Here's Why I Want the DOW to Stay Low (...for a while)

I had this status update on Facebook today:
"Am I the only non-shortseller who wants the DOW to to come back down? Come on world, I'm not done averaging down yet!"

And, my cousin asked,:
"why d u want d DOW down? I thot u moved in already..."

The answer is simple really. Three words: "Dollar Cost Averaging".

Most of the people I know bought into the market relatively recently. And, according to those who run stock data, the share price of most corporations was severely over-valued. (Depending on who you listen to, over the period between 2005 and 2007, the average DJIX stock was trading at between 20 - 24 of its Earnings per share ("EPS"). In a balanced market, shares should be trading at c. 14x EPS.

All of us, believing that good times never end, and making the cyclical mistake of generations before us, happily bought into the market. Think 401K. (If you're sophisticated enough to have a ROTH already, you probably don't need this explanation in the first place.)

Now that the market has mellowed into bearish straits and approximately 38% of the DJIX has eroded (from its 2007 highs), the only cure is cost averaging. Simply, you buy stocks at their currently lower price to offset the high cost basis you have in the stocks you purchased during the unbridled exhuberance of the mid-decade.

Since I'm one of those unfortunate people who still earn a monthly check, my ability to buy into the market comes in spurts that are triggered at the end of each month. If the DJIX goes up, the cost of the stocks increases and my average cost in the stocks I buy currently also increases. Since my gain (when I eventually sell the stocks...wohooo!) is the difference between the sale price and the cost basis, the higher my cost, the smaller my already-budgeted-for-a-trip-to-Paris gain.

So, please, DOW, slow down (preferably, drop for a bit) so that I can rack up a few more paychecks, buy more stocks, average my costs down, and sit back while another cycle of (hopefully, your) unbridled exhuberance brings my puppies home.

So, there!