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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: LWolf who wrote (54884)	7/28/1998 11:13:00 PM
From: Dell-icious	Read Replies (1) \| Respond to of 176387

Here is a solution to the apparent volatility problem: (Excerpt from the WSJ article:) Another source of concern is the apparent increase in price volatility since 1987. It is not uncommon now to see the Dow Jones Industrial Average swing by more than 50 points on a daily basis. In just the past month, the Dow one day dropped by more than 200 points, only to bounce back two days later by more than 160 points. To some, the wild gyrations may be the warning signals of something much worse. In fact, research by William Schwert of the University of Rochester, presented at the Brookings-Wharton conference, demonstrates that stock price volatility has remained low by historical standards. This seemingly counterintuitive result comes from looking at the percentage movements of stock prices rather than their absolute changes. Investors and those in the media who believe stock prices have become more volatile are actually victims of "scale illusion": They don't realize that a 100-point drop with the Dow at 8000 is the equivalent of a 25-point drop with the Dow at 2000, roughly where it was a decade ago. (End of excerpt) People seem to have trouble grasping large numbers, or numbers that are beyond ranges that they are familiar with. Imagine the scenario just 20 years from now, where with the historical 11% annual increase in the Dow, we will have the Dow at 100,000, and a 2% swing for the day will be 2000 points. I have the perfect solution to this: why not create a "Dow split"! Essentially this would be multipying the Dow divisor by 2 (or whatever "split" factor), effectively halving the value of the DJIA. Of course it would need to be publicized heavily in advance, so that everyone is aware of it and nobody thinks that the average plunged 4000 points in one day :) And if the Dow keeps rising, the Dow could "split" on a regular basis, keeping it in an (artificially created) range of upto 5000 or so. The "splits" will also be free publicity for the Dow as well, and although they do nothing for the valuation of the stocks, as tends to be the case with stock splits, might actually encourage buying index funds that are linked to the Dow when the split is announced. A similar scheme could be enacted for all the other indices as well. Any comments? Dell-icious