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.
And 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.
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