Dow 38,820: How Times Have Changed
Tuesday, September 28, 2010 at 03:44PM Jeff Hirsch, who is the editor of the The Stock Traders Almanac, made headlines this week with a report suggesting that the DJIA will trade to 38,820 by 2025. While most people thought such a claim was ludicrous, the reaction to Mr. Hirsch’s claim is a reflection of the drastic decline in investor sentiment over the last several years.
It used to be that stock investors believed annualized returns of 10% per year were an inalienable right. After ten years of stocks going nowhere and interest rates at record lows, though, investors have shifted their focus from capital appreciation to capital preservation. Let’s take Mr. Hirsch’s seemingly bold prediction. With the Dow currently trading at 10,828, and assuming the index does nothing for the rest of the year, the Dow would have to see an annualized gain of 8.88% to reach Hirsch’s target by the end of 2025. Using an annualized return of 10% per year, the Dow would finish 2025 above 45,000! If the expectations of investment returns just ten years ago were still in place today, instead of saying are you crazy to a prediction of Dow 38,820, most investors would be saying, that’s it?
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Reader Comments (2)
"With the S&P 500 currently trading at 10,828, and assuming the index does nothing for the rest of the year...."
you wish.. haha, ...boy, It would solve some of my problems
PH: Tony. You're right. It would solve my problems too. The post has been changed. Thanks for pointing out the error.
This is reminiscent of 'Dow 15,000' in the year 2000. Based on 8% growth (well below the 14% of the prior 8 years), DJIA would reach 23,000 by 2011. When you add in an assumption about lower interest rates, you get to 25,000. From Kiplinger's Personal Finance Magazine / Jan, 2000 issue.
Time to mortgage the house and go long!