I talk a lot about tuning out the media noise so you can listen to the actual message from the markets. However, sometimes the media is right. In fact, sometimes their crazy stock market predictions can become reality.
Case in point: two books that predicted the Dow Jones Industrial Average would climb significantly higher.
Proof that crazy stock market predictions can become reality
“The Roaring 2000’s” by Harry Dent was published in 1998. In it, he suggested the index would reach 21,500 in 10 years’ time, and it would be dominated by technology companies. He also wrote that tech companies would produce the greatest economic boom in our history.
The Great Financial Crisis from 2008/09 may have gotten in the way of Dent’s timing. The Dow tagged 21,500 in June 2017. But he was correct about the tech transformation!
And where are we now? The Dow is inching closer to 40,000.
The second book was published just two years after Dent’s. Jim Glassman and Kevin Hassett teamed up and wrote “Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market”. At the time, they were probably laughed out of the room. The Dow was around 10,300 in 2000. How in the world was this very slow-moving price index going to move up 250%?
The authors were right – the Dow has been transformed
But if you look at the Dow’s historical returns and its component parts, you can see how this prediction could make sense.
History tells us that returns are strong for the Dow, especially when interest rates are low. Glassman and Hassett knew this and were looking for those long term trends of strong growth, low volatility and low rates to continue for decades. The annualized return to date since 2000 is about 11.5% – pretty good!
In 1999, Intel and Microsoft became the first Nasdaq companies to become part of the Dow, replacing old-line names Sears and Union Carbide. A decade later. Cisco entered the Dow. More recently entrants included Apple, Salesforce and Amazon. These technology names have completely revamped the index.
I’m not sure if Glassman and Hassett saw this happening when writing their book, but the trends (a burgeoning internet and strong productivity) were in their favor.
If you had read these books, you probably would have thought that these crazy stock market predictions were comical. But maybe it is not a bad idea to listen to these wild predictions.
