Answer: It depends

On a point basis (1175), it was the largest drop in history. However, when the loss is measured on a percentage basis (down 4.6%), it was only the 100th largest decline. 

Questions:

1. How do you think headlines like this affects investors? “Dow Jones drops over 1,000 points as stock market keeps slumping”
2. What matters more to investors, points or percentages? Why?
3. What do you think triggers large changes in stock prices? What are potential causes?
4. Most behavioral economists believe it is important to ignore the “noise” of daily stock price movements. What strategies can you use to help you ignore it?

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom.

Behind the numbers (from Associated Press):

The Dow's plunge was the biggest ever in terms of points, but on a percentage basis (4.6% decline), it was only its 100th worst single day drop, according to S&P Dow Jones Indices. It had a larger percentage drop as recently as August 2011. The Dow's steepest percentage decline was on "Black Monday" on October 19, 1987, when it fell 22.6 percent.

-------------------

Here's one of my favorite investing interactives, Think You Can Beat the Market, which should cure most of your students of the thought they can accurately time when to get in and out of the market. 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

More posts by Tim