Cramer: The Dow's Big Round Number
NEW YORK ( RealMoney) -- Does Dow 13,000 matter? You bet it can. I hear tons of people talk about how what matters is the S&P 500 and taking out the April high of last year. Sure, I would love that. It would break the double top pattern, and investment professionals know that the S&P is what matters, not the Dow, because it is a much broader gauge of the stock market. When I ran money, I led every performance letter with how I did against the S&P. When I compare how my charitable trust is doing, I always match it against the S&P.
But the simple truth is that the retail investor, the home gamer, cares tremendously about how the Dow is doing, and when the Dow takes out key milestones, it is a much bigger deal than how the S&P 500 does.
Why does it matter so much to the actual performance of the market? Because the main attribute of this stock market rally is that it is happening with very few investors aboard. This morning, Ann Curry from the "Today" show asked me a terrific question, about whether the Dow taking out highs means anything for anyone other than rich people.
You know what? That's a difficult question. Rich people are heavily invested in the stock market as well as the bond market, especially municipal bonds. They do stand to do much better than the regular investor who can't really afford to have a big stock portfolio.
However, 90 million households are touched by the stock market in some fashion, through pension plans, 401(k)s, IRAs and college savings plans. The stock market has been a disaster for these smaller savers. For many, stocks are a con job, something that takes your money away and gives it to the rich. So Curry's inquiry is a smart one.
But here's my answer, though. Yes, we have had a dozen-year lost decade for stocks. They have been miserable for that long. However, in the 1980s and 1990s, stocks made regular people fortunes. We had well superior returns to bonds. Who is to say it can't happen again?
But they need to know it is safe to come back in. They need to know that money can be made. There is no better indicator for showing that money can be made in the stock market than Dow 13,000. It will get headlines. It will allow brokers to call clients with something exciting. Clients who may have thrown out their statements for ages and ages might even open their statements again and be pleasantly surprised.
It's not just the Dow, though that might be the "blue light special" to help get people back in. It's what happens once they are in. For five years we had a market where the volatility was out of control. It was entirely possible that between when you bought a stock and when you got the report you were down, perhaps appreciably, from where you thought you were going to buy the stock. I know that I always teach that you should buy with limits, which avoids some of this problem but not all of it, because the volatility can still play havoc, even if you are bidding below the market.