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Monday, Sep. 14, 1998
Dow's shaky daily average less vital than percentages
Instant computer access to market changes gives investors a more volatile impression
By CHET CURRIER
Associated PressNEW YORK - If the stock market has left you feeling dizzy these days, the biggest problem may not be volatility, but velocity.
While triple-digit point swings in the Dow Jones industrial average make headlines, many investors know that what really counts, the percentage changes, haven't been quite so outlandish lately.
In the current era, the crash of 1987, the bear market of 1990, and selloffs like the big drop last October and the summer slide of 1998 all have produced declines of between 15 percent and 36 percent.
None of those approaches the damage inflicted in the Great Crash of 1929 through 1932, when losses ranged up to 90 percent, or the bear market of 1973-74, when indexes fell 45 percent or more.
By many statistical measures, the stock market in the 1990s has been no more volatile than it was in the past, measuring from top to bottom of each move up or down.
What is different now is the amount of time it takes for investors to sense changes in economic and financial conditions and to reprice the stock market accordingly. In an era of instant communications and automated markets, reaction times keep getting shorter and shorter.
The notorious declines in the early '30s and the '70s took two to three years to run their course, and subsequent recoveries were also years in the making.
By contrast, the 1987 drop began in August and was over by early December, and the 1990 decline took less than 90 days. Last fall's selloff was even shorter.
That's appropriate, a cynic might say, for an age when so many people seem caught up in a mindless rush. But the stock market's modern behavior isn't really mindless. Its lightning-fast reflexes can be seen in important ways as a positive development for investors.
A generation or two ago, information of importance to investors tended to ripple slowly outward from the source. Professionals and other smart-money types got it first, well before it made its way through retail channels to the public.
Today, innovations like the Internet bridge much, if not all, of this gap.
Today's fund managers compete among each other more intensely than ever, in part because so much information about them and their performance is so widely and so rapidly disseminated.
They need to do more homework, more correct analysis, than ever. They just have to do it faster. In many cases, they must consider all the possibilities before news breaks, rather than after.
Besides, if staid, slow-moving investment committees possessed any reliable formula for consistently good results, bank trust departments would never have lost as much competitive ground to modern mutual funds as they have in the last 25 years.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web