid market timing. Simple, unemotional, Foolish. Ya gotta love it.
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________
Stock Change Last -------------------- T - 11/16 39.81 GM - 1/16 65.19 CHV - 3/16 80.19 MMM + 13/16 92.38
Day Month Year
FOOL-4 -0.49% 4.05% 10.20%
DJIA +0.19% 3.57% 22.43%
S&P 500 +0.03% 3.15% 25.26%
NASDAQ +0.01% 1.95% 25.34%
Rec'd # Security In At Now Change
1/2/97 153 Chevron 65.00 80.19 23.37%
1/2/97 179 Gen. Motor 55.75 65.19 16.93%
1/2/97 120 3M 83.00 92.38 11.30%
1/2/97 479 AT&T 41.75 39.81 -4.64%
Rec'd # Security In At Value Change
1/2/97 153 Chevron 9945.00 12268.69 $2323.69
1/2/97 179 Gen. Motor 9979.25 11668.56 $1689.31
1/2/97 120 3M 9960.00 11085.00 $1125.00
1/2/97 479 AT&T 19998.25 19070.19 -$928.06
CASH $1009.44
TOTAL $55101.88