I was listening to my favorite personal finance radio show one recent Sunday morning, when the program host uttered a prediction that virtually knocked me out of my chair. The affable star of the show, who helms one of the nation’s best-known and most successful financial advisories, clued listeners in on his conviction the Dow Jones Industrial Average would hit 150, 000 by year 2030.
And if not 150, 000, he predicted, it would at the least stand at 100, 000 by then.
After reaching for a dose of smelling salts and regaining hold of my seat, I started processing this information. A Dow at 100, 000 at least? That would make a boatload of people, quite possibly myself included, tons of cash.
I launched a search for comparable predictions, and discovered that in recent years there’s been no lack of forecasts the Dow would touch that nice round six-figure sum in the course of many of our lifetimes. Of course, they were matched by a like number of pronouncements that the prediction is sheer folly.
I don’t imagine anyone will be surprised to learn that many forecasts of Dow 100, 000 were made by people who stood to gain by convincing people to invest in the stock market. Nor would any be jolted by the realization many Dow 100K naysayers are folks proud to proclaim they have every penny in cash.
Considering the Dow, as I write this, is struggling to climb above the 16, 000 threshold, a prediction of 100, 000 takes a certain willingness to be ridiculed. But those advancing the theory argue that their claims are backed not by pipe dreams but by careful study and solid theory. Let’s probe a few trends that could bring us face to face with this majestic milestone in the next two or three decades.
Game-changing advancements like 3-D printing, the Internet of Things, wearable computers and other Sci-Fi-like inventions are likely to speed the pace of techno-change. For instance, no one knows what will happen when 3-D printing, via which almost any object can be manufactured by printing it, replaces assembly lines. But many are quite sure it will make lots of companies and people billions.
Here in the United States, we’ve been beholden to the Middle East oil producers for generations. But with the comparatively recent discoveries of bountiful sources of oil right here on the North American continent, and new technologies to siphon it from the ground, those days are coming to an end almost as fast as one can say “OPEC rest in peace.” If there’s anyone who believes energy independence will be bad for the U.S. economy, I can’t recall hearing from them.
James Glassman and Kevin Hassett, authors of the book Dow 36, 000, argue that stocks have long been undervalued, and that price-earnings ratios underestimate the power of good stocks to generate cash. Other folks assert the emergence of the BRIC countries Brazil, Russia, India and China will make more people consumers of American-made goods and services. Still others advance the TINA argument. There Is No Alternative, they say, that can currently make you the kind of money the stock market can.
Going out on a limb
I can imagine the blowback over my even bringing up predictions of the 100-thou Dow. “Oh, c’mon, ” I can hear the doubters say. “You can’t believe that crap!”
Not that anyone cares what I think, but I’m about to throw caution to the wind, go out on a limb and boldly dare to deliver my own prediction. Will the Dow rise to six figures in the next 17 — or even 25 — years? Here is my fearless forecast.
Duh, I dunno.
But my own experience as a stock market investor may incline me to lean one way over the other. See, back in April 1987, I gathered up just about everything I could afford to invest, which in those days amounted to $20, 300, and timidly invested all of it in a diverse grouping of mutual funds.
Six months later, on Monday, October 19, 1987, which came to be known as Black Monday (Black Tuesday in Australia and New Zealand, due to time differences), stock markets around the world imploded and jettisoned between 20 and 25 percent of their value in one single, horrible day. Well, I thought, there goes my life savings. I guess I just have to start all over.
I didn’t think there was much left of my $20, 300, so I didn’t rush out of the market. And lo and behold, before I knew it, the market ricocheted back. And not that long after, I’d recouped my losses and earned some nice gains to boot. So I kept on dollar-cost-averaging into stocks for, let’s see, the next 26 years.
Here’s the thing. Where did the Dow stand at the end of Black Monday, 1987? Was it at 12, 000, 13, 000 or maybe 10, 000? The answer is none of the above. At the end of that trading day, the Dow had fallen to 1, 739. You can look it up.
Today, the Dow is 9.06 times what it was then. Apply that same multiple to today’s number, and you have a Dow at 142, 713. Of course, that’s not to say that what’s past will be repeated in the future. But nevertheless, just as I intend to keep seeking the best savings accounts and best credit cards, I intend to continue to keep cash in the stock market, and to invest more into the market.
The one thing I can predict with absolute certainty is that lots of people will call me a fool for staying in the market as the Dow nears 17, 000. How can I be so sure? They’re the same people who said that when it was 1, 739.