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Dow 36,000
James K.
Glassman & Kevin A. Hassett
The Dow 36,000 Theory is all about predicting a
paradigm shift in current investors’ perceptions. Tomorrow’s investors
are expected to forsake the old paradigm and embrace a new one. Authors
James K. Glassman and Kevin A. Hassett present the “discounted dividend”
model of the stock market as their reason why stock prices will soar,
eventually. In 1999, they said it could happen anytime but put a window on
it of 3-5 years. Hasn’t happened yet. But this book is important as a
look-see into how academic constructs originate and work their way into
“commonly accepted stock market wisdom.” The P/E was once a kernel of an
idea in someone’s head. Now, it’s the basic way to value stocks. So,
conceptions do change over time.
Dividends, say Glassman and
Hassett, whether paid out
quarterly or totally retained in the company, are the only important way to
determine a company’s true worth. They call it the PRP (perfectly
reasonable price).
To justify lofty expectations, the words “assume”
and “assumption” are used dozens of times and lie at the bottom of what,
so far, is wrong with this concept. Just because they calculate something as
being worth many times what it’s selling for today doesn’t mean prices
will skyrocket tomorrow. It requires acknowledgement and action by
investors. We’re back to the old high school conundrum of whether a tree
makes any noise if it falls in a forest without anybody hearing it. It this
case, the question is whether a stock will ever sell at its “true value”
if nobody ever bids the price up that far? Obviously not.
Their credo, “Buy anytime, hold forever,” as well as the recommended use
of index funds is a recipe for never having to admit you’re wrong
regardless of what happens to your investment account. You never have to
confront performance because that far away goal just hasn’t been reached
yet. Continue to hold. It’s an enviable position, if you can get people to
take you seriously. But Dow 36,000…is it possible? Sure, anything is
possible if the paradigm shifts. It’s shifted before and will shift again.
The trouble with paradigm shifts is like Greenspan’s recognition of a
bubble. You won’t know about it until it’s already happened…and then
it’s too late.
On a side note and unrelated to the validity of the Dow 36,000 Theory, James
Glassman's website www.techcentralstation.com is one of the best free-market
addresses on Internet.
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