Thursday, October 15, 2009

Dow 10,000, we meet again

Being plugged into the market chatter on Twitter and Stocktwits, it was hard to avoid yesterday's talk (often dismissive) of a return to Dow 10,000.

So now we're back to the vaunted high number mark that serves to remind us of the glory days of the era & the possibility for an even higher 5 digit readout in the not-too-distant future. But what does Dow 10,000 really mean, if anything at all?

Noting the fact that inflation over the past decade has reduced our purchasing power by at least 20-30 percent, we should remind ourselves that a trip back to a nominal high in a widely followed market average does not automatically translate to money in our pockets.

Reflecting on these thoughts yesterday, I went off to dig up my old copy of the Wall Street Journal from March 30, 1999, the first time the Dow Jones Industrial Average crossed 10,000. I could not find that old paper, but I did find this interesting article instead.

Excerpt from, "Dow 10,000 and the Lost Decade":

I have made it a habit to save the print edition of the Wall Street Journal on certain key dates including March 30, 1999, the day after the Dow Jones Industrial Average (DJIA) first crossed 10,000.

Although the DJIA is a
flawed benchmark, no other index has captured the imagination of the public to the same degree. As we again approach the 10,000 level, there appears to be no shortage of commentators ready to discuss what this means for the overall market. It comes as no surprise that value investors attach no particular significant to round numbers for individual stock quotations or for market indices.

However, it is hard to avoid recognizing the obvious fact that the past decade has seen very disappointing returns for index investors given that stocks started the ten year period at very high valuations. This is true of many individual DJIA components as well...

Read on for a very interesting look at the market's performance over the past decade, along with some worthwhile notes on the changes we've seen in media, business, and the debt and commodity markets over that time frame.

Related articles and posts:

1. The great "bear market rally" post - Finance Trends.

2. The Invisible Crash: book review - Financial Sense.