Monday, July 16, 2007

ADA: Peeps Be Watchin' the Stock Market

Alternate Dimension Andy (ADA):

So maybe you bought a couple shares of that goatee wax company. Good for you. Your fucking medal is in the fucking mail, fucker. Seriously, though, good for you. And maybe you have OCD, and maybe you spend your days tracking every movement of the company's stock. Perhaps you call up the company, just to hear Horace's voice on the phone.

And yet, through all this, you wonder: How'm I doing? Not in a profound, life improving way, mind you. Just in an Is the grass greener? sort of way.

You are not alone. I mean, in the profound way, yes you are. Please stop calling Horace. But in the "wanting to make sure you're doing it right" way, you're definitely not alone.

A couple of big companies (Standard and Poor and DOW) have asked the same question and come up with a pretty darn good answer: indices.

The idea goes like this: there's all these companies out there. If we picked, say, the 500 that were worth the most, and we invested the same amount in each of them, how much could we expect to earn? Even sweeter idea: what if we listed a whole bunch of companies by industry -- raw materials, technology, healthcare, etc. -- so that we could see how well stocks in a particular industry were doing, relative to the average?

That's all an index is: a benchmark. A penis-measuring contest. A way to remove the FUD that you are small, and that the dudes around you know it. Now you don't even have to buy a Hummer to compensate; you can just know that you're doing fine.

There are whole bunches of indices, but the two you'll hear about the most are the S&P 500 and the DJIA. The S&P 500 is put together by Standard and Poor. It's a measure of how well the top 500 blue chip stocks (a company that has a long record of profit is a "blue chip") are doing. The Dow Jones Industrial Average (The Dow, DJIA) is a measure of the top 30.

So if you're wondering how your stock is doing, you can compare it to the Dow. If the Dow has, over the past year, gone up 10%, and your stock has gone up 12%, you're "beating the market." If the Dow has gone up 10% and you've gone up 4%, I'm sorry to say that you're below average... but, erm... size doesn't matter or something?

Anyway, it's nice to be able to grade yourself. Perhaps now, you'll leave Horace alone?


Mike said...

who is horace?

So "The Dow is up 10%" and my stock is up 15%. This means I'm 5% ahead of the market, and that I'm cool right?

tich me the ways! :D

Andrew Kasper said...

Horace is the dude from my first post about the stock market. He has a goatee wax company in an alternate dimension.

And yeah, if you're using the DJIA to measure your success, and you're making 5 percentage points more in your stock, then you're beating the market. Nice!