Can You Imagine ?

February 22, 2012 - 11:36 AM




Question . . .

How would your investing confidence, and perception of overall economic strength, change if the Dow Jones Industrial Average was trading near 15,000 rather than its present level around 12,800?

I imagine most of our internal confidence barometers would be much higher in that case.  Yet a somewhat subjective decision by the editors of The Wall Street Journal (which owns Dow Jones & Co.) back in June of 2009 is the cause of those two widely dispersed valuations.  This group of newsroom authorities select the companies that make up the Dow, an index of thirty large, publicly-traded US companies that (in the editors’ minds) represent "the market."

They chose to include Cisco Systems, rather than Apple, when they dropped General Motors from their iconic tracking mechanism.  The inclusion of Apple, based on its value today relative to Cisco, would have propelled the Dow to be trading just short of 15,000.

What’s this all mean?  Nothing really, but amazing how much credence we give to subjective snippets of market data and how these considerations can sway our decision-making.  I’ve read countless stories and testimonies from investors holding out on equity exposure until the Dow reaches a particular point.  This Apple vs. Cisco anecdote exposes the pitfalls that come with too much tunnel vision.

Just imagine how this difference in Dow value would impact the confidence and general psyche of investors, the attractiveness of stocks, the assertiveness of employers, and perhaps eradicate a level of financial fear arguably not seen in 80 years.  No question that element of fear has added a significant ball-and-chain to our economic recovery.

And now we know that some really smart people in a board room back in 2009 unknowingly and unintentionally hindered the road to global recovery because Cisco received more thumbs-up than Apple.  Someone's MacBook must have froze up that day and ruffled a few feathers.  Imagine that.  Stay diversified.

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