Dow Freak Out - reprinted from CNNmoney.com

A triple-digit change in the Dow means... almost nothing. Fortune's Allan Sloan explains the math, and why you shouldn't panic in tough times.

FORTUNE Magazine
By Allan Sloan, Fortune senior editor-at-large
July 30 2007: 9:56 AM EDT

NEW YORK (Fortune) -- You've got to love the stock market. Just about 10 days ago - on July 19, to be exact - the Dow Jones industrials closed above 14,000 for the first (and so far only) time and the financial world was full of happy chatter.

Then, almost before you could catch your breath (or cash in your profits), we had last week, with the Dow dropping 585 points and the total stock market (as measured by the Dow Jones Wilshire 5000) losing a cool $1 trillion in value. One day, the sky's the limit. The next day, the sky is falling.

How is a retail investor - which most of us are - supposed to think about this? I've been writing about markets and playing around with stocks for close to 40 years, but I have no clue where the market will go next.

I do know two things, however. First, that the worst way to invest is to buy when optimism fills the air like it did two weeks ago, and to sell out when everyone's predicting the end of the world, like last week. If you do that, you get whipsawed by buying dear and selling cheap.

The second thing I know is that you shouldn't freak out when you see triple-digit moves in the Dow, either up or down. As the market has climbed over the past 20 years - the first triple-digit Dow move came in October, 1987 - a 100-point move has become less and less significant because the overall market is so much higher than it was.

Consider, if you will, the table at the bottom of this page, whipped up for me by the folks at Aronson+Johnson+Ortiz, a Philadelphia money management firm. As you can see, three-digit moves, once rarities, have become relatively common. You can also see that 100 points means progressively less in percentage terms - and to be an intelligent investor you need to think in percentage terms, not react viscerally to triple-digit Dow moves.

Let me show you how little 100 Dow points mean, by explaining how Dow Jones determines the Dow number. The Dow's an arithmetic average, which you calculate by adding up the prices of the 30 Dow stocks and dividing the sum by the "Dow divisor." As of Friday, that wonderfully-precise number, which changes frequently, was 0.123017848. (Some day, I'll tell you how Dow Jones determines the divisor, which changes frequently. But this isn't the day.)

This means that a $1 change in any Dow stock moves the average by about 8.13 points (that's 1 divided by the divisor). So if the average price of all 30 issues changes by 42 cents - which isn't much - you get a three-digit move in the Dow. (Want to verify that? Multiply 0.42 by 30, then divide the product, 12.6, by the Dow divisor. Isn't this fun?)

To give you another example of how drops that are big in absolute terms aren't all that big in relative terms, consider the Dow Jones Wilshire 5000. The 5K, the most accurate measure of the overall U.S. stock market, includes all U.S. stocks, rather than just the 30 Dow industrials or the 500 in the Standard & Poor's 500 index.

On Wednesday, when the Dow dropped a sickening 311 points (its 16th-biggest one-day point drop ever,) the Wilshire racked up its 18th biggest one-day drop in points - but only the 90th biggest drop in percentage terms.

One way to protect yourself against Dow Freakout is to have assets other than stocks in your investment portfolio. During rapidly-rising stock markets, like the bull market that started in October of 2002 and that I think ended last week, money funds and high-quality bonds drag down your overall performance because they return much less than stocks do. But they protect you during a declining market.

If you bail out of stocks entirely because of the Dow's down days, you run the risk of missing the next bull market. Which will come sooner or later. So when will I be writing a piece warning you not to get carried away by the Dow's triple-digit gains? Beats me. If I knew that, I'd be a professional investor, not a professional writer. Top of page
Year Up 100's Down 100's Total Value of 100 Point Move**
2007* 15 14 29 0.8%
2006 19 14 33 0.9%
2005 15 20 35 0.9%
2004 22 24 46 1.0%
2003 38 27 65 1.1%
2002 51 67 118 1.1%
2001 49 50 99 1.0%
2000 53 53 106 0.9%
1999 52 36 88 1.0%
1998 37 25 62 1.2%
1997 27 25 52 1.3%
1996 2 4 6 1.7%
1995 0 1 1 2.2%
1994 0 0 0 2.6%
1993 0 0 0 2.8%
1992 0 0 0 3.0%
1991 1 1 2 3.4%
1990 0 0 0 3.7%
1989 0 1 1 4.0%
1988 0 2 2 4.9%
1987 2 3 5 4.4%
Source: Aronson+Johnson+Ortiz

*Through July 27
**Based on average close for a calendar year



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Dow Jones Reaches 14,000 | The Onion - America's Finest News Source

A little humour regarding the record stock market levels courtesy of The Onion.

Dow Jones Reaches 14,000 | The Onion - America's Finest News Source

Family fun - Finding a vacation that fits your budget

Just as you do when you’re working on a plan to meet your financial objectives, put your travel goals and priorities in writing. Warmer days are here again and that means many families are starting to plan their summer vacations. But, a holiday can be a significant expense, whether you’re staying in Canada or going abroad, so it’s important to think about some of the same things you consider when you build an investment portfolio: What are your goals and priorities? How much money do you need to set aside? Who can help you implement your plan? Let’s have a look at what some lucky Canadian families – each with two parents and two children – have in store over the next few months. Get ready to be inspired! ON A BUDGET Less than $1,500 The Robsons in Ottawa spent a week over the December holiday season at a Caribbean resort, so they’re looking for something lower key – and less expensive – to do with their kids this summer. Nine-year-old Josie has been studying hydroelectric power at school and has been talking enthusiastically at the dinner table about green electricity, so the Robsons decide to take her and 11-year old Eric to one of the sources. They seize the moment – before the summer rush and before Josie’s attention shifts to another interest – and book train tickets to Niagara Falls, with a hotel room overlooking this natural wonder. The price? Just over $1,000 (including taxes) for the four of them – leaving them with enough money for meals and a few souvenirs. Across the country in Vancouver, the Frasers are looking for something a bit more adventurous. Their son, Brad, is 14 and fascinated with boats of all shapes and sizes. He has been bugging his parents to take him and 12-year-old Lucy on a cruise for months, and they finally relent. But instead of booking in peak season, they decide to save money by taking an October berth. Their fournight Pacific coastal cruise, round trip from Seattle, in an inside stateroom will cost them about the same amount as the Robsons’ vacation – just over $1,000 (including taxes) for the entire family. READY TO GO $1,500 to $3,000 The Everest family in Halifax has a bit more room in their budget, thanks to careful saving throughout the year. They book a spring holiday at Disney World®, keeping a promise to take their two kids there when the older one, Derrick, turned 10. He’ll get to spend his birthday racing from ride to ride and singing “It’s a small world” at the top of his lungs. The Everests’ flight to Orlando, rental car and six nights’ accommodation will set them back about $2,800 (including taxes). Passes to Disney World will put them a little over budget – but it’s worth it for the excited gleam in their childrens’ eyes. In Edmonton, the Abbots have something similar in mind, but their kids have already been to Disney World so they decide to try out Disneyland® in California. Even mid-summer, in July, they are able to arrange roundtrip airfare to Los Angeles and three nights’ accommodation at a hotel right across the street from Disneyland’s main gate for just under $2,000. Airport transfers and a three-day pass to the park will cost them another $800. And they’ll have a few hours to explore the stars on Hollywood Boulevard in L.A., so there’s something in the trip for the parents and the kids. LIVING IT UP More than $3,000 The Masons in Toronto want to give their children a taste of Europe. They book a flight and six nights in London at a hotel across the River Thames from the Houses of Parliament and Westminster Abbey. Their 15-year-old daughter, Angela, can’t wait to visit Madame Tussaud’s famous wax museum and their 13-year-old son, Colin, is a big Harry Potter fan who is thrilled at the prospect of setting foot in England. Their airfare and accommodations will cost them about $4,000 – but the memories will be priceless. The Lavoie family in Montreal, including six-year-old Hélène and eight-year-old Marc, are ready to splurge as well. Their priority is spending a longer time away together and they decide the best way to do that is to rent a cottage in the Laurentians. They fall in love with a four-bedroom chalet on a lake with a dock and a canoe and spring for the $1,850 per week cost for two splendid weeks in August. The location, about an hour and a quarter away from home, means the drive there will be relatively inexpensive and they can cook their own meals in the well-equipped kitchen. NOW IT’S YOUR TURN! Of course, vacation possibilities are endless, so now that you’re inspired, it’s time to work out what your family wants to do. Sit everyone down and do some brainstorming. Talk about your interests and hobbies. Then get creative. If your family likes professional sports, consider a trip that takes in a few different cities. New York, Philadelphia and Washington are all within driving distance of each other and each host a professional sports team. If you enjoy the outdoors, think about planning a camping expedition in a national park – there are many in both Canada and the United States. If your family is keen on city-based museums and theatre, pick a big urban centre – perhaps even the city where you live – and explore it head to toe. Just as you do when you’re working on a plan to meet your financial objectives, put your travel goals and priorities in writing. That way, you’ll know exactly what to trim if you run out of time or money. For example, your primary goal may be to go bird-watching in a nature reserve, but a secondary goal could be to go whitewater rafting. If you can’t find a location that allows you to do both, prepare your entire family for the idea that you may have to go on a separate trip, maybe next year, to accomplish the second goal. Once you’ve determined your goals, you need to work out a budget that you can afford while you continue to save for other important objectives such as your childrens’ education and your own retirement. Keep in mind that transportation and accommodations are generally the biggest expenses, so start your calculations there. Remember to build in a contingency budget for the costs you can’t accurately predict, such as restaurant bills and cab fares. You may want to do some preliminary destination research and costing online, but you’re now at the stage when a travel agent can be tremendously helpful. Choose one who is a specialist in the geographic region that interests you and you’ll get plenty of insider tips that can help you plan a more satisfying trip and save you money. After you’ve made your booking, take the opportunity to teach your children a valuable financial lesson by encouraging them to save up for the trip too. Start piggy banks or, if your kids are older, open a bank account dedicated to your holiday. Tell them that you will convert everything they save from their allowance into the appropriate currency so they can bring it with them on the trip. Explain that they can use the money to buy souvenirs that will help them remember the experience once you’re all at home again. Help them understand that your vacation isn’t free and that by setting aside some money of their own, they’ll enjoy more flexibility to make purchases while you’re away. The bottom line for you and your kids is that when you plan well in advance, you can achieve your goals. That’s true when you’re building a financial plan, and it’s equally true when you’re developing the itinerary for your dream vacation. In both cases, it helps to consult the experts – a financial advisor and a travel agent – to help you realize your vision. Their expertise can help you determine what you can afford, present you with a range of options that meet your requirements and offer guidance as you make choices that get you where you – and your family – want to go. Happy travels! SHRINK YOUR ENVIRONMENTAL FOOTPRINT Travelling by air has an environmental cost, but the innovative Green Flight Program offered by UNIGLOBE Travel can help you offset the greenhouse gas emissions associated with your vacation. UNIGLOBE offers travellers the opportunity to purchase carbon dioxide offset credits, with the revenues from these credits used to fund Canadian-based sustainable green energy technology projects approved by the federal government. The cost of “greening” a return flight from Vancouver to Toronto is less than $25 per passenger – and you do not have to purchase your air ticket with UNIGLOBE to take advantage of the program. TOP 10 TRAVEL TIPS 1. Always get travel insurance. For about the same cost as a coffee a day, forget the stress of worrying about missed flights, lost luggage or health care coverage. Also note that provincial medical coverage does not cover you if you visit other provinces in Canada. 2. Make sure your travel documents are appropriate and current. Many countries require a passport that is valid for six months after you return home. 3. Ensure that you are aware of the luggage limits for the airlines you’ll be traveling with. If you need to carry extra items, look into the extra bag fee as it is usually cheaper to divide your items into two bags rather than pay one overweight bag charge. 4. Decorate your luggage with bright stickers or ribbons for easy identification at the baggage carousels. 5. Give your airline your contact number at your destination in case there is a change to your flight times and be sure to confirm your flight 24 hours prior to departure. 6. When flying with small children, try to book the bulkhead seats, which are the first row in economy class. Not only do these offer more leg room, but many airlines provide a bassinet that can be attached to the wall in front. 7. Keep a spare credit card and copies of your important documents (including your airline ticket, your passport’s identification page and your travel insurance policy) separate from the originals in case they are lost or stolen. 8. Arrange for someone to pick up your mail and newspapers while you’re away or put a hold on delivery of these items until you return. Purchase an auto-timer for your lights and radio and leave your window blinds as you normally would so nothing looks out of the ordinary. Finally, don’t forget to turn down your thermostat at home and empty your refrigerator of any perishable food. 9. Protect your health while you travel. If you have food allergies, learn the names of those foods in the language used in the country you will be visiting. In addition, ask your doctor about the recommended vaccinations for your destination. 10. Pack your carry-on luggage wisely. Remove anything that could be deemed threatening, such as metal nail files, scissors, Swiss Army knives and tweezers, to save them from being confiscated. Also be aware of new restrictions that limit the fluids you can carry on-board. Courtesy of Flight Centre START YOUR RESEARCH HERE Want to explore Canada? www.canada.travel How about the rest of the world? www.towd.com Thinking of renting a cottage? www.cottagesincanada.com Or maybe exploring a national park? www.pc.gc.ca How about a driving trip? www.transcanadahighway.com All travel cost examples except the Laurentian cottage were provided by Flight Centre and are accurate as of February 8, 2007. The Laurentian cottage cost was provided by www.atthecottage.com and was accurate as of the same date. All examples cover major vacation costs (travel, accommodations, rental cars and park passes) and do not include variable expenses including meals, attraction fees and souvenirs.

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