The 1,000,000 Dow, The 6,000,000 Dow
“I have seen the future and it is very much like the present, only longer.”
Warren Buffett recently spoke at the Forbes magazine 100-year anniversary event and made a prediction about the future of the Dow Jones Industrial Averages: Dow 1,000,000.
The press featured his “bold” prediction of a 1,000,000 Dow by the year 2117. As we stand now, with a mid-22,000 value for the Dow, a gain of just over 977,000 points might appear, to the mathematically challenged, as pie in the sky.
I made a quick calculation and believe there is a solid chance that Mr. Buffett will miss his forecast by nearly 5,000,000 points, a rather large error. If he is correct the average annualized return for the Dow would be less than 4%, Dividend returns were excluded from the projection (as they are in the nominal point-value of the Dow).
Over the past 100 years, we’ve seen WWI, WWII, The Korean War, The Vietnam Conflict, the Great Depression, The Great Recession, and numerous financial and banking meltdowns. We survived. We also witnessed transportation leaps with automobiles and airplanes, rockets to the moon, computers, robots, color TV, the internet, and cell phones. What the next hundred years will bring is fun to think about. Some futurists have us traveling in the stars just as we travel cross-country today.
Here’s the thing: If we see the same average annualized return over the next 100 years as we had the last 100 years (5.74%1, again excluding dividends), then the Dow would eclipse 6,000,000.
Given that sort of target on average returns, why would anyone try and “time” the market? Almost daily, we hear some pundit tell us it’s time to lighten up on our stock holdings, or tell us the market is “overpriced.” As you may recall from our previous Quarterly Commentaries, I anecdotally cannot remember any pundit who successfully predicted back-to-back market events. They may get us out before the markets decline, but they can’t remember that they also need to get us back in at “the bottom”.
Mr. Buffett’s point, in his 1,000,000 forecast, is that long-term investing is the way to go. We have subscribed to that point of view for over 40 years and see no reason to deviate from the success we’ve experienced under this philosophy.
Have a wonderful fall season.
John, Derek, Jon, Stacie, & Kadeem
1Source: Yahoo Finance, Historical Data as of 9/30/1917Investment advisory services offered through Ferguson-Johnson Wealth Management, a registered investment adviser.
This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded “blue-chip” stocks, primarily industrials, but includes financials and other service-oriented companies. The components, which change from time to time, represent between 15% and 20% of the market value of NYSE stocks.
Derek Johnson is an Investment Advisory Representative of Ferguson-Johnson Wealth Management, a values-based investment management firm located in Maryland. Derek Johnson can be reached at (301)670-0994 or firstname.lastname@example.org.