“Dow 36,000”

On the day that the DJIA dipped below the 10,000 mark for the first time since October 2004, it may amuse you - in a vaguely horrific way - to look back at those heady, ever-expansive days when the sky alone seemed the limit for Wall Street. Ladies and gentlemen, I give you Dow 36,000 by Glassman and Hassett. From a serialized except published in The Atlantic in 1999:

Throughout the 1980s and 1990s, as the Dow Jones Industrial Average rose from below 800 to above 11,000, Wall Street analysts and financial journalists were warned that stocks were dangerously overvalued and that investors were caught up in an insane euphoria. They were wrong.

Stocks were undervalued in the 1980s and early 1990s, and they are undervalued now. Stock prices could double, triple, or even quadruple tomorrow and still not be too high.

Market analysts and media pundits have also persistently warned that stocks are extremely risky. About this they are wrong too. Over the long term stocks in the aggregate are actually less risky than Treasury bonds or even bank certificates of deposit. Although the experts may not be very good at predicting what the market will do, they are brilliant at scaring people — not out of malice but out of a profound misunderstanding of stock prices. Whatever their intentions, they have performed a terrible disservice to millions of investors by frightening them away from the market.

Stocks are now, we believe, in the midst of a one-time-only rise to much higher ground — to the neighborhood of 36,000 for the Dow Jones Industrial Average. After they complete this historic ascent, owning them will still be profitable but the returns will decline. You won’t be able to make as much money from them each year. We believe that in the meantime, however, astounding profits will be made.

Those were the days.

The moral of the story: Downplaying the possibility of risk is, well, risky business.

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