Wake me up when this is over (how to handle the stock market)

Recently, on a business news feed I subscribe to using Google Reader*, I’ve noticed a daily recurring AP story that does nothing more than list the Dow Jones Industrial Average daily gains or losses since last September 15, the day Lehman Brothers filed for Chapter 11 bankruptcy protection — setting off one heck of a volatile DJIA roller-coaster ride.

We now know that the recession officially started in December, 2007 — ten months earlier. Yet, perhaps because we want to follow the economy like we follow sports, we’ve collectively decided that the DJIA serves as some sort of daily proxy for “the economy.” (If the DJIA were so smart, it would have known the recession started in December, 2007, but I’ll suspend disbelief and play along with the fairy tale that “professional” traders are doing something other than gambling.)

I don’t follow market gyrations and my investment strategy is long-term (although, I set aside a small sum to buy things Jim Cramer says sell, which is always the best performing part of my portfolio). Therefore, glancing down the closing averages over the past 12 months is a fascinating — and perhaps informative — exercise.

Last night, I pulled out the old slide rule and noticed the following:


9/15/2008-8/28/2009 – DJIA closing

The high was on 9/19 – 11,388.44
The low was on 3/09 – 6,547
The close yesterday was – 9,580.63

% loss from high to low 42.51%
% loss from high to current 15.87%
% gain from low to current 31.66%

In other words, if you were just waking up from a nap that started last September 15, you would be thinking the market is down about 16%. Bad, but not as catastrophic as, say, you had woken up on March 9 and discovered the market was down 43%.

Fortunately for me, around March 9, Jim Cramer was screaming that people shouldn’t buy Apple.

*Notice how I didn’t use the initials RSS so as not to scare people who want to keep on top of a subject, but are afraid of initials.