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The Dow Crosses 12,000 Again

As I write, the Dow has just closed at 11,952 and has now had six down weeks in a row.

It’s hard to escape the financial press, ever reminding us of this recent development. Yes, it’s somewhat disheartening to read that the market has declined for the 6th week in a row, a first since 2002 according to the media. To be frank, it’s really not that much fun for me watching the market drop either. In fact, it can be down-right aggravating seeing the headlines about the debt ceiling, Greece, foreclosures, unemployment, inflation, and the many other sensational topics today while watching portfolios decline in value.

The question remains though. Just what are we to do about it? Since there is much about investing and cash-flow planning in other areas on this blog, I won’t spend time focused on those areas now. I do believe, however, that there is one thing that can help a lot, though it’s not very exciting. It is to keep perspective.

Actually, these downturns are quite common. According to the Capital Research and Management Company the Dow has lost 10% or more of its value about one time per year since the year 1900. The average duration of these short declines is 115 days, or about four months.

When was the last occurrence? About a year ago on April 26th 2010 the Dow was at 11,205 and began a decline that ended on July 2nd. At the end of that day it stood at 9,686 and had experienced a 13.5% drop. So, that’s a bit more than 10%, and lasted a little less than four months.

Just like normal, right?

I wonder how many long-term investors remember, or even noticed this degree of decline about a year ago? I suspect most of us weren’t paying much attention, but we all most likely heard all about how bad everything was from our friends, neighbors, and the media. I suspect the same will be true this time around.

On April 29th 2011 the Dow was at 12,810 and as of today, it is down about 6.7%, though it still remains in positive territory for the 2011 calendar year. Am I predicting a further decline, or that this current downturn is over? Absolutely not! I just think it can be helpful to put things in perspective and to remember that these short-term drops are not only typical, but necessary for capital markets to function properly.

Despite the doom and gloom there actually are positives with respect to the prospects for global economic growth going forward. Perhaps that may be fodder for future posts. Until then, I guess you’ll have to take my word for it. Or, simply contact me and I’ll be happy to give you my perspective.

Maybe by then the Dow will have crossed 12,000 – Again.

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