With all of the talks these days of our economic troubles here in the states it's starting to confuse me.

Now like I said, please excuse my ignorance, but my biggest question is with the Dow. It's all over the news, all over the internet, what exactly are they talking about when they say that its drop 600-700-800pts? What does that effect?

I understand that its not a good thing, but just how bad is it?

I remember learning about it all back in high school, but that was a long time ago, and I feel old bc I can't remember

The DOW is a collection of publicly traded companies. The stocks that are traded back and forth on the DOW are the "value" of the companies. This is used as an indicator of the overall economic market. When the market indicators like the DOW tank 2500 points in one week, that means there is great fear that the overall economy is going very badly or will soon. Now, that's not even 1/100th of the entire explanation but in basic terms you can understand that the DOW doing poorly reflects on your own economic outlook. Your pension, your 401K, your job, your bank, your supermarket, your local mall, etc all tie into the market in one way or another.

[This message has been edited by connecticutFIERO (edited 10-10-2008).]

isnt a "pnt" a dollar?
if it was 9000 pnts - if you bought one of everything - it would cost $9000
if it dropped 250 pnts - what you bought for $9000 is now worth $8750

The DJ industrial average is a compilation of stocks that supposedly represents the overall market. The original base started in the early 1900s the as companies in the DJ come and go, the stocks listed have changed. There is a fudge factor involved that is used to make the DJ stocks now in the average to be equal the original DJ stocks. When you total the value of those prices that is the DJ value quoted.

The fudge factor is a secret.

There are other market indicies that also represent the market like the S&P 500..500 stocks in that referance as well as the NASDAQ.

Think of it this way…..If your Fiero is worth (you could sell it for) $10,000 this morning and if by the end of the day you could only get $9,500 for it. That would be a 500 point drop.

Now the Dow is a select group of 30 or so companies (blue chip companies, large high quality companies). The value is a dollar value of one share of stock for each of those companies combined. As the value (what people are willing to pay for a share) goes up and down for these select companies the difference is what you hear about. When the Dow goes down it means that the value of one or more of these companies has decreased enough that the value of them as a whole has decreased.

You only truly lose money on a stock like your Fiero if you sell for less than you bought it for. If you don’t sell you don’t lose anything, only what the perceived value is if it has gone down. If you hold on to it and till value rises again and sell for more than you bought it for you have made money, a gain.

Here is a link of to the 30 companies that make up the Dow
http://money.cnn.com/data/dow30/

quote Originally posted by sarabear: What does that effect? I understand that its not a good thing, but just how bad is it?

Stocks are just part ownership in an actual company. Like General Electric (GE) or General Motors (GM), etc. Most typical americans like we on this forum would own these stocks through mutual funds and have them in our retirement accounts. Some of the older or richer members of the forum might have enough wealth to own some stocks or mutual funds outside of retirement accounts.

The value of a stock share would in theory reflect the value of the company as far as assets, cash, product is hasn't sold, etc. In other words, what a business was worth if you sold all it possesses. But the reality of any thing including business or stocks is that it is worth what someone will pay for it.

Right now, people perceive the business environment as very risky, and so want to sell their share of the businesses (which is the stock they own). Not many people want to buy. So the prices they will pay for a stock has gone down, which therefore is why the DOW Jones stock values are going down. And the stocks that represent the S+P 500: also way down.

BUT, no one is FORCING you to sell your share of the business (the stocks) at these low prices. So if you don't sell, you haven't lost anything. If for some reason I DID have to sell some of my retirement stocks right now, I would have paid a LOT more for it than I can sell it for now, so I would lose a lot of money. Probably 35%. So I would consider that VERY bad.

It may now take several YEARS for people to be willing to pay for stocks what I had paid for them in 2006. Since I'm not selling them until retirement anyway, it doesn't mean much to me right now. But people with retirement accounts that are over age 71 MUST withdraw a certain amount out of their retirement accounts every year. That is the rule. And if they have it all in stocks, they HAVE to sell a certain amount every year. And if they have to sell now, they will likely be selling it at a 35% loss.

I don't know if that is too much info, or not what you were looking for. Please ask more questions if it was unclear, or not really what you were trying to understand.