The Dow Jones has finally broken the 36,000 barrier with a sharp rise in stock prices over the past year. Xinhua News Agency/Getty Images
On Monday, the Dow Jones index surpassed 36,000 - twenty years after a famous book predicted it.
"Dow 36,000" claimed that the milestone would be achieved in the early 2000s. However, this was far from the truth.
The book recommends that investors buy and hold many stocks in order to make a lot of money.
Two authors published a book in 1999 that predicted the Dow Jones Industrial Average would rise to 36,000 during the peak of the dotcom bubble. It was based on a previous prediction of 10,700.
The Washington Post called "Dow 36,000," by James Glassman, and Kevin Hassett the "most shockingly wrong investment book ever."
It finally happened on Monday when the Dow briefly reached 36,000, two decades after what the book predicted. The Dow closed at 35.913.84.
Glassman and Hassett stated in the book that Dow Jones should rise to 36,000 within the next few days, but that it could take up to five years.
Because they didn't properly consider tail risks, the possibility that rare events could cause large losses, the authors were too optimistic.
Jim Reid, a top credit strategist for Deutsche Bank, stated that the book is a "good case study of the optimistic outlook many had back then." He stated that "In reality, even half of the 18,000 mark wasn't reached until late 2014."
In 2000, the dot-com bubble burst. Stocks have been shattered by the 2008 financial crisis, coronavirus, and a few other market nerves.
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But, behind the illogical title was a message that is a lot more intelligent today. If you hold many stocks over a long time period of time, you will make lots of money.
An investor who had purchased the Dow Jones at 1999's end and reinvested dividends would have gained approximately 450%.
Kenneth Rogoff, a Harvard economist, praised "Dow 36,000" on September's Wall Street Journal.
Rogoff stated that the authors had "very much right" when they said that those with enough wealth and liquidity to weather short- and mid-run volatility would likely see big gains, without taking on extra risk.
James Glassman was among the authors of "Dow 36,000." New York Daily News Archive/Getty Images
What's next for the Dow? Robert Schein, Blanke Schein Wealth Management chief investment officer, stated that there are many reasons to be optimistic.
He stated that two of the greatest concerns for investors, inflation and supply chain problems, are temporary issues that will likely subside sometime in 2022. "Both fiscal and monetary policy will likely remain accommodative for the medium to near term."
The index has increased 33% over the past year, and it is unlikely that it will continue to rise at this pace. Stocks have increased so quickly due to ultra-low interest rates. However, the Federal Reserve may raise them next year.
The authors of "Dow 36,000", however, continue to follow their investment advice. Bloomberg spoke with James Glassman this week. He said that he believes the current stock market is favorable. Even if I disagree, I would advise people to ignore my thoughts and invest.
