If You Think the Dow Is Volatile Now, You Need a History Lesson

February was a month of "firsts" for investors. It was the first time in history the Dow Jones Industrial Average (DJINDICES: ^DJI), the most iconic stock index in the world, had swung by more than 1,000 points on an intraday basis, and it was the first time investors bore witness to not one but two single-day point declines in excess of 1,000 points -- 1,175 points and 1,033 points. In total, three of the eight largest single-day point declines in the Dow occurred in a span of less than a week last month.

To say that the slow and steady rise in stock valuations had come to a grinding halt would appear a bit of an understatement. Here are just a handful of the headlines that dominated the newsfeeds from early February:

• "A Week of Investor Whiplash and Stock Market Volatility" -- Fortune Magazine
• "Volatility aftershocks? Here's what stock market investors need to know" -- CBS MarketWatch
• "The Stock Market Is Volatile Again. Get Used to It" -- The New York Times

Yet, in spite of the fact that the CBOE Volatility Index hit a nine-year high in February, volatility in the Dow Jones Industrial Average today is nowhere near comparable to what Wall Street and investors experienced during the Great Depression.

A history lesson in volatility

Think about this for a moment. Today, at the click of a mouse or the swipe of a finger, you have instant access to a cornucopia of financial data. You can find a company's profile, balance sheet, financial statements dating back years or decades, insider transactions, and so on, all through Securities and Exchange Commission filings. Though Wall Street analysts might hone in on specific sectors or industries and have access to CEO and executive interviews with greater ease than, say, John or Jane Q. Investor, today's retail investor is very informed.

That wasn't the case in the late 1920s and early 1930s. There were no electronic trading machines that helped balance buy and sell orders, nor was there any way to effectively disseminate information quickly. Remember, televisions wouldn't even become household items until years after the Great Depression ended. Essentially, reading the newspaper after the release of news a day earlier, or listening to a radio program, were the only means of disseminating information. Should you want to dig into the specifics of a company before investing, you'd need an annual report mailed to your residence.

In short, we take for granted the ease of access we have to information these days, as well as the lack of volatility this increased transparency has brought to the market.

Take this data to heart

Below, you'll see a table containing the Dow's 20 largest single-day percentage gains of all time, along with its 20 biggest single-day percentage declines.

What stands out? How about the fact that 23 of the 40 (57.5%) most volatile days in percentage terms in the Dow's history (highlighted in yellow) occurred between October 1929 and July 1933. That's true volatility! Meanwhile, only seven of the most volatile days in percentage terms in its nearly 122-year history have occurred over the last 20 years. In fact, by this December it'll have been a full decade since we've last witnessed a truly volatile day in the Dow (on Dec. 1, 2008 the Dow fell 7.7%).

Comparably, the big point swings we've been privy to of late in the Dow often translate to percentage moves of between plus-or-minus 1.8% and 4.6%. Sure, these are a bit higher than we might be accustomed to in recent years, but they're nowhere near what I'd describe as "whiplash" or "aftershock"-worthy.

Another consideration to make involves the nature of stock market corrections, which usually accompany an increase in perceived volatility. Corrections, or declines in the stock market of at least 10% from a recent high, tend to be swift and short-lived. Since 1950, the broad-based S&P 500 (SNPINDEX: ^GSPC) has undergone 36 corrections of at least 10%, including the current correction, equaling a bit over 6,600 cumulative trading days. Meanwhile, the S&P 500 has spent more than 18,000 trading days in that same span in a bull market expansion.

This is probably also a good time to mention that with the exception of the current correction, bull market rallies in the S&P 500 have erased all 35 previous corrections and/or bear markets, often within a matter of weeks or months.

In other words, while short-term traders may fear the word "volatility," long-term investors see the word "opportunity."

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