The often-mentioned Dow Jones Industrial Average (DJIA) is simply a
basket of 30 domestic stocks that provide a barometer for the
performance of the U.S. stock market. There are other measures, but the
Dow is the one most frequently referenced.
In October, it appreciated a very respectable 2 percent. On the surface,
you would likely say it was a decent month. On the other hand, it could
have been a poster child for the phrase “investors need an iron
stomach.” In other words, it was a really wild ride.
The stock market was open for trading on 23 days last month. As measured
by the DJIA, the action was pretty evenly split. That is to say there
were 12 days in which the market lost ground and 11 positive days that
it gained.
Recently, the Dow has been hovering around the 17,000 mark, swinging
above and below it with apparent ease. Historically, 17,000 is where no
DJIA has ever gone before.
Generally, when the market is down 200 points in a day, you would
consider it a really bad day. Conversely, when the market is up by more
than 200 points in a day, you’d call it a really good day.
During the month of October, there were swings exceeding 200 points up
or down on 19 of the 23 trading days. Clearly, it was not a time for the
faint of heart.
Since we’re an automotive town, let me illustrate with an automotive
analogy. If October were a stretch of road with the speed limit of 50
mph, we were either chugging along at 25 mph or flying at 70 mph.
Although we never actually traveled at 50 mph, we arrived at the end of
the ride as if we had traveled all the way just a hair above the
posted speed limit. On the surface it may have appeared to be an
uneventful ride, but moment-by-moment it was wild and crazy.
Quite often, it’s best to simply tune out many of the world’s worrisome
current events. Looking back at October, the Ebola virus was the
dominant news story. But there was also ISIS and the bombings in Syria,
tensions in Hong Kong, and tragedy with our neighbors in Canada.
Not to downplay any of these events, but history books are full of
conflicts, crises and catastrophes that could be used to rationalize why
you should avoid being an investor. And while history is no assurance
of what lies ahead, time and time again the investment world seems to
reward those investors who have an iron stomach and stay the course.
October was an absolutely perfect example. If you had let your emotions
take hold, you would have missed out on a fairly respectable month. If
you had watched the news on an hour-by-hour basis, you might have
thought the world was ending.
There is a lesser-known index called the VIX, which measures volatility.
It has often been referred to as the fear index. In non-technical
terms, it was all over the charts in October, further confirming what a
wild ride October was for investors.
I don’t recall ever experiencing a month quite like this past October.
But it certainly reminded me why it’s so important to keep your emotions
out of your investments.
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