The investorati lost its mind over James K. Glassman’s “Dow 36,000” after it was released in 1999. The Dow Jones industrial average was already in the clouds at 9,184 when Glassman, who co-authored the book, made his prediction that it would quadruple in three to five years.
Glassman is a familiar face at The Post, where he wrote a Sunday investing column from 1993 to 2004. He’s been a columnist for Kiplinger’s Personal Finance since then.
He has written two books since the best-selling “36,000,” including “The Secret Code of the Superior Investor” and “Safety Net: The Strategy for De-Risking Your Investments in a Time of Turmoil.”
He served in the George W. Bush administration as undersecretary of state for public diplomacy and public affairs and recently completed a term as a member of the Investor Advisory Committee of the U.S. Securities & Exchange Commission. Before that, he was president of the Atlantic Monthly, publisher of the New Republic, and editor and co-owner of Roll Call. He currently heads Glassman Advisory, a Washington public-affairs consulting firm.
It’s 18 years later and the Dow — through twists and turns — is closing in on 25,000. We asked Glassman to opine on the current market and look back on his prediction.
The Dow is now closing in on 25,000. You co-wrote “Dow 36,000” the book. Do you feel vindicated?
Yes. The current run-up in the Dow began in September 2015, only a little more than two years ago. Since then, the Dow is up 50 percent, which is all that’s needed to get to 36,000 from here. Another vindication is that my co-author, Kevin Hassett, is now chairman of the president’s Council of Economic Advisers.
You said in your book, which came out in 1999, that the Dow would hit 36,000 in three to five years. What happened?
We did say that, but we also said, “It is impossible to predict how long it will take the market to recognize that Dow 36,000 is perfectly reasonable. … But the amount of time it takes for the Dow to hit 36,000 is not crucial. What’s important is to understand that stocks are significantly undervalued today.”
You admit that it was not wise to contradict yourself?
Was reaching 36,000 the main message of your book?
Absolutely not. Our message was mainstream and hard to argue with. Investors have two basic choices: stocks and bonds. Stocks return more than bonds and, over long periods, are less risky (if you define risk as volatility). This condition is an anomaly. Assets that are less risky should return less than assets that are more risky. Investors should exploit the anomaly now by buying stocks and holding them through inevitable ups and downs.
So that was it?
Yes. The book argued that while it was completely evident that a diversified portfolio of stocks is the best investment, people have a hard time sticking with it. The book shows how to do that. It also gives advice on the best kinds of stocks to own: solid, often boring companies that pay dividends.
What about high tech?
Our general advice was to stay away because at the time those stocks weren’t making any money. Remember it is Dow 36,000, and those stocks were not on the Dow. Our book was somehow associated with the tech crash, but in fact it never advocated tech stocks.
How do you apply the lessons of the book?
I have been writing a financial column now for 24 years — first a weekly piece for The Washington Post and now a monthly one for Kiplinger’s Personal Finance. What I advocate is the same strategy that’s in the book: stocks over bonds, diversification, dividends. For most people, funds — either (exchange traded funds) or mutual funds — are the best bet. I like index funds, but I am not a religious zealot. I still believe in stock-picking, though I’ll admit that it is a matter of faith and not science.
There aren’t many of those old-fashioned, successful stock pickers left.
Right. Peter Lynch, Marty Whitman, Foster Friess, Shelby Davis, etc., are gone, but there are a few left: Bill Nygren of Oakmark, Will Danoff of Fidelity Contrafund, Jerome Dodson of Parnassus. A handful.
Where do you see the stock market going?
Hah. I don’t know. All bull markets end. This one is the fifth-longest since the Great Depression, so it may have more to run. I don’t want investors to think about predicting the stock market, but it is hard to resist. My advice is to find great companies (or let a fund manager find them) and hold on for dear life for a long time.
How do you identify a great company?
In “Dow 36,000,” we said investors should ask a few questions. Here are the main ones: 1) Does the firm make money? 2) Does the firm have something special? 3) Does the firm have a long-term record of earnings growth of at least 7.2 percent? 4) Will the firm exist 50 years from now? Obviously, some of the answers will be guesses.
What did you get wrong in Dow 36,000?
The main thing is that there are other kinds of risk besides volatility. There is the kind of risk that was first explored by the great economist Frank Knight, whom I wrote about extensively in my 2011 book Safety Net. Knight had this concept of “Uncertainty,” which is a bolt from the blue, something to which you cannot possibly probabilities. “Uncertainty,” wrote Knight, “must be taken in a sense radically distinct from the familiar notion of Risk.” We didn’t take uncertainty into account in Dow 36,000, and we got a huge dose of it on 9/11, which, I think, infected markets for a long time, and is still infecting them.
So you are saying that the market is riskier than you thought in 1999?
Yes, but that does not change the main message, which is that you should own stocks.
Can’t you make a prediction?
Companies are going to be helped by the cut in corporate taxes, and they are continuing to benefit from low interest rates. What I worry about is growing trade protectionism, which could kill some of our best businesses, not to mention agriculture. But I do think we’ll get to 36,000 soon. Very soon.