For the last six weeks in a row, and then yesterday, the market has gone down. Greece can’t seem to find leadership, sending jitters through the Eurozone. Banking giant JP Morgan is red-faced about a $2 billion trading loss. China, while growing, may not be growing as fast as we thought. What to do?
Before I answer that question, it’s important to note that, while the market (the Dow Jones Industrial Average) is much lower than it was 6 weeks ago, it’s still higher than it was only 4 months ago, 12 months ago, and 3 years ago! It’s also important to note that the Dow is a basket of 30 stocks which are weighed so that a $1 move by any of them, no matter their price, moves the average the same amount; today, that’s about 7 ½ points per stock per $1. Note that, since it is more likely that a higher-priced stock will move $1 up or down, those higher-priced stocks in the Dow carry more weight. IBM, one of the 30 stocks in the Dow, should carry 1/30th of the weight, or about 3%. But, because IBM is currently about $200/share, it actually has a 12% influence on the Dow!
What’s really interesting about this is that, in 2009, GM and Citibank were removed from the Dow and Apple, at the time trading at $144/share, was looked at to replace one of them. That didn’t happen, but had it happened, the Dow would today be well over 15,000 (20% higher than it actually is today) due to Apple’s meteoric rise to $600/share! (Incidentally, Apple IS part of the S&P 500 and NASDAQ, and again, due to its size, comprises 4% and 12% respectively of those averages, way more than its percentage should lead you to believe.)
Now to my point: how would you be feeling right now if the Dow was at 15,300? Probably a whole lot better, but why? Should your feelings about the economy be tied to a market statistic that comprises only a handful of stocks and is influenced both positively and negatively by just a few? I say no.
Recall that you (should) have an investment objective: it may long-term growth, or conservative income producing, or somewhere in between. The market, and the world, has daily hiccups. Don’t focus on the negatives that the media promotes, but instead have confidence that we are in a world where hard work pays off and the companies in your portfolio WANT to get bigger and better. Their CEOs, managers, and workers get paid to grow their businesses, so they want what you want. In the end, if you believe like I do that there are innovations yet to be discovered, dreams yet to become realities, and brilliant minds who haven’t yet been recognized, then you’ll know that a long-term view of the market will prevail over the short-term negatives that we’re seeing today. Lastly, stop looking at the market and focus instead on the two financial things that you can truly control: your savings, and your spending. Then delegate the worry to a trusted financial advisor, like me!