Last October, we noted that Dow 10,000 was “a meaningless number, without any impact technically or quantitatively. Its no surprise that the Dow did not hold over 10k for very long. Its been over 26 times, starting in 1999. And hear it is, 10 years later — zero progress. Why anyone — other than tv producers and silly hat manufacturers — cares about D10k is quite simply beyond my comprehension . . .”

The WSJ’s Carl Bialik comes to the same conclusion:

“Arbitrary milestones pervade economics, finance and everyday matters. Some carry more meaning than others: Foreign-exchange markets can rattle national confidence when one country’s paper money threatens to drop below parity with a rival’s, which is a meaningful threshold because it is felt in the portfolios of those swapping currencies. It’s less clear why double-digit inflation and unemployment should carry more political weight than rates just less than 10%, particularly given the controversies about how the numbers are calculated.

The milestones are the result of our brains’ attempts to impose order and assign categories to numbers that vary continuously . . . Further diminishing their importance, milestones often don’t change when underlying conditions do. For example, it’s a lot harder for an album to sell one million copies than before music was sold and swapped online, but that’s still the criterion for platinum status. In baseball, some Hall of Fame voters treat 500 home runs and 300 wins as thresholds for sluggers and pitchers, respectively, even though homers have gotten easier to come by, and wins harder.”

A bit more eloquent than what I wrote, but the same general prinicple.

Hey, these charts look strangely familiar:
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TBP, October 2009
D10k

WSJ, February 2010

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Remind me to fire my lazyass copyright attorneys next week!

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Previously:
Dow 10,000, We Hardly Knew Ya! (October 16th, 2009)
http://www.ritholtz.com/blog/2009/10/dow-10000-we-hardly-knew-ya/

Get Those Dow 10,000 Hats Out of Storage (February 5th, 2010)
http://www.ritholtz.com/blog/2010/02/put-those-dow-10000-hats-back-into-storage-for-now/

Source:
Milestone Figures Grab Attention, but Their Impact Is Hazy
CARL BIALIK
WSJ, FEBRUARY 12, 2010
http://online.wsj.com/article/SB10001424052748703382904575059862880464510.html

Category: Psychology, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Read It Here First: Round Numbers Don’t Matter”

  1. Only kidding Carl — I read your column all the time!

  2. ben_grahamster says:

    This makes your point almost as well as you do, Barry: http://snipurl.com/uctn4

  3. morgentd says:

    “[round numbers] meaningless …, without any impact technically or quantitatively”

    When I turned 50, my wife asked how it felt. I explained that being 50 only seemed significant because we count in base-10. Without missing a beat she replied, “That’s right. If we counted in base-7 you’d be 101.” That was not without impact.

  4. franklin411 says:

    Their circles are more circular than yours.

  5. Mike M says:

    TBP’s charts look oddly familiar to Gluskin Sheff’s.

  6. Patrick Neid says:

    It helps keep the math simple. If we replicate the 2oth century we’ll be trading at a million this century. Based on that they will probably starting selling 100 year calls!

  7. Ken M. says:

    Hey Barry, Remember back during all the baseball controversy over Bonds’ HR record? You posted another Dow article … with an asterisk after the number. Got a chuckle from that one… –K

  8. seana0325 says:

    Anyone have any thoughts on the yahoo finance Robert Kiyosaki article?

    http://finance.yahoo.com/banking-budgeting/article/108837/dead-cat

    Is this guy another Ben Stein or is he pretty well respected in the industry? I know he isn’t a trader but made his wealth in Housing.

    He’s pretty dang sure we’re about to go into the shitter and gold is really the only thing to buy at the bottom?

    Agree?

  9. RW says:

    Robert Kiyosaki? “Rich Dad, Poor Dad” Kiyosaki? Annointed “investor, businessman, self-help author and motivational speaker” Kiyosaki?

    Ben Stein with an Oedipus complex: You might get worse advice from a garbage pail but, then again, the garbage pail would charge less for the privilege.

    If we do indeed drop into the shitter AND gold rallies then Kiyosaki will use that fact in his next promotion; if we don’t it will either not be mentioned again or hewill discuss how investors misunderstood his guidance.

    Shorter version: People like Kiyosaki don’t buy gold, they buy column space; avoid.

  10. what are you complaining about Barry? That it took the MSM less than six months to repeat what you say this time? :)

  11. DopeBoyFresh says:

    RW is spot on – he buys column space; avoid!

    Kiyosaki is a hypocritical clown. He’s also that “…I told ya so” guy. I remember reading one of his yahoo finance columns a couple years ago where he was talking about how gold (I believe $700/oz range) was way overpriced and in a bubble, and how he bought gold at sub $300/oz in the early 2000′s. He was telling that they all missed the boat on gold, and telling them not to buy it. In his most recent article he trumps his buying gold in the early 2000′s at sub $300 by claiming he was buying in the early 70′s at $35/oz. WOW! What a star! This guy belongs in a Circus.

    If they archive his shit on yahoo finance it has got to be there.

  12. wunsacon says:

    I obtain all my earnings forecasts from the firm of Kiyosaki, Stein, and Kudlow, Ltd.

  13. VennData says:

    In fact, the DOW index itself is fairly quaint. Thirty price-weighted stocks picked by a newspaper editor?

    Of course, someone thinks it’s valuable.

    http://online.wsj.com/article/SB10001424052748703455804575057433840097028.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

  14. CDizzle says:

    Maybe I’m oversimplifying, but the number of “touches” of Dow 10K lead me to wonder if it ISN’T an important mile post on the road.

  15. CDizzle says:

    Though not necessarily because it is 10,000. It might as well be any other number. So yes, round numbers don’t matter. But maybe Dow 10K is significant.

  16. Maybe I’m oversimplifying, but the number of “touches” of Dow 10K lead me to wonder if it ISN’T an important mile post on the road.

    In the movies, when they keep saying,”Didn’t we just pass that tree?”
    You know what that usually means….;)

  17. [...] Why round numbers loom large in our decision making.  (WSJ, Big Picture) [...]

  18. [...] Figures Grab Attention, but Their Impact Is Hazy“.  A similar message comes from Barry Ritholtz; that Dow 10,000 has become “a meaningless number, without any impact technically or [...]