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Listener Jean Murray asks:

You report changes in the stock market that are tenths of a percent. As a physical scientist, changes on this order are not typically significant; we call them noise. Is a change of a tenth of a percent in a company’s stock really significant or might it lead to unnecessary alarm?

If you hear that stock prices are down a tenth of a percent, there’s no need to panic. 

“A tenth of a percent is basically noise because nobody really knows what a stock is worth,” said Jim Angel, a finance professor at Georgetown University. 

A stock’s value is based on how much money a company is going to make in the future. And since no one can predict the future, stock prices are actually “guesstimates,” Angel said. 

If a stock moves down a tiny fraction, that could have happened because someone needed to make a down payment on a house, so they sold some stock, Angel said. 

“People change their minds often and the consensus of the market can radically revalue a stock in moments,” Angel said. “Company struck a gold mine, it jumps up. Oops, it’s not a gold mine, it crashes. For that reason, markets have always been volatile.” 

So why bother to report these changes at all? 

“One, reporting things to a tenth of a percent sounds precise. It sounds more authoritative,” Angel said. “The other thing is people are expecting news about the market.” 

T. Clifton Green, a finance professor at Emory University, compared market reporting to sports analysis. 

“We don’t begrudge sports writers from talking about their sports teams, and how the team is doing and how the running back’s health is. That’s just one signal among many about how the sports team is going to do, and so we wouldn’t argue that they should write less about the team,” Green said. “So in that regard, we don’t fault people for writing about the stock market.” 

Green said he isn’t against reports that note whether or not the stock market went down a tenth of a percent that day because that percentage change wouldn’t influence his investing strategies. 

People should think long term about their risk appetite and liquidity needs when they’re investing, Green said. 

“Is it a good strategy to be looking at your portfolio every single day or every hour? Oh, it is not,” Green said. 

The markets are only slightly more likely to go up on an average day than down, Green pointed out.

“Small losses make us more unhappy than small gains make us happy. And so if you watch every day, it’s going to tend to make you more unhappy than happy,” Green said. 

But Green said that small daily changes do add up in the long term. If stock returns are 10% per year, then over the course of a year, that translates to a return of less than one-tenth of a percent per day, he pointed out. 

Angel said he doesn’t pay attention to common stocks that move less than 1%. But if we’re talking about the market as a whole, then a shift of 0.25% to 0.5% can be revealing. 

“It’s usually a response to something happening in the world, whether it’s speculation about how much money the Fed is going to print, or what’s going to happen to tariff policy,” Angel said.

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