It annoys me how the major news sites on TV, the radio, and the web report stock market news. They report facts that simply don’t matter to anyone rather than giving a useful update. They love to report today’s value of the Dow Jones index and the Nasdaq index — “The Dow is up 6 points today to 12167 and the Nasdaq is up 4 points to 2165” for instance.
3 Reasons the Dow Jones is a Stupid Index to Report on
# 1 The Time Period Reported on is All Wrong
Who cares what the market did today? No serious investor cares about one day’s stock market movements. If you’re investing for 5, 10, 20, or 30 years, who cares what it did in a single day? If you’re investing for less than that, you probably shouldn’t be invested in the stock market anyway. It would be much more helpful if they would announce something like this: The market went up 1% today and is now up 3% for the month and 8.7% year to date. Much more relevant. Better yet, just report it at the end of the week. I can only think of two days in the last 50 years when I would be interested in daily changes of the index — October 19, 1987 (Black Monday) and May 6, 2010 (The Flash Crash.)
I can only think of two days in the last 50 years when I would be interested in daily changes of the [Dow Jones] index — October 19, 1987 (Black Monday) and May 6, 2010 (The Flash Crash.)
# 2 Nobody Remembers What The Actual Index Values Were Yesterday
It is much more understandable when percentages are reported rather than the actual number. Everyone knows what “up 3% today” means. Nobody remembers how much a movement of 10 points in the Dow is.
# 3 The Media Reports The Wrong Indices
The most common index that measures the whole stock market is called the Wilshire 5000. It measures the movement of thousands of stocks. Never heard of it you say? I’m not surprised. A similar one is called the Russell 3000. Haven’t heard of that one either huh? But of course, you’ve heard about the Dow, 10 times a day for your entire life. The Dow only measures 30 stocks, so it is much less representative of the overall market than the more comprehensive indices.
Even worse is when they report the Nasdaq. This is a leftover from the dot.com bubble days. So many people were buying tech stocks which were predominantly traded on the Nasdaq exchange that the media started reporting on the changes in the Nasdaq index as a proxy for how one narrow segment of the market, tech stocks, were doing.
It would be just as interesting to hear about how energy stocks or real estate stocks were doing. If you’re not going to talk about all the market sectors (and please don’t) why bother reporting this one? There are three stock exchanges in the United States. The Wilshire 5000 contains stocks from all of them. The Nasdaq? Well, just one. How useful is that? The New York Stock Exchange has its own index, the NYSE Composite Index. How come you never get to hear about that? More money is traded on the NYSE each day than on the Nasdaq. Sometimes, you get to hear about the “S&P”, or the S&P 500. Although this stock index only contains the stocks of 500 large companies instead of the nearly 7000 traded in the US, at least it has a pretty high correlation with the overall market.
It’s about time the media became financially literate and started reporting something that actually matters to the individual investor.
What do you think? Do you find any value from the ticker at the bottom of the TV or from daily reportings of market movements? Comment below!