How’d the market do today?

“How’d the market do today?”

Once people know you’re in the investment business, this is the question you hear the most from friends, family, and acquaintances in social situations. Trying to decipher what people actually mean by “market” is the real challenge. They almost never mean the bond market. They definitely aren’t asking about their local real estate market. I doubt they’re concerned with how the Asian markets did overnight. No, they’re generally looking for how the Dow Jones Industrial Average did and they usually want that number in points, not percentage.

“Dow was Down 200.” Such an easy answer and one that almost any novice investor will understand the implications of immediately. The Dow Jones Industrial Average is such a small sample, with only 30 of our nation’s publicly traded stocks listed in the index, but it’s remarkably consistent with the changes in value of the S&P 500 over time - the S&P 500, of course, is the other famous index of U.S. companies and vastly more respected for it’s more complete representation of the stock market.

In my almost 20-year career in finance, I’ve been fortunate to witness the “irrational exuberance” of the technology-focused bull market of the late 90s, the crash that followed, the recovery and bull market during the mid-2000s, the Great Financial Crisis, and now the glorious bull market that brings us to present day (with a few corrections and some global bear markets thrown in for fun). All the while, when someone asks “How’d the market do?”, they invariably just want to know how many points the Dow went up or down.

Here’s the thing, though. It doesn’t matter. Shhhh. Don’t tell anyone.

Listen, I understand why people want to know. I ask the same question, too. The problem, however, is in the way the information is interpreted by the listener. I have years and years of experience, I look at market data all day long, and I’m constantly researching what forces are driving market action on a day-to-day basis. If I have a very busy day and ask Grant (my business partner) “How’d the market do?”…I will have a great grasp of what “Down 200” means on that given day. Don’t misunderstand what I’m saying here. That doesn’t make me any better than anyone else, it just means that I’ve spent more time on the subject than the average Joe.

Too often, I see the panic develop in the eyes of the average investor when there are a few down days in a row or, worse yet, we have the type of downward volatility we saw at the end of the year in 2018. Funnier still, most of our clients still want to talk about how scary that particular time frame was to them and are almost universally dumbfounded when we tell them the stock market had it’s best January on record to start 2019 (the S&P 500 is up 12.59% year-to-date as of this writing). People have a innate ability to remember the rough times and rarely like to acknowledge the good times.

“The Dow was down 800 points????”

To put “Down 800 points” in a little perspective, the Dow Jones Industrial Average was down 831.83 points on October 10th, 2018. That was slightly more than a 3% drop in value, which is nothing to sneeze at. That’s no fun.

But on October 19th, 1987 (what is the deal with October?), a fairly infamous day in Wall Street history, the Dow was down 508 points, which equaled a 22% drop in value. In one trading day!

You can see how letting these numbers build up a certain type of significance in your memory bank can be detrimental to your state of being and your ability to handle a little stress. Here’s my first lesson for the day: quote the stock market movements in percentages, not points.

And here’s the second lesson for the day. Volatility and fluctuations of stock prices are features, not bugs, when investing in publicly traded companies. If there wasn’t volatility or it was easier to predict what the value of the stock market was going to do tomorrow (like, I don’t know, how bonds are), it wouldn’t provide investors with superior returns in the long run.

On any given day, the stock market is a coin flip. It’s up roughly 50% of the time, and down roughly 50% of the time.

If you stay invested for a year, your odds get better. Roughly 26% of the time you would lose money.

If you hold an investment for 5 years, there is only a 14% chance you would have lost money.

And the granddaddy of all holding periods, 20 years, gives you the best odds - 0% of the time stocks have lost money over 20 year rolling periods since 1926.


Volatility will come back, that I’m certain of. I wouldn’t even hasten a guess as to what the catalyst will be for the next pullback, but I’m willing to bet it’s not something we can plan for. Very few people saw the Global Financial Crisis coming, and many weren’t even willing to admit we were in the middle of it as the chaos spread across the globe. Investors, and the entire financial industrial complex at large, are obsessed with fighting the last war. Someone is always going to be willing to sell you a product or a strategy that had amazing performance for the last 10-years (and during the GFC) but will very likely have mediocre performance for the next 10-years. As we like to say, you’ll never see an investment strategy with poor back-tested performance.

There is no investor on earth that should have 100% of their assets in the U.S. stock market, let alone an index fund based on the Dow Jones or S&P 500. Diversification, as the great Harry Markowitz was fond of saying, is the only free lunch in finance. But I’m willing to tell you that your holding period might be the other “free lunch” in investing. If you want to reduce the volatility of your investments, holding them for a longer period of time and worrying less about what the market did today is a good start.

Chart courtesy of  Measure of a Plan

Chart courtesy of Measure of a Plan