Long Term Perspective

The Nasdaq composite index may have plunged 39.3 percent in 2000 and 21.1 percent in 2001, but the 10-year average change was still pretty healthy at 17.6 percent. The drop in the Nasdaq in 2000 was the largest in the history of the series - but then it followed the largest annual gain (85.6 percent) in 1999. Since this market tends to include new and growing companies, it shouldn't be surprising that the long-term annual gain is much larger than it is for the S&P 500 or the Dow Jones Industrials. Both of those indices measure the performance of older, more established companies.

Short Term Perspective

This chart underscores the high volatility of this market. The Nasdaq composite is known for its focus on high tech companies. It also includes industrials, banks, insurance, transportation and biotechnology stocks. Historically, newer companies that were not able to meet requirements for listing on the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX) were traded on Nasdaq. In recent years, some big names (Microsoft, Intel, Sun Microsystems, Cisco Systems) have remained on Nasdaq even though they could have listed on the NYSE.

The NASDAQ composite index jumped 11.2 percent in November after recording a 13.5 percent gain in October! But nonetheless, the index has only risen in four of the past twelve months - not a good showing.