<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (July 14, 1998) -- We don't generally have a high opinion of market predictions here in the Fool. Time and time again, short-term predictions have been proven silly and few gooroos ever maintain a good record for accuracy. But I'm going to break with tradition and make my own prediction for the Dow, although not a short-term one.
I'm asked every single week whether one should wait for a correction before entering the stock market, and my consistent answer is to forget about market timing and just get started. If one's time horizon is really long-term, timing doesn't matter. I'm not talking about long-term as defined by Wall Street, where it's measured in terms of a cup of coffee cooling. I mean long-term in regard to decades, the time frame most of us plan to be invested.
So, what would you say to a Dow at not 10,000, but at 100,000? Of course it sounds ridiculous, but is it? With the market at 9,200 today and an annualized gain of 12%, the Dow would hit 100,000 in only 21 years. God willing and the creek don't rise, I expect to see that and quite a bit more in my investing career.
The problem with our perceptions of the various millennium landmarks for any index is that we think in terms of raw numbers rather than in terms of a geometric progression based on percentage gains. For example, when I started writing for the Fool, readers and gooroos alike were scared of the market. The level then? Under 4,000! But the more rapid gain from 3,000 to 4,000 scared some people, even though that fourth thousand points was a lot less in percentage terms than the second or third thousand Dow points. In just over three years since then, we've added another 5,000 Dow points.
So let me ask, if the Dow is going to 100,000 over the next 21 years or so, is the direction today, tomorrow, or next month really all that vital? It's not to me. I expect to take plenty of lumps along the way, and in fact, in the last three years I've taken my share of them in individual stocks and industries even though the entire "market" has continued going virtually straight up.
But my perspective changes when I start thinking in ten- or twenty-year windows rather than getting anxious about this quarter's results. It makes investing and life a lot less stressful to know that time is our biggest ally and that historically, the stock market rises 71% of the time. No one knows what's in store in the short run, but I'm reasonably certain that the investor who picks good strategies and stays fully invested will be very happy about his choice in a few decades. I've been called naive (and a lot worse) by skeptical critics of both my columns and my book. So be it; differences of opinion are what make up a marketplace. But I'll take quantitative history over a gooroo's opinion any day.
Current Dow Order | 1998 Dow Returns
[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]
07/14/98 Close
Stock Change Last -------------------- UK - 3/16 53.19 IP + 7/16 43.31 MO + 3/16 39.94 EK + 5/8 73.75 |
Day Month Year
FOOL-4 +0.46% 1.24% 9.93%
DJIA +1.64% 3.28% 16.91%
S&P 500 +1.06% 3.86% 21.35%
NASDAQ +0.15% 3.89% 25.35%
Rec'd # Security In At Now Change
12/31/97 291 Union Carb 42.94 53.19 23.87%
12/31/97 206 Eastman Ko 60.56 73.75 21.78%
12/31/97 289 Int'l Pape 43.13 43.31 0.43%
12/31/97 276 Philip Mor 45.25 39.94 -11.74%
Rec'd # Security In At Value Change
12/31/97 291 Union Carb 12494.81 15477.56 $2982.75
12/31/97 206 Eastman Ko 12475.88 15192.50 $2716.63
12/31/97 289 Int'l Pape 12463.13 12517.31 $54.19
12/31/97 276 Philip Mor 12489.00 11022.75 -$1466.25
CASH $754.73
TOTAL $54964.86
|