What Dow 13,000 means for the ASX

Did you hear? The US Dow Jones Industrial Average closed over 13,000 points this morning, our time.

Sensational! Excellent! Wonderful!

That must mean… um… something, right?

Unfortunately, no.

Another day older

The previous day, the Dow closed at 12,988 points. Crossing the 13,000 point barrier meant almost nothing.

If you read the headlines you’d think something important just happened. Unfortunately for those of us getting older (yes, that’s all of us), it’s like celebrating another birthday. It’s a milestone, and something of a mental check-point, but no fundamental change.

We all realise we don’t really go from 39 to 40 years old in a day – we simply wake up one day older. So with the Dow. Crossing the 13,000 point barrier added 0.2% to the index’s value overnight. Hardly worthy of the headlines that will follow – but that won’t stop them being written.

Wisdom from the Oracle of Omaha

And don’t forget Warren Buffett’s recent words from the Berkshire Hathaway (NYSE: BRK-A, BRK-B) letter to shareholders which we covered here:

“The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.”

Not quite as exciting as the headlines… but much more important. The talking heads will be cheering the ‘good news’ that shares have gone up. If you’re in a superannuation run-down phase, you’ll probably agree, but for anyone either committing new money to the market, or simply reinvesting dividends (and we should be!), there’s not so much to cheer – we need to refill the metaphorical tank tomorrow.

Business as usual

Money doesn’t know its own value – and businesses (other than private equity firms) don’t change strategy based on share market indices. BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) aren’t mining any more or less today because of a nice round number. Australia and New Zealand Banking Group (ASX: ANZ)Commonwealth Bank of Australia (ASX: CBA)National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) aren’t charging any more or less for loans as a result.

And while our market does get a fillip from the performance of the US indices, QBE Insurance Group Limited (ASX: QBE) continues its equity raising, Billabong International Limited (ASX: BBG) – or Gordon Merchant at least – is still fending off the private equity raiders and I have a feeling Fantastic Holdings Limited’s (ASX: FAN) stores aren’t doing any more or less business as a result

Foolish take-away

Not only does the new level amount to naught in the real world, but as Buffett notes, it means higher purchase prices for the shares on our shopping list. The only growth that really matters for investors is profit growth – returns stem from there. When you hear about new market milestones – and the All Ordinaries is only about 3% away from 4500 points, which will prompt more headlines – glance up, smile to yourself, and then get back on with the task of investing in great, growing companies at good prices.

If you are looking for ASX investing ideas, look no further than “The Motley Fool’s Top Stock for 2012.” In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

Scott Phillips  Is The Motley Fool’s  feature columnist. You can follow him on Twitter @TMFGilla.  The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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