A Christian Response to the DJIA or Nasdaq Dropping 500 Points

I very seldom become "alarmed" when the stock market goes down and neither should you! What good would it do anyway?

Philippians 4:6 says, "Be anxious for nothing, but in everything by prayer and supplication with thanksgiving let your requests be made known to God." Does "nothing" include your investments and the stock market? Yes! Does "everything" include your investments and the stock market? Yes! What is the principle being taught? We should be anxious for nothing, but we should remember to pray about everything -- even our investments.

When the market goes up or down -- pray. Ask God to show you if you are managing His resources in a way that is the most pleasing to Him. Don’t panic -- or become greedy -- PRAY.

On April 14, 2000, the Dow Jones Industrial Average experienced the greatest single point loss in history. The DJIA fell 617 points in one day!

As a Christian, what should be my perspective when events like this happen?

Let me tell you a story about what happened three years ago when the DJIA dropped 554 points on Monday, October 27th, 1997. The market had just closed and I was fully aware it had dropped 554 points. (Note this was 1997, not the infamous Black Monday of 1987.)

It was around 3:00 PM and I was thinking to myself, "I’d better be prepared because someone is going to be calling for a radio interview". Within minutes after the market had closed, the phone rang and it was the producer for Prime Time America Radio on the Moody Network.

He said, "I will give you one guess why I am calling". I said, "How about 554 reasons." We both laughed and then he asked me to go on Prime Time America in a few minutes to discuss the stock market.

I immediately began to review my previous research on the Dow Jones Industrial Average in order to give the listeners across the nation some "context" for the major news event of the day. Context is always key!

Yes, it was big news, but it really wasn’t as big as the media was making it out to be. Let me explain why.

At that time, the drop of 554 points in the DJIA was indeed the largest single point drop. The second largest single point drop was 508 points on October 19, 1987 (Black Monday).

Everyone was concentrating on the 554 point drop as the focus -- what we should have been looking at was the percentage drop. Back in 1987 the DJIA dropped 22.61% in one day! The drop of 554 points on October 27, 1997 represented only a drop of 7.19% and at that time ranked only 11th in terms of percentage point drops in a single day. Did you catch that? . . . the drop on 10/27/97 did not even make the top ten list for greatest percentage drops in one day!

We must remember that looking at the percentage drop is far more important than looking at the point drop! Why? When the DJIA dropped 508 points in 1987, the DJIA was at 2200. Today the Dow is over 10,000. A 500 point drop at 10,000 represents a drop of only 5%. A 5% drop is significant on any day, but it has no comparison to a 25% drop on one day. If (I should say "when") the Dow reaches 20,000 it will be even less significant.

For example: If the Dow drops 500 points...

If DJIA Is At Percent Drop IS
1,000 50%
2,000 25%
5,000 10%
7,500 7.6%
10,000 5%
20,000 2.5%

Let’s take another look at the largest one day drop in history when the DJIA dropped 617.78 points on April 14, 2000. At that time the DJIA was at 10923.55. The 617 point drop represented a loss of 5.66%. It would have required a drop of over 2,500 points to have been the equivalent of a drop of 508 points back in 1987!

How much money is lost by investors if the DJIA or NASDAQ drops 500 points or maybe a 1,000 points?

Nothing, if they do not sell. (Here’s my point, you never lose money in the stock market until you decide to sell.) Never sell in a panic, nor buy motivated by greed. People are notorious for buying high and selling low.

I believe the average investor has greatly matured over the last 10 years. Many investors have properly developed a long term investment philosophy. Good for them!.

After the stock market has a significant drop, people always ask, "Ethan, what should we do?" Here’s the plan:

#1 Think long term, don’t over react and sell low. Are you investing for the long term? If you are -- think long term. Don’t get out of the market on a bad day if you don’t need your investment money until 5 or 10 years from now! If you need your investment money in the next 12 months, you probably should not even be investing in the stock market! Keep your funds in a money market account.

#2 Remember, tomorrow is probably a great time to buy, not sell. When the market goes down, most think of selling. If you are a long term investor, maybe you should consider this as a great time to buy. Carefully evaluate your options.

#3 Continue to place your ultimate trust and security in God.

#4 Pray - Remember Philippians 4:6.

A Christian steward should live every day with 100% of his or her security placed in God. Our ultimate security should never be focused on investments, homes, cars, jobs or savings accounts.

I personally have a vested interest in what happens in the stock market! Like most people I have money invested in mutual funds.

Naturally, when my investments lose significant value in one single day or year, I don’t shout for joy and say, "Praise God, I lost money in the stock market today!" Better yet, I pause in prayer, and once again acknowledge to the Lord that my complete trust is in Him!

Seek to be the very best steward you can be. Seek to make wise decisions in life. God wants us to maximize the resources He has entrusted to us and most of the time that involves taking a well calculated risk. (See Matthew 25:14-30)

Learn to keep all things in perspective -- even when the market is up or down!

© copyright - 2000, Ethan Pope