Let the Blue Chips Fly, But Don't Kowtow to the Dow
Once again, itÛªs time to talk about the stock market. The reason, of course, is that last week Wall StreetÛªs most sacred icon, the Dow Jones industrial average, broke through yet another barrier, closing above 6000. This came less than 11 months after the market broke 5000, and less than 20 months after it broke 4000.</br></br>Be still, my heart. For despite the hoopla surrounding this pseudo-event, there arc lessons here: some new, some old. The new one is that you snouiun t pay very muc attention to the Dow, which is a crummy measure of the stock market even though everyone uses it, including me. The old lesson is that you shouldnÛªt let any number ending in three zeros determine what you do, no matter what assorted pundits and experts tell you. After all, itÛªs your money, your life, your investment decisions.</br></br>That said, a 6000 Dow raises the same questions people asked when the Dow hit 4000 and 5000. If you're not in the market, is it too late to join the fun? If youÛªre in, should you get out just in case the market has peaked? Will the next thousand-point mark the Dow hits be 7000 or 5000? No one knows, least of all those of us at Newsweek. WeÛªre the people who put a bear on the cover 2400 points ago.</br></br>But hereÛªs some advice, anyway, before we move on to something more interestingÛÓwhy itÛªs wrong to deify the Dow. Point one: Yes, sooner or later the market will fall sharply, despite stocks having defied history and logic by rising almost continually since October 1990. Point two: For heavenÛªs sake, donÛªt chase hot stocks or hot mutual funds unless youÛªre prepared to lose your shirt. Trend-surfing is fun, but sooner or later, you miss the wave and get wiped. Point three: Please, please, please donÛªt take the Dow too seriously.</br></br>If the Dow hadn't already been around for 100 years, no one would create it now. To be sure, very smart people tend the average and try to keep it up to date. Over the years they've modernized the Dow by leavening its portfolio of heavy industrials with such non-industrials as Coca-Cola Co., Walt Disney Co. and McDonaldÛªs Corp. Still, the averageÛªs built-in flaws make it subject to weird and random movements. And that brings us to the main and final point. The Dow can tell you which way the market is going, but it's a crude tool. Obsessing about small movesÛÓlike whether 6000 says something that 5900 didnÛªtÛÓis like using a cleaver to perform open-heart surgery.