Earlier this week, we saw an example of a phenomenon that frequently distorts people’s perception of the stock market.

On this last Tuesday, Oct. 19, the Dow Jones Industrial Average, the most frequently cited proxy for “the stock market,” took a 165-point dive to close at 10,978.  Much of the media was in near frenzy with stories such as “Stocks fall sharply worldwide” and “Stock market takes biggest one-day hit in months,” feeding the perception that the market was rapidly going to pot.

Overblown media coverage of bad days like this can give people the wrong perception of what’s really going on in the market.  A couple of things need to be pointed out:

First, that 165-point drop sent the market way back to a level it hadn’t seen since . . . less than two weeks before! That’s right, on Oct. 7, the market was at 10,948, or 30 points lower.  So basically, all that happened on Oct. 19 was that 12 days worth of gains had been erased.

Second, over the following two days, the market rose 168 points, putting the Dow 3 points higher than it was before the dip!  But there was very little coverage in the media of this upswing.

To sum it up, this last Tuesday’s drop in the Dow was no more than a tempest in a teapot.  The market is still up 5.3% for the year and a whopping 70% from the low hit in March 2009.  However, the way the media continually focuses on the negative, one would think that we’re on the brink of a market collapse whenever we have the occasional bad day, which inevitably happens and will again in the near future.

It’s been said over and over again:  if you’re investing for the long term, as most of us are with our 401(k)s, IRAs, etc., you need to ignore the clamor in the media and stay focused on your long-term goals.  Of course, I don’t know what the market may do tomorrow, next week or next year.  But I am confident that when I get ready to retire, I’ll have a lot more money in my 401(k) than I do now.  You probably will too if you keep your head, tune out the noise, keep putting away money, and continue to be patient.

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