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A Lighter Dow
POINT: Large Index Moves Would Be Ignored
If It Were Your Portfolio -- When Bad Things Happen To Good Markets -- 07/11/96
Don't you hate it when the market ruins a perfectly good column? Despite the variety of subjects I could have spent a few hundred words discussing, my status as a "news" writer means that I have to pay extra-special attention to fundamentally random changes in abstract numerical market indices. Yes, I am talking about the significant decline in the broader market averages today. The Nasdaq Composite was particularly interesting to watch, as it touched bottom at 2:23 PM down near an all-time record point loss -- only rivaled by some Monday in 1987. The Nasdaq did manage to rally off of the lows, closing down 3.00% on the day. The Dow Jones Industrial Average and S&P 500 fared a little better, off 1.28% and 1.46% respectively. Now, let's get completely away from the numerical measurements of the drop and just look at the percentages. Line 'em up: 3.00%, 1.28%, 1.46%. Now look at the normal volatility of the stocks in your portfolio. Don't many of the stocks you own tend to click up and down within a 2.00% to 3.00% range every single day? So all of this excitement and attention is focused on abstract market averages that are actually moving roughly what any normal stock moves on any given day? Yup. Sure, the indices don't normally move this much in one direction or another -- because all of the stocks normally go different directions. On a day like today, however, when most headed in the same direction, they just happened to click down about the same amount as any portfolio of stocks moves on a day-to-day basis. Yeesh.
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