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Dow 21,000 by 2010 It's not as outlandish as it sounds
By Paul B. Farrell, CBS.MarketWatch.com
LOS ANGELES (CBS.MW) - Want a jolt of good news about the future of the market? How about this one: It's still possible for the Dow to hit 21,000 by 2010.
That's right, 21,000. Sure, we'll have to jump over huge hurdles and through some harrowing hoops -- hurdles like a long war, global terrorism, anti-war protests and our former allies in Europe, and hoops like low long-term predictions of 7 to 8 percent annualized stock-market returns forecast by Buffett, Bogle, Gross & Company.
Yet America's been through worse times in our history, and a powerful spirit plus some amazing surprises have lifted us many times before.
Hope for big 2003 rally
Let's do some "contrary thinking." You know, see where the crowd's going and go in the opposite direction. Since the conventional wisdom today is heavily biased to the dark side, let's go contrarian to the plus side. For today, let's jump into the financial world with a good old positive mental attitude (PMA).
Step into the light and accept the possibility of successful near-term resolution of the war and a rally that results in a bullish 2003.
Morgan Stanley's Barton Biggs, Forbes columnist and money manager Ken Fisher, and several others are. For example, Biggs told Ron Insana in a Money interview that he expected a "significant rally" of 50 percent this year.
Thinking positive again
This spark of PMA came from a reader, Bruce Courage, who's living up to his name. Bruce was responding to my column, "Special Forces rules for investors," in which I quoted a Special Forces instructor on the key to survival: "I guarantee you that the guy with a positive attitude is coming out of the woods alive."
Here's how Courage applied the message to the stock market:
"A Dow of 11,500 in 2000 should be worth 21,000+ assuming only 6 percent yield ten years later. Dividends will only add to that. Since three years have gone by since the initial prediction, that only leaves 7 years left.
"In order to go from today's 8,100 to 21,000, you would need a yield of about 14 percent annually. That seems possible to me coming out of the worst bear market since I was in college back in 1973, especially since you should get a 40 percent jump the first year of recovery from the bottom." In other words, with a little positive thinking (and a 14 percent annualized return), America would be back on track.
Forget the numbers
I admit I don't know whether the numbers will pan out, but I do know that guys with Courage's PMA are going to survive the woods, and they'll survive this bear market. They'll see opportunities where others are held back by a less than positive attitude.
Three years ago, at the peak of the bull market, I collected 10 long-term market predictions, almost all using a historic 10 percent return for stocks, far less than the outrageously high returns many investors had come to expect at the time.
Two in particular stood out. One was Sheldon Jacobs's Dow at 21,200 by 2010. The publisher of the respected No-Load Fund Investor newsletter said realistically: "But it won't be smooth sailing. There will be three major bear markets before then." So maybe we got two more bears to go. But as Bruce Courage points out, that number is not impossible.
The other one that stood out was Yale Professor Roger Ibbotson's 120,400 for 2025. Why? Look at his track record! Back in 1974, when the economy was in the doldrums, when the bear was mauling the market, when the oil crisis was draining America, when the Viet Nam war still haunting us, and when Dow was only 600, a brave Ibbotson stood up and predicted the Dow would hit 10,214 by 1999!
Imagine the positive mental attitude Ibbotson must have had in the dark days of 1974 to make that prediction. What a dreamer, huh! Well, folks, remember, that's the kind of attitude that brings survivors out of jungles and creates long-term winners during bear markets.
Look at it another way: Even if Buffett and Bogle are right about 7 to 8 percent annualized stock returns going forward, some investors will make more than the average and some less. If I'm right, the guy with a positive mental attitude will score above average.