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Financial Happenings Blog
Monday, October 23 2006

Forbes put together an interesting sideshow that looked at the recent history of the Dow Jones average.  It is available here.  The Dow Jones is an index that measures the performance of a small group of the largest shares trading in the United States.

There are a number of interesting factors on show with the presentation. 

Firstly, the Dow Jones average fell about 35% from its high of about 11,700 to a low of around 7,500 from the start of 2000.  This is a fall of about 35%.  This is something that investors in growth assets should keep in mind: they are volatile and a fall of such a magnitude is possible.

Secondly, the Dow Jones average has now recovered to above 12,000.  That is, it is setting new record highs.  So those investors who did not panick and sell at the bottom of the market, have actually seen their investment grow in value.

Thirdly, investors who kept adding to their investments regularly would have been buying assets when the Dow was valued at 7,500 - and these assets have appreciated in value by 35%.

Lastly, a comment on the folly of timing the market.  When the Dow was a 11,700 there was more wealth invested in the market that at any time in history.  And at 7,500 there was 35% less wealth invested in the market.  However, 11,700 was a poor time to invest, and 7,500 a great time to invest.  It shows how tough market timing is.

Posted by: Scott Francis AT 05:10 pm   |  Permalink   |  Email
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