<THE FOOLISH FOUR>
by Nico Detourn
(TMF Nico)
Santa Clara, CA. (August 3, 1998) -- And so the second third of the third quarter begins.
I heard it noted several times today that August is traditionally one of the worst months for the stock market. Being a firm believer in doing my own research, I'm nevertheless inclined to take them at their word on this one, though I might wonder how such an unappealing "tradition" ever got off the ground in the first place. But then, there are only so many months in the year to choose from, and perhaps the others were already booked when this dubious distinction was being handed out.
When I started writing, the market had somewhat recovered from an early morning bungee jump and was dangling indecisively between its then low and where it began the day. But having climbed its way back to that breakeven point, the Dow decided to take a late day tumble, coming close but as of this moment not quite hitting the magical triple digit mark. Still, it seems as though the question the news media would have us believe is on all of our minds -- "Is this the start of a bear market, or just a garden variety correction?" -- will remain unanswered. As it must. It's only after the fact that such things can be determined and we are finally able to separate the "true prophets" from the garden variety talking heads and other notable quotables.
Just two weeks after the worst one-week point decline in the Dow's history, there is a sense of anxiety out there. That isn't difficult to understand. But that angst is fed by the nonstop flow of news, sometimes pseudo-news, each piece of which is briefly spotlighted before making way for the next "Tea Leaf of the Moment." All this leads to the shortening of our time horizon and a distortion of perspective.
Our fascination with round numbers contributes to that. As often as it has been pointed out, in this column and elsewhere, it bears repeating that a 100 point move represents an ever-smaller percentage of the total value of the Dow as that perhaps over-scrutinized 30-stock index continues its historic rise. Rather than points, it is percentage that matters over time. Yet we go into "rubberneck" mode as those 100 point levels approach, whether on the upside or down.
Understanding the "points vs. percentage" issue is important. It is especially so when you first start investing, and likely have less money available with which to begin a portfolio. The enthusiastic desire to make that initial balance grow, as fast as possible, can naturally lead to a "point gain" perspective, as we daily calculate dollar gains and losses of what are typically 100 share positions in a limited number of stocks. "Round lots" and round, even numbers work well together.
As neat and attractive as those $100 benchmarks are, though -- and there will always be something magical about a $100 bill, no? -- what we are really looking for is a rate of return on our investments. And here too, it is the percentage of our gains, and, unfortunately, our losses as well, by which we should be measuring our success as investors.
In its way, "points vs. percentage" mirrors "short term vs. long term." It's all a matter of perspective. But in the long run, it's the percentage, Fool.
[Robert Sheard is on vacation this week. He will return on August 10.]
Current Dow Order | 1998 Dow Returns
[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]
08/03/98 Close
Stock Change Last -------------------- UK - 5/16 47.69 IP + 3/8 45.00 MO + 5/16 44.13 EK -2 3/8 81.50 |
Day Month Year
FOOL-4 -0.68%-0.68%13.21%
DJIA -1.09%-1.09%11.11%
S&P 500 -0.73%-0.73%14.63%
NASDAQ -1.14%-1.14%17.88%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 81.5034.57%
12/31/97 291 Union Carb 42.94 47.69 11.06%
12/31/97 289 Int'l Pape 43.13 45.00 4.35%
12/31/97 276 Philip Mor 45.25 44.13 -2.49%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 16789.00 $4313.13
12/31/97 291 Union Carb 12494.81 13877.06 $1382.25
12/31/97 289 Int'l Pape 12463.13 13005.00 $541.88
12/31/97 276 Philip Mor 12489.00 12178.50 -$310.50
CASH $754.73
TOTAL $56604.29
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