Monday, May 11, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (May 11, 1998) -- As many of you know by now, I've been doing a number of radio interviews recently to promote the release of my book, The Unemotional Investor, and it's been eye-opening to see the sequence of questions I typically get in these brief interviews. A number of questions, understandably, are triggered by the jacket blurb. As busy as the radio folk are, that makes perfect sense and once I figured it out, I could predict how many of the interviews would go.

But one question that has cropped up in nearly every interview -- and one not necessarily triggered by the book jacket -- is about how high the Dow is right now and if this is a good time for investors to start. The Dow's right around its all-time high, of course, and it seems counter-intuitive to invest when the market's at its high.

In an effort to put this kind of question in context, I've often responded that when I began writing for The Fool, the Dow was just crossing 4,000, which then was also an all-time high, and I've been besieged by similar questions for my entire tenure as a Fool because of the impressive returns since late 1994.

But even more importantly, I've been trying to stress that the market being at 9,000 isn't really important to Foolish investors because we're looking forward to talking about the Dow level in a couple decades, not in a couple of months. If we take the Dow at roughly 9,000 today and project its growth over two decades, using the Dow's seven-decade historical growth rate of roughly 11% a year, the Dow in 2018 will be above 70,000! That's right, I said 70,000.

It sounds absurd, of course, but that's the problem with looking at raw numbers and forgetting about the power of compounding and percentage gains. A Dow of 70,000 twenty years from now would be nothing remarkable at all -- yet the growth to Dow 9,000 has so many investors skittish, even though it, too, only represents a long-term growth rate of some 11% a year since the 1920s.

Assuming we get to Dow 70,000 in twenty years, do you really care so much whether our next 1,000-point move is to 8,000 or 10,000? If you do, it's time to lengthen your horizon of expectations. If you can step back, though, and dismay your friends and colleagues with a market prediction of Dow 70,000, then you're adopting the kind of long-term approach that affords you the comfort of ignoring short-term fluctuations, market timing, and gooroos in general. (It doesn't take a gooroo to predict a long-term return for the Dow of 11%.) Fool on!

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[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]