The Dow of Money Sense

As a former (small-time) investor and math teacher, I’ve long been frustrated with the news’ approach to reporting ups and downs, highs and lows in the market.  My favorite type of report states that “The Dow was up today on rumors that ____________________.”  Come on!  You’re telling me that the only thing that contributed to this massively complex market today was a single rumor?  No one in their right mind believes that, certainly not whoever wrote the article…  yet they feel compelled to put a reason to the day’s events.  And I really believe a lot of people out there take the report at face value.

What was merely a pet peeve, however, became much more serious after I read this paper by Arthur Lupia, et al. at the University of Michigan (hat tip, once again, to Freakonomics).  I don’t want to steal his thunder too much – you should read for yourself – but suffice it to say that the status quo is really just fostering ignorance and poor investing sense.  I consider myself good with numbers, but this interpretation of events eluded me.  Reading it, however, explains a lot about how an economy can appear so good and perform so badly at the same time; it’s all about where you focus your attention.

Whether or not the media is swayed by the solid suggestions, I’m pretty sure I’ll be able to at least better interpret this kind of financial data in the future.  That’s a start…

More by Prof. Lupia here.

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2 Responses to “The Dow of Money Sense”

  1. I have often dreamed of becoming a small-time investor – hope to still when things settle down.

    Cool look on the blog template, but I have to admit – I can’t read more than a couple paragraphs with dark background and light text – my eyes start going buggy!

  2. funny – I’ve heard that light text on a dark background is actually easier on the eyes. Maybe I just need to work on the balance a little.

    Plus, I intend to put my lead pic back – as soon as I track down the original file.

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