DOW Hits 30,000!

I Would I have loved to been invested back then !

DOW Crosses 30,000 !

Wow ! Wouldn’t that be a nice Headline !

I’m not usually one to predict where the DOW will be because for me I know that as a Dividend Income Investor its more about the journey than the destination. But as I see how the world economics are playing out I can see this happening very soon. In fact I am going out on a limb and predict that the we will see DOW 30,000 by 31 December 2018. That would represent a 30% gain from where we are today.

Impossible you say ? Well looking back in History you will find that in the early 1900’s the DOW made the following total returns:

1904 – 41%

1905 – 38%

1908 – 46%

1915 – 81%

1933 – 66%

I Would I have loved to been invested back then !

Of course things have slowed considerably in modern times as the market has matured but even going back to as recent as 1995 the DOW gained 33.5% followed in 1996 and 1997 by a 26% gain and a 22.6% gain respectively.

So my prediction may sound ridiculous to many but history shows it is not out that far out there. The question is what will drive a 30% gain in the next 16 months?

In my opinion the market, while in some areas is clearly over valued there are many that are still under valued. Corporate earnings have been great this year and the world stage is setting itself up for an economic boom to occur. Many investors are buying International stocks in anticipation of great performance outside the United States but I believe they forget that many of our companies operate on a global basis. I believe along with the weakened  dollar these companies will see record profits in the coming months and of course will lead to great gains in the market. The only question is – Will you be the one sitting on the sidelines?

 

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Dow 36,000 – Really

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

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