Bungee investing

bungee_jumping.jpg This must be what bungee jumping is like. Way down, a little up, down more, up less. The Dow 30 on Tuesday jumped 485 points, a day after diving 777 points.

When the “financial meltdown” became public last Monday, the market plunged 540 points in the first two days of trading, then ended the week down only a couple hundred points.

Is it really worth getting all hot-and-bothered — or giddy — on a day-to-day basis?

On the first day of trading after September 11, the Dow dropped 684.81 points (at the time only the 14th worst decline ever). It went on to lose a total of 1,369 points that week, and got half of it back the next week. Within two months, the Dow was back to its previous 9/11 levels, and then some. All that worrying that it was the end of the world, and it wasn’t even the end of the quarter.

After 9/11, the biggest one-day drop was February 27, 2007, a day when the Taliban tried to assassinate Dick Cheney. The Dow dropped 416 points. It snapped back 52 points the next day. It took a little over a month to return to the previous levels.

Here are the other big point losses

April 14, 2000 -617.78 . It went up 276 points the next day and blasted back to its previous level within 6 days.

October 27, 1997 -554.26. It regained 337 points the next day, and was back to its old self two weeks later.

August 31, 1998 -554.26. The market regained almost 300 points a day later, and reached its previous level two weeks later.

October 19, 1987 -508. It regained 288 points over the next two days, but it took 13 months to return to the level the market was at.

  • Joel

    You’re absolutely right, Bob. That’s why I think it’s crazy to buy in to this idea that we must act NOW in order to save our economy. Work out the problem but do it with a little prudence and due diligence. They go a long way.

    I think.

  • Points, points, points – yes those are pretty big drops. But, I’d like someone to talk about those points in relation to the total DJIA. In 1987 when the Dow dropped over 500 pts, the total Dow was UNDER 3,000! I don’t remember the Dow then – but maybe 2500? So the drop was about 20%? The drop of under 800 points when the Dow is over 10,000 is under 12% – not so drastic!

    In 1987 people were considered radical when they claimed that the Dow would exceed 3,000 IN OUR LIFETIMES!! – and we were over 12,000 for a good while – consistently over 10K for quite some time. In only 2 decades that is a 300% growth – maybe too fast?? I’d like to hear some comments about this perspective.

  • Bob Collins

    Most of the big percentage drops in the market were back in the ’20s when the Dow was at 30.

    12/12/14 was the biggest % drop… 25%.

    But, 1987 was the second biggest at 22.6 followed a week later by one of 8% (which also ranks in the top 10).

    Monday’s declie was 7%, which doesn’t put it in the top 10, but puts it really, really close to it.

    It was bad.