The stock market seems incredibly turbulent. Write "turbulent stock market" in your Google News search bar and count the hits. This summer, you don't have to go to Six Flags to ride a roller coaster.
It's all nonsense, of course. A market that slips 6% from a recent high, or pitches up or down 2% in a given day, is not a market that is roiled by turbulence. The raw numbers--Dow in the teens, daily gains or losses in the 200-plus range--only make the stock market seem turbulent. On a ratio basis, what we're seeing is mere light chop (to borrow a pilot term).
Put another way, what would happen if the Dow sank 3,000 points tomorrow? That would be a record drop, nominally. But on a percentage basis, a 3K plunge would be less than the one-day drop on Oct. 19, 1987, known as Black Monday.
From Wikipedia:
Black Monday is the name given to Monday, Oct. 19, 1987, when the Dow Jones industrial average fell dramatically, and on which similar enormous drops occurred across the world. By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. (The terms Black Monday and Black Tuesday are also applied to Oct. 28 and 29, 1929, which occurred after Black Thursday on Oct. 24 , which started the stock market crash of 1929.)
The Black Monday decline was the second largest one-day percentage decline in stock market history. The largest one occurred on Saturday, Dec. 12 ,1914, when the DJIA fell 24.39%. However, in that case, the New York market had been closed since July due to the outbreak of the First World War. The greatest point loss in DJIA history was on Monday, Sept. 17, 2001, 684.81 points, six days after the Sept. 11, 2001, attacks and the first day after which the market was open.
You see, the turbulence of the summer 2007 is nothing.
Yet it feels like a lot. Which leads to this suggestion: Why not do a 10:1 reverse split of the Dow? Let's just call it 1,335. Then we'll all stop worrying when the market goes up or down 20 points in a day.
This may strike you as a silly suggestion. Of course. But humans are silly, or at least irrational. Many of us are chewing our nails in a market that is actually quite calm, simply because we are awed by the raw numbers. We are apparently incapable of minding the ratios instead of the numbers. So why not admit this irrationality, do the 10:1 split and take the rest of August off?
What do you think? Do you like the idea of a 10:1 reverse split of the Dow Jones industrial averages? Would this calm our irrational fears about market turbulence and volatility?
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