💯 The obsession with round numbers

Hey hey, happy Monday.

The S&P 500 reached 6,000 last week. Break out the champagne.

Or…maybe not?

Round numbers tell us more about our brain — and our pursuit of assigning value to everything — than the stock market.

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One of the first things we learn about money is that everything has a price.

You’re a five-year-old kid with a gap in your smile because you lost your first tooth. You pulled it out, it fell out, or your brother unintentionally whacked you in the face with a tennis racket and knocked two of them into your throat, subjecting you to years of nicknames (love you, Garrett!).

And yes, I have a photo:

Before then, you cried for what you needed and asked for what you wanted. Then, the Tooth Fairy teaches you that even your blood-streaked lateral incisor is worth something – a shiny quarter or a crumpled dollar bill. 

At that point, your life becomes a game of numbers. What is this worth? What am I worth?

I’m always reminded of this when people start celebrating arbitrary market milestones, like the S&P 500’s recent rally above 6,000.

Every time the S&P 500 hits another thousand or the “Dow 45,000” hats start showing up on frazzled traders, I’m flooded with questions about what this new price achievement means.

I know we are trained over decades to think about the number of zeros as a sign that something’s going right.

But these big, round numbers can be dangerous distractions in your portfolio.

Of all the events you could obsess over, the S&P 500 reaching 6,000 shouldn’t even be on the list.

For one, you can’t invest in an index. You can put money into a fund tracking an index, but funds will rarely move in complete lockstep with indexes for various technical reasons. The S&P 500 at 6,000 doesn’t mean your own investments are celebrating with you.

The 6,000 milestone doesn’t necessarily tell us how the companies in the index have fundamentally changed. Markets are good at sniffing out future trends, but a higher price doesn’t always correlate with better earnings, flashier ideas or a stronger economy.

Nor will it give you any edge if history is any guide. In the past, the S&P 500 has tended to wander around thousand milestones for a few days or more. In the 2010s, the S&P 500 spent a month stuck at the 2,000 and 3,000 levels.

We may be heading for the same fate today. Last week, the S&P 500 closed above 6,000 on Monday, then it stalled before ultimately sliding lower on Friday.

Yet we still break out the champagne when we see those zeroes. Even though they tend to be arbitrary and anticlimactic.

I’ll give you this: round number milestones have been rare, and it’s fun to have some goal to look forward to. It’s like celebrating a birthday — nothing really changes, and you’re getting older even if you don’t break out the cake and candles.

But round numbers aren’t exactly rare these days, either. Basic math tells us that the distance between thousands gets smaller as numbers get bigger, so these fun little occasions may become more frequent.

If we’re treating these like birthdays, then the S&P 500 felt it was appropriate to celebrate twice this year. Awkward. And the next birthday is just a 16.7% rally away.

It’s easy to gawk when a Wall Street expert says the Dow could reach 100,000 or the S&P 500 could hit 15,000 – two predictions that have been thrown around lately. But percentages matter more than points. The Dow at 100,000 doesn’t sound as sexy when you consider that it’d take an 8% annual return over 10 years to reach.

So why do we care so much?

My mind goes back to the tennis racket and bloody teeth.

Everything has a price, and we as Americans are drawn to any quantification of success that we can find. Especially those with lots of zeros at the end.

Our obsession with round numbers starts in our brain. There’s actually a psychological term for this – the round number bias. Creative, I know.

It’s why the airplane pilot tells you they’ve turned the seatbelt sign off at 30,000 feet, not 29,967 feet like the altimeter says. Or why so many price tags end in 99 cents—just one penny cheaper than a full dollar. A deal!

Round number heuristics exist on Wall Street too. Earlier this year, the Georgetown Center for Retirement Initiatives released a study on how often individual investors place trades when stock prices ended in a 5 or 0 (round numbers) versus other numbers.

Here’s what they found.

Investors were 6.7% more likely than normal to trade at round numbers, and four times more likely to trade at full dollar prices.

And here’s the craziest part: multiple studies, including Georgetown’s, have shown that investors biased toward trading at round numbers tend to exhibit other harmful trading behaviors and often suffer bigger losses in their portfolios.

Round numbers aren’t just distractions. They’re pitfalls.

And yet we can’t get enough of them.

So if you’re one of those investors watching the S&P 500 hover around 6,000, wondering if you should bail or double down in this new four-digit era, take a moment to pause and reflect.

What has changed in the stock market, other than the price?

What has changed in your life, other than the value of your brokerage account?

If your answer is “nothing,” then close the brokerage app, drop your phone, and walk away.

Thanks for reading!

Callie

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