As we approach 2000 on the S&P 500, remember that there is no such thing as a psychologically important index level

August 18, 2014 11:32 AM

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As we approach 2000 on the S&P 500, remember that there is no such thing as a psychologically important index level

After a brief hiccup earlier in the month, the S&P 500 has resumed its bullish climb, and is once again inching closer to 2000. When that plateau is eventually reached, there will surely be a flood of articles, both bullish and bearish, celebrating and marking its arrival. Wall Street is seemingly obsessed with big round numbers, even though they convey no more meaning than any other index level. 

Way back when, as the Dow Jones Industrial Average approached 10,000 for the first time, CNBC was relentless in their coverage of what was sure to be a momentous event. The New York Stock Exchange, back before it was just a glorified TV studio, even commissioned a limited edition of Dow 10,000 hats to be handed out to brokers and specialists on the floor of the exchange! (That’s right - you read that correctly - actual people were once engaged in the business of stock transactions with one another on the floor of the NYSE)  When the Dow finally ticked 10,000, the noise was deafening.  Grown men and women celebrated the 10,000 level like it was a major event of historical significance. It was as if the promise of the dot-com era had been realized. We all know what happened after that.

The obsession with big round numbers is yet another example of the foolishness and pomp that accompanies the business of investing.  It is a distraction from what should otherwise be a methodical process.  Instead of celebrating arbitrary numbers, we should celebrate the successful achievement of our investment goals, whatever those might be.  

Equity markets generally go higher, so 2000 is just another number along the continuum. If history is any guide, it will likely be crossed, breached and re-crossed many times after it is first achieved. It is better to focus on your investing process than on some arbitrary index level.  Remember that as your Twitter feed and email inbox gets inundated with S&P 2000 posts.

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