Recalling the 1999 book titled, “Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market,” a recent Bloomberg article highlights the error in the assertion, notwithstanding that it may sound a bit less far-fetched today than it did then.
The article asserts, “if ‘Dow 36,000’ is viewed as a prediction of investor opinions, it was decisively wrong.” Still, it notes, the primary message of the book, that “stocks return more than bonds and are less risky over long periods—is worth exploring. From the perspective of 20 years, it doesn’t look as silly as it did at the market bottoms in 2002 and 2009, but it still doesn’t fully make its case.”
The core thesis falls short because of the following points:
- “There are almost no pure long-term investors,” the article contends, adding that when portfolios “crash 50% or more” most people tend to “sell at the wrong time.”
- Although historical data suggest that stocks are probably the best bet for the long run, there is no guarantee: “Investors can’t be 100% assured that stocks will provide more real return than bonds, even over very long periods.”
- “While first-generation quantitative models tended to assume investors demanded high expected returns on stocks to compensate for their volatility, “ the article reports, “subsequent research suggests that the return premium is mainly for the exceptionally bad performance that stocks give at the worst financial times.”
The article concludes that even with its foibles, the “Dow 36,000” is not as preposterous as it may have first appeared: “Low-cost, well diversified index funds of equities remain the main tool for most individual investors to earn their way to financial security.” That said, however, it argues that the book missed one central point: “Equity risk is real.”