Question: Why are changes in a stocks price often given in percents instead of dollars? Doesn’t a person just really want to know how many dollars were gained or lost, instead of having to try to convert the % change into dollars? Thank you, Denny, Los Altos, CA
Answer: The reason is that percentages are a more efficient and information rich way to communicate the change in stock prices. For instance, a $1 increase in a stock price at the end of the trading day is significant if it’s a $10 stock or relatively meaningless if it’s a $100 stock. It’s easier to communicate the magnitude of market valuation change with percentages, 10% vs. 1%, respectively.
The same idea holds with the stock market. For instance, a 300 point drop on the Dow Jones industrial average from today’s level of approximately 11,572 sounds like a lot, but it’s a decline of some 2.6%. Yet when the Dow was at 6,000 in 1996 a 300 point decline translated into a plunge of 5%.
I would say the information in percentages is quicker to relay and grasp. For those who own the stock, well, they’ll figure out what the percentage move means in dollar and cents for them–good or bad.
If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air. But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.
Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.
When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.