Current THINKING
March 6, 2013
Record Dow: What does it mean?
Yesterday’s news of the Dow Jones Industrial Average (DJIA) reaching and surpassing it’s
prior record close caused a bit of a stir at Sheffield Investment Management, Inc. (SIMI).
As our readers are likely aware, the Dow’s gain of 126 points, to 14,253, took it past the
prior record close set back in the heady days of early October, 2007.
A healthy debate arose here at SIMI as to “what does this mean?” From a purely financial
analysis standpoint, the milestone means nothing. 14,164 (the prior record level) is simply
an arbitrary number with no particular significance. By its very nature, the DJIA is a
synthetic measurement tool — historically a bellwether for the broader U.S. market. This
basket of 30 U.S. industrial stocks is quaint in comparison to vast, sophisticated indices
available today. From a portfolio management standpoint, attention paid to the Dow’s
milestone can be viewed as, at best, unduly sentimental, and at worst, irrelevant and merely
a distraction.
However, a counter-view holds that the event’s significance lies in a broader context. After
a long and difficult 5 years, marked by the collapse of the housing market, global recession,
rise in unemployment, and a dramatic market decline of over 50%, the U.S. stock market as
measured by the DJIA has managed to fight its way back to a new high. Markets are
anything but sentimental; instead, they serve as gauges of current expectations about the
future. Such was SIMI’s point in our fourth quarter letter to clients a few weeks back. This
belief was also part of our thinking when we began increasing clients’ equity exposure back
in early 2012.
Yesterday’s market move made the DJIA’s record the big news of the day, prominently
talked about on radio, cable news, the internet, and water coolers all over. In our current
environment of fiscal cliffs, sequesters, deficits and political dysfunction, a little bit of good
news appeared, much as a ray of sunshine can pierce through the gloomy clouds. Hope
abounds.
At SIMI, we’ve seen markets go up, and markets go down — as they surely will do in the
months and years ahead. Speaking proverbially, we pause for a moment to take off our
green eye shades and tip our hat in recognition of the DJIA’s new record.
As always, we welcome your questions and comments.
R. William Lee, III
Chief Operating Officer
Sheffield Investment Management, Inc.
(770) 953-1597
900 Circle 75 Parkway
Suite 750
Atlanta, Georgia 30339
(770) 953-3586 (fax)
[email protected]
www.shefinvestment.com