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Dow 10,000 mark means little, area brokers agree

March 17, 1999|By BRENDAN KIRBY

After weeks of flirting with the 10,000 mark, the Dow Jones industrial average briefly cracked the milestone Tuesday morning.

Local investors and money managers greeted the news with a collective yawn.

"I don't get too excited about hitting those benchmarks," said Jeff Petrucci, who owns Heiston Supply in Martinsburg, W.Va. "It's nice that it's going in the right direction instead of 6,000."

Petrucci, who owns mutual funds and individual stocks, said he invests with an eye toward the long term. So while rooting the Dow toward 10,000 may be fun, he said the number holds little practical meaning.

Many stockbrokers throughout the Tri-State area agreed.

"I think it's more of a psychological milestone than anything," said John Hershey III, senior vice president and Hagerstown branch manager of Ferris Baker Watts.

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The Dow hit 10,001.79 Tuesday morning before quickly falling back. It closed down 28.3 points from the day before.

The push toward 10,000 has captured the attention of financial media in recent weeks as the oldest and most famous American stock market index inched toward a mark that seemed unreachable a decade ago.

The Dow has been used as an overall snapshot of the economy because of its history and the fact that it contains companies with household names like Coca-Cola, Eastman Kodak and General Motors.

But it is not the only stock index and, some argue, not even the most important. Standard & Poor's 500, for instance, tracks 500 publicly traded companies.

The Dow, by contrast, measures a handful of large companies traded on the New York Stock Exchange. The number is determined by a formula that calculates the value of those companies.

"That is only a measure of 30 stocks," said John Everson, senior financial adviser for American Express Financial Advisors in Martinsburg. "Most of our clients aren't too wrapped up in it. They're more focused on the long term anyway."

Still, some brokers admitted that topping 10,000 is exciting.

"Everybody's rooting for it to cross 10,000 because 10 years ago, nobody thought we'd ever hit 10,000," said Sid Huguenin, associate vice president and manager of the Hagerstown branch of Legg Mason. "The financial media makes a big deal out of it, and we even get caught up in it."

Huguenin said he recalls watching a financial program during the late 1980s when the Dow was barely over 2,000. A financial analyst on the program predicted the Dow would reach 5,000 by 1995 and 10,000 by 2000.

"He was laughed off the show," Huguenin said.

Unequal gains




The last four years have been phenomenal for the Dow. At the end of March 1995, the Dow closed at 4,157.69. Since then, annual double-digit increases have more than doubled its value.

But some brokers said gains in the Dow, which is heavily weighted toward large companies, mask the underperformance of smaller stocks.

"It's a milestone, but I don't know what it really represents. It represents different things to different people," said Richard J. Hajek, investment manager at Invest Financial Corp. at F&M Bank.

"What's important to people is their individual stock portfolio," Hershey said. "Again, it's just a number. Ten or 15 years from now, we'll hit 20,000, and we'll be talking about that, too."

Jim Holzapfel, managing director of the Hagerstown branch of Wheat First Union, said he remembers a different magic number when he was starting out in the field.

"It was a big deal back in the '70s to hit 1,000," he said.

After peaking at 1,031.6 in December 1972, the Dow promptly took a nosedive, spiraling downward to a low of 603.25 in December 1974.

"The '70s were tough," Holzapfel said. "We spent a good deal of the '70s fighting inflation."

Which demonstrates another important lesson, according to stockbrokers: The direction of the Dow has much more to do with the health of the economy than investors' reactions to hitting certain milestones.

Buy or sell?




With the increasing popularity of "do-it-yourself" investing, a few brokers said hitting the 10,000 mark might prompt some small investors to leave the market.

Money managers, however, counseled against changing your investment strategy based on the Dow's average, and Holzapfel said he doubts it would have much impact on the market.

"Ultimately, greed takes over. You're not going to get out at 10,000 when you think the market's going to hit 12,000," he said.

Everson, of American Express Financial Advisors, said most of his clients are geared to the big picture. The real question is what those investors will do if a long bear market strikes as it did in the 1970s, he said.

"It's those protracted periods that will be the real test. And we've not had one of those in a long time," Everson said.

Several brokers agreed the fantastic pace of the Dow probably would slow to more historic levels.

Hershey said the large stocks measured by the Dow seem overvalued. He said he sees buying opportunities in bank stocks.

Smaller companies, like JLG Industries in McConnellsburg, Pa., have not done as well, Holzapfel said.

But the experts admitted no one really knows what the market will do in the short term.

"I had several very astute investors who took their money off the table 2 1/2, three years ago," Hajek said.

For many average investors, the talk of 10,000 is much ado about nothing.

"I don't look at that as a big landmark," said Hagerstown resident Bob Resh. "To me, it's not that big a deal."

-- Dow milestones

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