Can you imagine?
Actually, you don't have to. We just made that move a few weeks ago.
In March of 2008 the Dow Jones Industrial Average was sitting at 6500.
Today (still within the same presidential administration if you can believe it) we sit at 19,900 (give or take). That move - roughly a tripling of value - is no different than moving from where we are today to Dow 60,000.
"Now wait just a cotton-pickin' minute!" you may be saying (if you enjoy talking to yourself and using folksy expressions), "The market environment was totally different then. That was at the very bottom of the mortgage/banking crisis after tumbling from an all-time high. Not the same thing!"
Fair enough. So let's look at the other side of this framing exercise coin. Yes, the Dow had been at an all-time high before the plunge, after a long, steady ascent - much like it is now. So instead of picturing Dow 60,000 picture Dow 9000. I mean actually stop and try to picture it; the slow boring decline interspersed with moments of panic, the futile attempts of stop it, the mainstream articles declaring equities are dead (again). (Psychologist Note: Allowing yourself to re-experience not just the event, but the accompanying feelings is a form of emotional inoculation against a reoccurrence of that event.) It is entirely possible that we will be talking about reaching Dow 10,000 (again) before Dow 20,000.
So while we consider Dow 20K and its place on the investing topography, let's look at it in light of the Mariana Trench we've been through and Mount Everest that lies ahead.
Now, if it looks like I am trying to come off as some dispassionate observer, immune to these market moments, I assure you I am not. Not by a long shot. I love it when the Dow hits round numbers. It's just fun. I also love it when the odometer on my car hits 11,111 and for the same reason. (Glancing down at your odometer and seeing 11,112 is one of life's little moments of "Damnit!")
Our pattern-seeking, control-craving, short cut-taking brains will always appreciate numeric quirks. That's fine. We just need to make sure we appreciate milestones for what they are not.
Market milestones aren't finish lines. They aren't achievements. They aren't transition points demanding actions. Market milestones aren't even milestones in the traditional sense. (The original milestones where markers showing the distance to a set destination. You can't have milestones to infinity.)
Here are some quick tips for helping clients deal with Dow 20,000:
- If you have a client who is explicitly or implicitly waiting for Dow 20K to take an action – 1) Ask them why – (you will get some interesting answers), 2) Explore/challenge them to take those actions today. This phenomenon indicates an unmet emotional need associated with the milestone – because there certainly is no financial need associated with it. It is a great teaching moment and way to demonstrate your value to your client.
- Help clients avoid anchoring to the Dow 20K figure. (Anchoring – being disproportionately influenced by salient numbers is one of the most common pitfalls there is.) Force them to expand their breadth of their vision by looking at numbers higher and lower. I suggest "framing" the number by using the numbers above - Dow 20,000 seems like a very big deal, until you bookend it with Dow 9000 and Dow 60,000 - but introducing any new, salient numbers will help diminish the anchoring effect of Dow 20K.
- Refocus on goals. Whenever attention is drawn to the market movement, the attention is being drawn away from the client's goals. And this latter focus is by far the healthier and more important one. Ask good questions about why clients are investing and what they want their lives to look like. Doing so creates a forced choice in the brain that puts them on a more productive pathway. See MPI's Slide Show Method for details on implementing this process.
NOTE: Even as I write this, I see the Dow slipping further away from the 20,000 figure. There is no telling when it will get there. But I've got something every bit as important and just as much fun going on anyway. As fate would have it, the odometer on my car is sitting only a hundred miles away from 20,000. And unlike the market, that always goes up.
Have a happy, healthy and prosperous new year. And as always…
Hey… let's be careful out there.
Frank Murtha, Ph.D.