The Evidence-Based Investor

#Dow20k — it’s only a number

Posted by Robin Powell on January 9, 2017

At the time of writing, excitement is mounting that today may finally be the day the Dow Jones Index hits 20,000. Here at TEBI we can hardly wait 😉!

Sorry, I don’t mean to be a killjoy. Humans instinctively find comfort in round numbers. Since the dawn of civilisation, quantifying is one of the ways that we have tried to understand the world. The decimal system is deeply ingrained in the modern psyche. And such is our desire to process complex information simply and neatly, it’s no wonder that numbers ending in 0 — or four of them — appeal so much.

The financial media loves market landmarks. It labels them “significant” or “psychologically important”. Once landmark has been reached, it speculates as to whether prices will “push on” towards the next one, or perhaps fall back towards the last one.

For investors, this sort of language is not particularly helpful. Josh Brown put things in perspective with his post yesterday — the 30th anniversary of the Dow hitting 2,000 for the first time.

“Little did the commentators of the day realize that the massive rally in the first half of the year would eventually lead to the October crash that has lived on in infamy ever since. And little did the survivors of that 23% crash realize that the market would finish 1987 with a gain despite it!

“And of course, they could never have known that within a decade or so, Dow 10,000 would be in sight, followed swiftly after by 11,0000 – and then a return trip back to the 6,000s just a few years later.”

The most important thing to remember, as Josh reminds us, is that no market landmark — whether it’s Dow 2,000 or 20,000, 5,000 for the CAC 40 or 20,000 for the Nikkei — contains any information as to the future direction of prices.

So, let’s mark this event by all means. In fact, give yourself a pat on the back for reaching Dow 20,000, especially if you’ve hung on in there all the way from Dow 2,000. But, whatever you do, don’t treat it as either a buying or selling signal. Forget the zeroes; it’s only a number.

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Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector. Regis Media.

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