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Dow 36,000 – Really

I have been hearing the Dow 36,000 drum beat since way back in 1999

Dow Jones Dow Jones

I have been hearing the Dow 36,000 drum beat since way back in 1999 when  a Washington Post writer by the name of James K. Glassman and Co-author Kevin A. Hasset published their famous book “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market”. Their book predicted DOW 36,000 in a short time period – as early as 2002. Of course we all know how that turned out – A big bunch of Hooey ! Glassman and Hasset argued that the old stock market had been replaced with a new model because of the Technology revolution but of course we all now know it was nothing more than a speculative bubble that all come crashing down.

What makes this prediction elusive is the fact that the 30 stocks that make up the Dow has changed over the years. I am writing from memory here so feel free to correct me if I am wrong but I believe that General Electric is the only company remaining in the DOW since 1929. ( Originally the DOW only consisted of 12 companies in the index) .

According to ZACKS in an article titled “The Average Return on the Dow Jones During Its Lifetime” :

The Dow Jones Industrial Average is a price-weighted index. You add the closing prices of each stock and divide by a divisor, which is adjusted for changes in the index. The base value was 40.94 on May 26, 1896, according to a fact sheet published by S&P; Dow Jones Indexes. On May 25, 2012, the Dow closed at 12,454.83, representing a compounded annual growth rate of 5.05 percent over 116 years. However, the stocks in the index have changed over the years. In fact, of the 12 initial companies, only General Electric is still a Dow stock. The performance data over certain periods are more informative. For example, the historical data suggest that the Dow had a compounded annual growth rate of 7.55 percent from a close of 2,002.85 on Jan. 8, 1987 to a closing value of 12,359.92 on Jan. 6, 2012, just 25 years later. The data also suggest that the compounded annual return was about 4.3 percent over the 91 years before 1987.

 

So based on historical data – when can we realistically expect to hit DOW 36,000? My best guess, based on the current valuation of the market of 20,677 and a conservative assumption  of 7% annual gains. we should hit DOW 36,0000 by 2025 or 2026. So yes, unless the world comes to an end or barring some other economic catastrophic event between now and 2025 we will reach DOW 36,000 just like I suspect we will hit DOW 50,000 and DOW 100,000 some day. The DOW will keep marching forward because of Growth and Inflation both of which are by products of an ever expanding society and the need for profits.

The reality is the DOW number means very little to Dividend Income Investors. In fact the members that make up the DOW index have changed many times over the years. It makes for good press and tends to get people excited about the stock market but doesn’t mean much for our bread and butter which are the Dividends. Tell me that the stocks I own are raising their Dividends and that excites me. In my newspaper that is front page news!

 

What about you ? What gets you excited about the stock market ? Share your thoughts

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