{"id":10583,"date":"2016-04-21T07:17:34","date_gmt":"2016-04-21T14:17:34","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=10583"},"modified":"2016-12-21T07:27:36","modified_gmt":"2016-12-21T15:27:36","slug":"ignore-stock-market-round-number-days","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/ignore-stock-market-round-number-days\/","title":{"rendered":"Ignore Stock Market ‘Round Number’ Days"},"content":{"rendered":"

The Dow Jones Industrial Average just surpassed 18,000 points, overcoming a hurdle of sorts. The market hasn’t hit that specific round number since last summer.<\/p>\n

There was no shortage of commentary on the Internet<\/a> on the big 18K number. And why not? It’s interesting, and that’s what news organizations\u00a0are about, filling up airtime and empty\u00a0web pages with mildly interesting facts between bouts of actual news.<\/p>\n

\"round<\/p>\n

 <\/p>\n

Should you care? Absolutely not, for a number of reasons:<\/p>\n

1. It’s a fallacy to attach importance to round numbers.<\/strong> The Year 2000 came and went and we all got worked up over a supposed global computer shutdown. Remember that?<\/p>\n

2. We pass interesting milestones all the time.<\/strong> Dividend yields rise and fall. Inflation consumes\u00a0more or less of our total return. There are a lot of moving parts here that aren’t being taking into account.<\/p>\n

3. Did you feel any different at 30?<\/strong> How about turning 40 or 50? Neither does anybody else.<\/p>\n

4. Most importantly, number watching tends to lead to market-timing trades.<\/strong> And those can be truly dangerous<\/a>.<\/p>\n

Do you know for a fact that passing 18,000 on the Dow means we’ll hit 19,000 by year end? You can probably find “evidence” to back up that assertion, if you look for it.<\/p>\n

Do you know for fact that passing 18,000 \u2014 or 17,000, or any round number \u2014 means we’ll soon see a major collapse in stocks back to some previous low, or even lower? Look for it, and you’ll find evidence to support this viewpoint too.<\/p>\n

And that’s the problem. Both the round-number optimists and round-number\u00a0pessimists are guessing. Just guessing.<\/p>\n

There is\u00a0some data somewhere to show either and\u00a0both outcomes are possible. But there is no data anywhere that proves either outcome is guaranteed.<\/p>\n

But let’s step back and just think about optimists\u00a0vs.\u00a0pessimists. It’s contrarian to say this, but at least some investors should\u00a0see rising stock prices as bad news.<\/p>\n

Young people, for instance, need a stock market that is tethered to reality<\/a>. If the price of “getting in” to\u00a0the\u00a0stock market goes too high, their risk of a lower long-term return goes up.<\/p>\n

Round number reality<\/h2>\n

An older person, of course, wants stocks to rise and never return to earth. Irrationally high stock prices mean they are richer, at least on paper.<\/p>\n

Stock markets are, as Warren Buffett often points out<\/a>, a voting machine in the short term and a weighing machine in the long term. That is, prices can be wrong, even very wrong, for a while.<\/p>\n

But in time they correct to a realistic level and then usually build higher from there. Does it matter that we must passed a round number with a lot of zeroes after it? For the retirement investor serious about building a portfolio, not at all.<\/p>\n

What matters is owning stocks consistently, rebalancing periodically and adjusting that portfolio<\/a> to avoid unnecessary risk as you get age. Round numbers in the stock market are a distraction, a passing headline \u2014 and nothing more.<\/p>\n","protected":false},"excerpt":{"rendered":"

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