- The Dow Jones index finally topped 36,000 on Monday – two decades after a notorious book predicted.
- “Dow 36,000” said the milestone would be reached in the early 2000s, but was way off base.
- The book advises investors to buy and hold a range of stocks to make lots of money.
In 1999, at the height of the dot-com bubble, two authors published a book predicting the Dow Jones Industrial Average would soar to 36,000 in the next few years – from around 10,700 at the time of publication.
The Washington Post has called “Dow 36,000,” by James Glassman and Kevin Hassett, the “most spectacularly wrong investing book ever.”
But on Monday it finally became right when the Dow briefly topped 36,000, just two decades after the book anticipated it would. Then the Dow finally closed above 36,000 on Tuesday, ending the day at 36,052.63.
Glassman and Hassett said in the book that the Dow Jones should shoot up to 36,000 imminently, but added that it could take as long as five years.
The authors were way too optimistic, in part because they failed to properly reckon with tail risks – the chance that rare events can cause huge losses.
Jim Reid, a top credit strategist at Deutsche Bank, said the book is “a good case study of the heady optimism many had back then.” He said that, “In reality, even the halfway mark of 18,000 wasn’t reached until late-2014.”
The dot-com bubble would pop dramatically in 2000. Since then, stocks have also been convulsed by the 2008 financial crisis and coronavirus, as well as a number of smaller bouts of market nerves.
Yet behind the eye-popping and extremely wrong title there was another message that looks a lot smarter today: if you buy and hold a broad range of stocks for a long period of time, you’ll make lots of money.
If an investor had bought into the Dow Jones at the end of 1999 and reinvested dividends, they would have gained around 450%.
In fact, famous Harvard economist Kenneth Rogoff praised “Dow 36,000” in the Wall Street Journal in September.
The authors “got something very right” in saying that people with the wealth and liquidity to ride out short- and medium-run volatility will likely make big gains without much extra risk, Rogoff said.
What next for the Dow? There are many reasons for optimism, said Robert Schein, chief investment officer at Blanke Schein Wealth Management.
“Two of the biggest worries for investors – inflation and supply chain troubles – are passing issues that will likely abate sometime in 2022,” he said. “Both monetary policy and fiscal policy are likely to remain accommodative in the near to medium term.”
However, the index has soared more than 33% in the last year and is unlikely to keep up the blistering pace. Stocks have risen so fast thanks mostly to ultra-low interest rates, but the Federal Reserve could hike them next year.
Yet the authors of “Dow 36,000” stick by their by-and-hold investment advice. James Glassman told Bloomberg this week: “I think the current environment is good for stocks, and even if I didn’t, I would tell people to ignore what I think and invest anyway.”