Has the Dow Left You Dazed and Confused?
Let’s set aside the fact that the Dow Jones Industrial Average is a flawed measure of the overall stock market. The media, your parents, and their parents have all accepted the Dow as the standard. Besides, over time the Dow does move in line with the overall market. So instead of arguing semantics, let’s talk about the headline: a 4-digit drop in the Dow today along with a 600+ point drop on Friday. While the average person associates the Dow with the overall market, we should also recognize that the media loves the Dow because of the potential for attention grabbing headlines. To paraphrase Wooderson in Dazed and Confused: That’s what I like about the Dow, the points get bigger, but the size of the returns stays the same. On average, the S&P 500 experiences a drawdown of 14% every year. If we apply that average to the Dow, it would…
