The Dow’s Largest Percentage Drop in History is Significant

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Posted Feb 06

Well, it isn’t.  I would love to use scare tactics to convince all my fence-sitters to finally move their money.  But I refuse to exploit the worst two investor motivators:  fear and greed.  What I do seek for my clients is happiness, lack of stress & confidence in their future ability to meet their budgets.
Yes, the 1100 point drop was the largest in history.  But as you can see, it’s an insignificant blip if you look at the long term.  However, this “blip” is equal to the entire value of the index in 1984.  See today’s chart below.
How did we go from 1100 in 1984 to 26,000 in 2018?  Inflation only triples the 1984 value.  So in 1984 dollars the DOW is at 8112.  So the actual average annual return, less inflation, is 6%/yr.  Yet even in this frothy market we have billionaire asset “managers” projecting 11% returns into the future.
Be that as it may, how did this magic happen?  Are there prices we have yet to pay for this exponential curve?  I think so.  The market, far from being efficient and transparent is instead rather blind and mute . . . and developmentally disabled.  It doesn’t see much farther than the end of the next quarter and it is unable to tell us about the things it can’t see.  And it will never change because too many people profit [temporarily] from this pathology.
The markets & economic metrics (like the GDP) quantify goods and “bads” equally.  And it shorts us on the economic impact of both.  If an arborist is hired by a city to plant a row of trees downtown, the amount he is paid adds to the GDP.  The services the trees subsequently provide (cleaner air, surface water management, increased property values, habitat, happier people) are neither quantified nor counted.  If Exxon destroys an entire ocean gulf with an oil spill, and toxic chemicals to diffuse the oil to hide it, the cost of cleanup adds to the GDP.  Most of the real costs of Exxon’s carelessness are deferred to the future.
So my point is that that steep curve has come with a hefty price tag, to our health, wellbeing, communities and the environment.  We just don’t know what the price is yet.  As our data collection and analysis continues to skyrocket, I think we will begin tabulating and quantifying those costs and that should lead to better and more immediate pricing of both goods and bads.  And that should level out the DJIA for good.
How will you be affected personally by all this?  What should you do now?  Wouldn’t it be important to get some ideas?  Request a meeting with me at
https://www.garyduell.com/contact-us/

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