You may have heard about it, the Down Jones Industrial average, better known as the Dow, hit the high mark of 10,000 yesterday, a cause for celebration in trading rooms and living rooms across the world, or is it? When I mention in the title that the Dow Jones hitting 10,000 is so last century, it is not an exageration. Fact is, the index hit 10,000 in 1999.
So did we just lose 10 years of investing? Not quite. We actually learned a lot, lived through the tragic 9/11, the technology bubble, the more recent credit crisis and housing bubble. As well, many of the Dow components (30 stocks of large US companies) do pay dividends so the return is not exactly 0% in the past decade..although it’s not a whole lot better either.
I’ve attached a chart of the Dow Jones Index since January 1st 1999. It has moved a lot but overall there is little to show for it.
But seeing the news of getting to 10,000 all over the news, tv screens, newspapers and soon on magazine cover pages brings up a few questions.
Is the Dow Jones even relevant?
I’ve discussed this in the past. Basically, I do not really understand how the index is even still relevant and why it is discussed so much. Truth is that an index that has only 30 components and where bad performers are taken out to be replaced by “better” ones seems like an index that is bound to perform well no matter what. It’s not that surprising that a decade ago some were predicting that the Dow would reach levels of 20,000, 30,000 and in some cases even 50,000. To me, there are some indexes that are worth looking at such as the S&P500, which gives a much better indication of the global US economy as well as the US markets as a whole.. But the Dow Jones? Please!
Are there even consequences of getting to 10,000?
Absolutely. I’ll be the first one to tell you reaching 10K does not make any stock more attractive but the reality is that it does change things. When reaching 10,000, the Dow Jones generates interest and news. Reporters will discuss it, write about it, get ideas ofr their next magazine covers. You can be certain of one thing. Even someone who is not interested in the stock markets will probably still hear about the index getting to back to this level.
And this of course will have an indirect impact on the market. Think about all of those passive investors that have been scared for months to even look at their portfolio. Suddenly, it seems as if things look a lot brighter. Consequence? They might call their advisor and tell them they’d like to get back in the market, or go out themselves and buy. Pschology has a huge impact on the financial markets and reaching a milestone like this is bound to create feelings for investors. This of course creates opportunities as well..the question is where we can find those of course!