<THE FOOLISH FOUR>

What the Numbers Mean
by Robert Sheard

LEXINGTON, KY. (August 27, 1998) -- With the Dow off more than 350 points today, it's an excellent time to bring up the topic of comparing apples to apples. In other words, it's dangerous to talk about Dow "points" or a stock's movement in dollars. What really matters is the change expressed as a percentage.

Many news reports will scream headlines tonight and tomorrow about the Dow dropping 350 points and will make immediate comparisons to market "crashes" in the past. But just how does this compare with a real crash?

In October of 1987, when the Dow dropped more than 500 points in one day, the percentage loss was approximately 22%. Today, if we were to drop 500 points from this morning's opening value, the real loss -- the percentage loss -- is less than 6%. In other words, the point values are irrelevant as a comparison because they're coming off of such vastly different bases.

The same thing is true when one compares individual stocks. All too often a stock moving $3 or $4 per share in one day hits the news as a "big mover." But if that stock starts at $125 per share, the percentage change is only 2% or 3%. That's not even as large a percentage change as a 75-cent movement in a $20 stock.

That's one reason why the hoopla associated with every new 1,000-point level for the Dow is somewhat meaningless. At 8,500, a 1,000-point advance for the Dow is only a gain of 11.76%. Now, when the Dow was at 3,000, a 1,000-point move was huge, a 33% gain!

So when listening to the news, or reading the eye-catching headlines, keep in mind that the raw numbers don't tell the real story. If we were to have another crash of the magnitude of 1987's crash, we'd have to drop almost 1,900 points in one day -- oof! Then the blaring headlines might be justified.

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.]

08/27/98 Close
Stock  Change   Last 
 -------------------- 
 UK   -1  7/8   42.44 
 IP   -1  9/16  39.44 
 MO   -  15/16  43.25 
 EK   -1 15/16  84.44 
  
 
 
                    Day   Month    Year 
         FOOL-4   -2.98%  -5.54%   7.67% 
         DJIA     -4.19%  -8.07%   3.26% 
         S&P 500  -3.84%  -6.97%   7.43% 
         NASDAQ   -4.62%  -9.93%   7.39% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     84.44    39.42% 
  12/31/97  291 Union Carb    42.94     42.44    -1.16% 
  12/31/97  276 Philip Mor    45.25     43.25    -4.42% 
  12/31/97  289 Int'l Pape    43.13     39.44    -8.55% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  17394.13  $4918.25 
  12/31/97  291 Union Carb 12494.81  12349.31  -$145.50 
  12/31/97  276 Philip Mor 12489.00  11937.00  -$552.00 
  12/31/97  289 Int'l Pape 12463.13  11397.44 -$1065.69 
  
  
                              CASH    $754.73 
                             TOTAL  $53832.61