Does Dow One Million Make Sense?

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James Glassman, author of “Dow 36,000,” is feeling well now, and he’s back with a new forecast. Granted, it took twelve years to make a 350% profit from the book’s October 1, 1999 publication date (the Dow was 10,300) and ride through the tough times. But here we are at 36,000, give or take 1500 points.

This time the 74-year-old Glassman is not punctual. His huge forecast is for the Dow Jones Industrial Average to reach 1,573,865 in fifty years.

Here’s Glassman’s argument…

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Wall Street Journal: ,Get Ready for a Million Dow The industrial average closed at 825.86 on November 2, 1971. At this rate it will be 1,573,865 in 50 years” by James K. Glassman (November 2, 2021)

“The Dow Jones Industrial Average stood at 825.86 as trading closed on November 2, 1971. It closed Tuesday at 36,052.63. That’s an increase of about 43.7 times. Do the math. If the Dow continues to rise at the same rate, 50 now Years later it will be 1,573,865. In other words, the Dow One Million.

“Over the long term, an index of U.S. large-cap stocks, as represented by the industrial average, or S&P 500, has risen with dogged persistence, doubling every 10 years. That question has haunted me over five decades. Writing about investing so not everyone understands it.”

Well, that’s probably the simplest forecast we’ll ever see. Certainly, I have not read anything like this in my nearly six decades of investing. Predict 50 years into the future based only on a 50 year past result? The stock market exhibits “tough persistence” doubling every decade? And where is there any mention of the erosion of the value of inflation?

“Do the math” – well, let’s do that…

Start with Glassman’s 50 year old starting point. Adjusted for inflation, that Dow 825.86 in 1971 dollars rose to 5,613.37 in 2021 dollars. So, in actual terms, a 43.7-fold increase is reduced to a 6.4-fold. This reduces the 1.5+ million 2071 projection to 230,000 – an annual profit of about 4% per year.

Here is a 121 year photo of the DJIA as originally reported and then adjusted for 2021 dollars.

Pay particular attention to the 0% real return for 1900–1982 so that the past can be used to project the future. Doing this forty years ago would have cost us investing in US Treasury bills.

Note: This was the case in the late 1970s and early 1980s. I was handling asset allocation recommendations and presentations for Calan Associates from 1978 to 1982. At each meeting at least one board member had a stack of papers that “proven” a 100% US Treasury bill was the best strategy.

The table below contains the returns and inflation rates for the twelve decades since 1900. The results are divided between the first five and the latter seven because the years 1900 to 1949 included significant structural and philosophical developments affecting the economy, the financial system, the business environment. and government operations.

Looking at the decades 1950-2019, we see that the compound average decade return is twice the (7.3%) that Glassman mentions. However, take inflation effectively and that average is cut in half (3.7% per year).

Bottom Line: Stock Market Estimates Are Bad, So It’s Best to Ignore Them

Read Glassman’s Dow 36,000 book, and it’s clear he missed the mark as to why the Dow should rise so much. Furthermore, his timing topped the Dow’s run-up. From there, the new-economy/old-economy arguments supporting the Internet bubble haunted the rise of the Dow.

Furthermore, estimates for any time period are dicey. It’s better to remember the saying, “I can tell What Likely to be, I can’t tell you WhenStill, a survey of media professionals is about to see what’s in store for 2022. As always most will be missed. Fifty years out? Forget about it.


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