Fiscal Measurements
By A. Raymond Randall
rayrandall[at]echievements.com
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A former colleague at a major stock brokerage firm always confused "fiscal"
with "physical". On June 30th, he would talk about the close
of the "physical year". Just a mental block for an intelligent
man. Fiscal year-end differs for corporations with most ending June 30th
while others use December 31st. Fiscal is fancy jargon for "show
me the money".
Measurements connotes appearances men notice. Year-end fiscal measurements
get the attention of both genders. A friend reminds me, "You cannot
track what you do not measure". Many market watchers measure the
stock markets performance by tracking the Dow Jones Industrial Average.
So, just what is the Dow Jones Industrial Average?
The Dow Jones Industrial Average
When Charles Dow, a journalist, devised his index for securities, most
investors were bond buyers. Bonds provided predictable ownership with
specific interest payment (coupon) and a promised return of your money
(principle) on a specific date (maturity). Only a few investors wanted
stocks; for most, stocks were too risky.
Think you have trouble following stock prices? In 1884, investors read
charts with prices up 1/4 point, down 1/8th point. All seemed rather perplexing
(frankly, it is not much different today with newspapers printing decimal
stock-closing prices.
On July 3 1884, Charles Dow published an average of leading American
stocks to make it easier for investors. Railroad stocks and Western Union
(for obvious reasons) were on the list. Railroads were the backbone of
emerging economic forces tracked in the U.S. economy.
* Some recognized names: New York Central
* Union Pacific
* Chicago & North Western
As time progressed, the list changed, and still changes. Theoretically,
the Dow Jones Industrial Average represents a wide range of industry in
the United States. The Dow no longer includes railroads or utilities;
they are separate averages. The Transportation and Utility Averages are
proxies or "leading indicators" for the economy. One tells us
about the movement of product; the other the energy used to produce it.
Today, the Dow Jones Industrial Average is a list of 30 stocks. When
an index has a few stocks, the price of a few impacts the average. This
often skews index pricing. For example during 2005, General Motors stock
(GM) stalled and sputtered.
* GM 2005 performance Stock price January 3, 2005: $40.30
* Stock price December 30, 2005: $19.42
* Stock price loss percentage: 48%
* Current Dividend: $2.00
* Year-end Yield: 10.30% (this is called a "yield rally")
The Wilshire 5000 Average
The Dow Jones Industrial Average gets the recognition, but the Wilshire
5000 tells you more. For some reason, news stations will not give the
Wilshire 5000 averages. It is reported here: http://ethosadvisory.com/articles/index.php?id=291.
Ray Randall serves clients as a registered investment
advisor with his firm, Ethos Advisory Services, Essex, Massachusetts Ethos
Advisory Services. He has wide experience within the financial services
industry, writes a weekly newsletter for Ethos Advisory Services http://www.ethosadvisory.com
and coordinates the developments at Echievements.com http://www.echievements.com
Ray holds a Masters Degree from Gordon-Conwell Theological Seminary, Hamilton,
MA. You may call Ray (617-275-5565).
Published - January 2006
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