

Why Do We Still Care About the Dow? (2012) - aditiyaa1
http://www.npr.org/sections/money/2012/02/07/146546183/why-do-we-still-care-about-the-dow

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jacquesm
> It would be extremely convenient if there were still one number or index we
> could check to make sense of our economy, especially during times of chaos.

The per-capita debt would be a good start.

Funny to see Apple named as Microsofts successor. I think they're roughly
equal in terms of 'launch date', of course the context is successor in the Dow
but if you just put the most successful companies in the index (which they
do...) then that already causes it to lose a lot of its meaning because any
structural 'bad news' will get filtered out.

The idea is to provide a sliding window over history to capture trends, such
as to embody the trend of moving away from the Desktop to mobile devices
(Microsoft -> Apple) but that's a very imperfect science because a lot of that
trend will never materialize simply because a whole pile of stuff (creation,
mostly) does not happen on mobile devices but on good old desktops.

Mobile devices tend to be _much_ better at consumption than creation (which is
entirely consistent with the trends in computing as a whole).

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amelius
> Mobile devices tend to be much better at consumption than creation

Except when it comes to shooting videos.

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jacquesm
That's more of a case of 'convergence' (handycam + phone + still picture
camera) than one of transition, but yes, mobile devices have traditionally
been much better at creating video and pictorial content because they can move
to the scene rather than to have the scene move to them, but this has been
true since the 'camera obscura' (literally: dark room) has gone out of
fashion.

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mixmastamyk
I don't think anyone who knows a bit about finance focuses on the Dow.

However, since the news always reports it first, everyone takes note of it.
Since everyone takes note of it, the news reports it first... and so on, and
so on.

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brentis
I care aboutthem all and read it like the matrix. Tools like Mometic.com and
stock-touch give me a much more visual read if you can handle the thought
required. Otherwise just stare at a line chart!!!

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VLM
The story missed the original purpose of the Dow with was a leading economic
indicator... watch prices of the industrial giants to see broader market moves
ahead of the market, at least optimistically. Not a terribly bad idea although
info theory kicked in and once everyone knew and applied the theory the price
results got baked into the cake of the prices themselves so it was no longer a
money maker. That and changing the company mix from industrials to "big whos
who mix of services and energy companies" pretty much eliminates the
"industrial" part from the dow jones industrial average which makes it a
useless leading indicator.

Another anecdote is in the 20s and 80s there was a lot of grown in mutual
funds or I think the 20's term was stock cooperatives or whatever, the point
is its "semi-unusual" for most equities to be owned by the equivalent of
internet link aggregators, so other than index fund owners the dow doesn't
really mean anything. My grandfather owned railroad stock, real railroad
stock. Not a fund that owned a fund that owned 50 railroad stocks. You don't
see that so much anymore. Diversification is good other than the immense
parasitic load, which worsens at low return rates obviously... anyway
investment has been abstracted away from the public, both by mutualization as
per above and obviously by the destruction of the middle class (a
stereotypical factory worker in 1970 probably owned some stock, at least in a
retirement fund, but a stereotypical American of 2015 only gets minimum wage
McJob or Walmart worker no benes no retirement savings at all therefore has
little/no skin in the game anymore and no reason to care). So the public
literally has no reason to care. Its not like they're going to startup and IPO
and neither is their megacorp employer anytime soon. Equity markets are
broken, don't matter much anymore. And with SOX compliance they suck for fund
raising. We have a lot of capital sloshing around blowing bubbles and no legal
way to apply it anymore.

Finally it was invented pre-central bank, and our equity prices now mostly
represent central bank interest rates. Lower rates mean you get a lower return
from riskless .gov bonds means equities need to return less, means in a
constant dividend world, the price will explode once return rates around zero
beat sticking the money in a mattress or .gov bonds. The PE ratio of our stock
equities are controlled by the .gov centrally controlled interest rate, more
or less, at least on a very long term. So obviously a multi-generational low
in interest rates results in a multi-generational high in equity prices. How
could it be otherwise? The market isn't going to tolerate a P/E ratio of "4"
when the fed is only paying 0.25%, capital is going to flood into equities
until you get a P/E ratio "similar" like maybe 100 or so.

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morpheous
"Our equity prices now mostly represent central bank interest rates."

What are you talking about?. I fear you may be confusing the Fixed Income
market with the Equity market.

Equities (in general, as a class), are negatively correlated with interest
rates. Specific sectors though (e.g. Banks) may be more positively correlated
to interest rates - but overall, the link is tenuous, at best.

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VLM
"Equities (in general, as a class), are negatively correlated with interest
rates."

We're not disagreeing, although I was less clear than your line above.

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marincounty
"None of these criticisms will come as news to finance professionals, most of
whom use far more precise measures — like the S&P 500 or the Wilshire 5,000,
which cover more companies more precisely — when making investing decisions."

Never understood the Dow. Never understood the importance of a healthy 3-5
percent interest rate until now. I used to make $500/yr. on my cd. I now make
$9/year on a .1 percent rate. Have always been too scared to invest in the
stock market. There's a small part of me thinking about putting my meager
savings on Microsoft--and letting it spin? I've been able to call the huge
downturns in the market, but always lost on predicting stock upturns. I feel a
downturn now. I am always contrairianly wrong on stock picks--so much so, I
think it might be a good strategy?

I don't see too many people talking about the money lost by the poor and
middle class who rely on cd's? One other thing I noticed is the Indexes seems
to go up on Mondays and down on Fridays? (I think the big boys take their risk
out for the weekend and put it back on Monday?). I wonder if HF trading will
mask the next downturn?

In college, I had a finance instructor let slip out something interesting. "Ah
--in the end you would be surprised about just how much Insider trading plays
a part." Students, "What?" Teacher, "Um--Um--the SEC regulates that! lets move
on." And then there's that quote in that movie about the psychopath, in the
80's, who pushed penny stocks played by McCanawho, 'Noboby knows when the
stock will go up, or down.'

(sorry about the ramble)

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caminante
Putting all of your money in CD's is like overpaying for insurance. Index
funds are your friend as you get the market portfolio (important for risk
minimization) with minimized costs.

WRT "market timing," the lay investor wins by NOT relying on market timing.
Even if you think the market will move in a direction, it's impossibly hard to
guess when. Don't believe me? Check out this study which shows that missing
single days can adversely impact a 20-year holding.[1] In this study,
researchers looked at 20 years worth ('95-'14) of daily returns and asked
what'd happen if you missed the best days and/or ate worst days. Missing the
top 10 days of gains -- out of 5,036 trading days -- cuts your portfolio value
in half. Miss 20 days? Your portfolio doesn't move.

[1][https://www.ifa.com/12steps/step4/missing_the_best_and_worst...](https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/#ChartFlashID323)

