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Be a savvy investor: focus on the percentages!

March 09, 2021
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It is essential to understand some of the market's fallacies when many in the media say "Record Gain" or "Record Drop". In many cases, they will use "Points" rather than "Percentages," which can be very deceiving. Perhaps it is done to make a better headline. Still, unfortunately, it can cause much undue excitement or fear depending on the story's tone. If an investor were to follow this misleading headline, it might prove counterproductive to their goals. For example, on March 16th, 2020, the Dow Jones dropped 2,997.10 points, and was reported as the largest daily market drop of all time at -12.93%. However, it was not even close. On "Black Monday" October 19th, 1987, the Dow Jones dropped 508 points, which at that time was equivalent to -22.61%, almost double the single-day loss.

Similarly, on March 24th, 2020, The largest "Point" gain was 2,112.98 (+11.37%), when the actual largest percentage gain in history was March 15th, 1933 at 62.10 points (+15.34%). You can look at the S&P 500 and the Nasdaq and see a very similar situation in that the "Points" are more exciting to present in stock market media than the "Percentage". The disparity between points and percentages will only continue to be more extreme as the points used to calculate the market averages grow. Savvy investors should ignore the excitement and focus on the percentages.

Check out the chart below for reference: 

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.  The Dow Jones, S&P 500 and Nasdaq indexes are unmanaged and you cannot directly invest into an index. Past performance is not a guarantee of future results. (03/21)