Yesterday’s Market Drop in Perspective

The 10-biggest drops in stock market history.

I have noticed a couple of bloggers talking about yesterday’s 416-point drop in the Dow Jones Industrial Average. Then, this morning I see this article on the front page of MSN titled Should You Fear a Market Meltdown (titled in such a way to get LOTS of attention).

Yes, 416 points SEEMS like a lot of points. I mean, according to my local newpaper, yesterday’s drop was the 7th largest point drop in history as the graphic below shows (I highlighted yesterday’s drop):

Dow Jones Industrial Average - 10 Biggest Point Drops in History

So, point-drop wise, yesterday’s drop ranks right up there with the big boys. However, lets look at it percentage-wise:

Dow Jones Industrial Average - 10 Biggest Point Drops in History - Table 2

Consider this: Had the market dropped 22.61% like it did in 1987, it would have been down 2,856.18 points yesterday!

Always remember that the higher the market goes, the GREATER the point drop is even though the percentage drop may not be that big. It’s kind of like tax cuts. Say taxes drop 10% for everyone. Someone who pays $100,000 per year in taxes will get a $10,000 tax cut while someone who pays $10,000 per year will get a $1,000 tax cut. The percentage cut is the same, the dollar amounts are vastly different.

9 thoughts on “Yesterday’s Market Drop in Perspective”

  1. Very good point. The percentage table is incredible. I remember the feeling in my gut on 10/19/87. I was home sick that day and was overly invested in stuff I should not have been.

    Now I am smarter, and may not make a killing in 1 month but I can sleep at night. I am just hoping the market stays down until the 5th when I am scheduled to have some more money invested 🙂

  2. Uh, maybe I’m just too naive–but I’ve always looked at it like this: As long as I’m still holding on to my stocks/mutual funds etc, I haven’t actually lost or made any money until I’ve sold them. It’s all basically theoretical to me until that point. (sort of a financial schrodinger’s cat)

    So, maybe I’m a total idiot. But I’m 34, I don’t need to retire for over 20 years, and thinking that way makes it so I don’t freak when things like this happen. Maybe naivete is working in my favor?

  3. Jenn, it is true it is true they would only be paper losses until you cash them in — problem is one day you do have to cash them in. Owning a broad diversity of stocks helps, but I have friends who were buying everything Tech during that bubble. They were making a fortune (on paper) but when the bubble burst they lost real money. Companies they had invested thousands in no longer existed.

    If you buy before the bubble it is not a problem if the bubble pops. If you buy at the top of the bubble — you may never see that stock recover.

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