Going to the ‘market’ | VailDaily.com

Going to the ‘market’

Richard Loth

Columnist’s note: The fourth investors’ forum lecture and discussion will be held in the Community Room at the Eagle Public Library today from 6-7:15 p.m. The investment topic is “How to use a value line report,” which deals with selection and monitoring criteria for stocks. What is the ‘market?’ Not unlike many other fields of endeavor, the investment sector has developed a number of words and expressions that are well known and frequently used among investment professionals and experienced investors. However, when communicating with clients, often times I find that what I think is common-place usage is not always fully understood. At its worst, it comes across as unintelligible jargon.Among others, one of the most frequently questioned terms is one that is used a gazillion times a day in the investment community – “the market.” This term appears daily in the media and is used with unending frequency among investors at all levels. In investing circles, the question, “What’s the market doing?” is as common as asking about the weather. “Following the market” has become a national pastime rivaling baseball.Just what is this market everybody is interested in and constantly talking about? Generally, we are talking about the equity market, the institution where the buying and selling of stocks takes place. This activity takes place in a physical location – a stock exchange – or over an electronic network. Examples of these venues would be the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Just for the record, there are lots of other “markets.” For example, there are the bonds, commodities, foreign exchange and other markets, which, along with stocks, trade at locations all over the world. But for those of us here in the United States, our reference to the market refers principally to stock trading on the NYSE, NASDAQ, and to a lesser extent, the much smaller American Stock Exchange (AMEX) and the seven regional stock exchanges outside of New York.Globally, New York City is the major player when it comes to stock markets. The Wall Street area in lower Manhattan includes the three previously mentioned major stock exchanges and a collection of investment banks, brokerage houses, and other securities-related firms that make this location a market powerhouse. Suffice it to say, that the breadth and depth of this powerful institutional configuration makes people think of “Wall Street” and the “market” as one in the same.There’s another perception about the market by the general public that deserves clarification. The media, particularly television, which seems to increasingly dominate as a source of news especially for financial events, has elevated the Dow Jones Industrial Average (DJIA), better known as just the Dow or Dow Jones, to such a status that the investing public equates this index with the market. The price movement and trading volume of the Dow have become the market’s principal barometer. The NASDAQ comes in a close second.I would caution investors to question this perception. The DJIA is comprised of just 30 companies, albeit large ones representative of much of the economic activity in the United States. The NASDAQ listings number in the thousands, but, here too, there is a significant bias, in this instance, toward smaller, high-tech companies. You should know that the professional investment community looks to the Standard & Poor’s 500 Index (500 mostly large companies) as being more representative of the market. Stock and stock fund performance comparisons to the S&P 500, not the Dow or NASDAQ, are the norm for the industry. And yet, the Dow and the NASDAQ win hands down with the media when it comes to reporting on market activity.I would advise investors to avoid this misleading media focus and look at the behavior of the S&P 500 and the Dow Jones Wilshire 5000 Index, which is comprised of all publicly traded companies (more than 6,000) registered in the United States, as much more representative of the so-called market. The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing, an independent Registered Investment Adviser. Loth can be reached at mentor@centurytel.net or 328-5591.Vail, Colorado

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