Procter & Gamble Destroyed $4.5 Billion of Investor Value Today -- Should You Care?

Procter & Gamble just dropped $4.5 billion of its market cap and 11 Dow points, but serious investors shouldn't care about either of these figures. There's a better tool.

Feb 12, 2014 at 2:00PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

At lunchtime today, the Dow Jones Industrial Average (DJINDICES:^DJI) had destroyed $11.2 billion of investor value.


Procter & Gamble (NYSE:PG) was the worst offender any way you slice it. P&G updated its 2014 guidance to reflect currency headwinds in Latin America, slashing sales growth estimates in half and reducing bottom-line targets. The consumer products giant saw its shares fall 2.2% this morning, slicing $4.5 billion off of its $215 billion market cap. P&G also happens to have a share price near the Dow's $83 average, so the move translated into a respectable 11-point Dow index penalty.

Another four Dow stocks dropped more than $1 billion of market value each. Because big market caps don't always translate into high share prices (share counts matter, people!), and because the Dow is based on share prices rather than total market values, these outsized value destroyers had a relatively small effect on the Dow itself.

Some of these top-five market value losers reduced their Dow scores by very small amounts. Pfizer (NYSE:PFE), for example, lost 0.8% of its investor value, or $1.5 billion -- but only two Dow points thanks to a share price just above $30. The lack of positive news from an FDA advisory oanel over heart medication risks may move Pfizer investor portfolios -- but the Dow doesn't care much.

WwwAnd at the other end of the scale, Microsoft (NASDAQ:MSFT) jumped 0.6% higher to boost its voluminous market cap by roughly $2 billion. There's no big news to drive Microsoft's modest jump, but this company is big enough to create or destroy the equivalent of a low end mid-cap stock on random market noise.

Oh, but none of that matters to the Dow. Microsoft's value-building surge only added 1.5 Dow points to the index.

Meanwhile, Visa (NYSE:V) moved as much as Microsoft but trades for six times Redmond's share price. Hence, Visa added six Dow points without actually moving any further. Like Microsoft, there's no obvious reason behind Visa's reasonably large move. But that didn't stop the stock from moving the blue-chip index in a way that Microsoft couldn't match.

The big takeaway
All of which boils down to the simple fact that single-day market moves really don't matter much. "We don't believe in timing the market or panicking over daily movements," says the disclaimer at the top of this page -- and we mean it. This is particularly true for the various market indices.

The Dow cares about big share price moves. It doesn't matter if you're looking at large or small percentage moves, or mow much total investor value the price change represents.

Using the market cap weighting of the S&P 500, the Dow would switch to looking at total market cap changes. Here, Microsoft's move would matter twice as much as Visa's -- Redmond's market cap is about twice the size of the credit card processor's.

But to you, none of this should matter. Owning Microsoft or Visa would boost your holdings by 0.6% either way, regardless of the varied share prices and market caps. Stop worrying about daily static on the Dow or the S&P 500, keep your eye on the ball that's actually affecting your personal returns ... and start planning for a comfortable retirement by looking at the right kind of moves.

Where can I learn more about serious investing?
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Visa. The Motley Fool owns shares of Microsoft and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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