'Dow 36,000' Gurus Hold Fast To Belief in Market's Potential
By CRAIG KARMIN Staff Reporter of THE WALL STREET JOURNAL
Remember the best-selling book, "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market"?
With stocks plunging, and many giddy investors who swore by the book now burning it, the authors must be sheepishly admitting how foolish and wrong they were, right?
Well, no.
Even though the Dow Jones Industrial Average has fallen 24% below where it was when "Dow 36,000" was published in September 1999, the two authors -- financial writer James K. Glassman and economist Kevin A. Hassett -- insist the stock market will prove them right. Someday. They're just not saying when.
"Oh, yeah, definitely. I'm just not going to give you a date," responds an unapologetic Mr. Glassman , when asked whether Dow 36000 is still on the horizon, even though it topped out, on a closing basis, at 11722.98 on Jan. 14, 2000.
Mr. Glassman understands, of course, that he and Mr. Hassett wouldn't exactly win any popularity contest among the millions of now-poorer investors who followed their advice. "We've become a symbol not just of cheerleading for the stock market but of being some kind of New Economy theorists," laments Mr. Glassman . "I've been getting a lot of e-mails recently saying, 'Dow 36000! Boy, were you guys so wrong.' "
Those were among the more polite ones. One disgruntled reader from Washington, D.C., lambasted the authors on Amazon.com's Web site, contending that "anyone who ever purchases a work published by these geniuses should have their head examined." Another message posted on the site sarcastically suggests, "Buy it now! For a fine keepsake of the internet boom!"
Even their longtime critics have managed to get in some fresh licks. "It looks as if the authors of 'Dow 36,000' -- remember that? -- may have had one digit too many in their title," sniffed economist Paul Krugman in a recent New York Times column. "Let's hope it was an extra 3, not an extra 0."
"Dow 36,000" argues, and the authors still believe, that the index will climb those lofty heights because stocks have been undervalued for decades; only during the great bull run of the 1990s did investors start to appreciate stocks' true growth potential and to recognize they had overstated the risks. In one of the book's more contentious claims, the authors even maintain that stocks over the long run are less risky than bonds.
With that said, the book never did offer a date when the Dow Industrials would hit the magical 36000. Moreover, an entire chapter explained that reaching this level could be undermined by a number of factors. The list included economic growth slowing to less than 3% a year, a sharp dropoff in corporate profits and -- prophetically -- wild cards like a terrorist attack or a resurgence in corporate scams.
The authors maintain it isn't their fault that people now focus only on their optimistic title and not on the caveats.
Still, despite the ridicule, co-author Mr. Hassett defends the choice of Dow 36000, which represents the level at which the authors say the blue-chip index will be fully valued, based on their cheerful earnings forecast at the time. "If you didn't have a sensational conclusion that follows from reasonable steps, people wouldn't pay attention," Mr. Hassett says.
Mr. Glassman sounds less sure about the title. "That's the only thing about the book I'd consider changing," he says. Still, he can't think of anything better, and one of the original titles bandied about -- "A Treatise on Declining Equity Risk Premiums" -- would surely have confined their work to musty campus bookshelves.
Besides, Mr. Glassman's career as a pundit has hardly been derailed by the wildly inaccurate prognostication. During the recent meltdown, he has appeared on television-network morning talk shows, all the major cable news stations and National Public Radio to offer his views on the market.
For what it's worth, his current advice calls for long-term investors to sit tight with a well-diversified stock portfolio. Mr. Glassman says he keeps about 75% of his savings in stocks, which is what he'd recommend for 55-year-olds like himself, and he has been a buyer during this downturn. (Of course, investors who followed his past advice would have lost lots of money along with Mr. Glassman , who confesses that his portfolio -- about half invested in the Standard & Poor's 500-stock index and the rest in mutual funds and a handful of blue-chip stocks -- has tumbled about 30% since the markets peaked in early 2000.)
Yet even a dedicated buy-and-hold advocate like Mr. Glassman recognizes that market timing counts for something. Look no further, he says, than Robert Shiller, author of "Irrational Exuberance," whose book foretold of a painful market bear just before stocks peaked. "Shiller is one of the luckiest guys in show business," Mr. Glassman says. "We had bad timing."