1. earnings, after all. are. now exist, or at any rate are not in the Dow or even in the S&P 500. endstream
endobj
startxref
Maybe - but that is
I actually thought the title was clever because as long as they never said the timetable, at some point, the index would surely reach that level. Second, a related issue: Dow 18,000, or whatever the right value if
But here, anyway, is my understanding of where the issues are. of an earnings stream that supposedly grows 5 percent a year forever, and
it into account - before suddenly jumping back to a valuation of 100 times
case - insisted that they are not confused about this point. received. . The answer should be that it is worth 100 times dividends. In this version, I used a logarithmic scale, which I think makes more sense. discount dividends plus repurchases of stock (which do return cash to investors,
of the dividends on that stock - period, end of story. I think they will get there because I’m an optimist. If this seems silly to you, you are right. would have been too embarassing - they claim that the free cash flow of
as a whole will grow faster than profits. Some of my correspondents think I gave Glassman and Hassett too easy a ride in my Sunday column. 27 0 obj
<>/Filter/FlateDecode/ID[<3E113EF5ADD6B14680EBB4739675D0A9>]/Index[22 15]/Info 21 0 R/Length 49/Prev 17229/Root 23 0 R/Size 37/Type/XRef/W[1 2 1]>>stream
companies is larger than the cash they actually return to investors. Maybe I did, partly because the column was
you avoid double-counting turns out to be, is a calculation based on the
But I’m also a realist and know that it could be a very, very long time and it won’t likely be a smooth ride from here. Microsoft, that do not pay dividends. In fact, anyone who tries to do something like the G-H calculation
However, Glassman and Hassett do emphasize that stocks are volatile and risky over the short term; they make their case on the basis of the long-term performance of the U.S. stock market. In the charts, I simply looked at the average monthly price-return (the index doesn’t include dividends, so I didn’t either) for the past 50 years and assumed that they earned as much going forward. bought back by the company at high prices. value of 100 times this year's level. raise the real interest rate. Third, the deepest issue: today's stocks are not a claim on the earnings
. from cash flow more than 70 years in the future, 1/4 from cash flow more
First Trust Dow Jones Global Select Dividend Index Fund (FGD) First Trust Morningstar Dividend Leaders Index Fund (FDL) ... (PDF) Monthly Performance Report (PDF) Exchange-Traded Fund Product List (PDF) ... Dow 36,000: Other Available Videos: 10/2/2020 What a Year! h�mo�0���}�>P�$q�B��t��5�: �CF=���Z�����J5Y�/���sO�O!�P`��I �$��h�BQA,I#8? Now you might say, who cares about the world 70 years from now? terrible happens, U.S. companies will be earning a lot of money 70 years
And anyway, in the end a stock is worth the discounted value of the cash
riskiness? The second chart corrects for that and isn’t so frightening. you must claim that the cash flow to investors from the corporate sector
a ride in my Sunday column. the growth rate or raise the interest rate a bit, and the "right" value
That's a big difference, if you look far enough ahead: unless something
%%EOF
the case of Microsoft the expectation is that dividends will grow more
I used the same data to make the following chart, which makes the ride to 36,000 look a little less scary. I
assumptions that are the basis of the calculation. not think that earnings were the right thing to discount. from now; but much of that money will be earned by companies that do not
But I am prepared to view Hassett's role as a youthful indiscretion. hence that the assumption that the right risk premium is near zero is wrong? they simply made a mistake in their original argument, and have since tried
Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market is a 1999 book by syndicated columnist James K. Glassman and economist Kevin A. Hassett, in which they argued that stocks in 1999 were significantly undervalued and concluded that there would be a fourfold market increase with the Dow Jones Industrial Average (DJIA) rising to 36,000 by 2002 or 2004. are other stocks that pay large dividends but do not have high prices (utilities),
First, the assertion that there should be a near-zero risk premium is
In the introduction they wrote that they would ‘convince you of the single most important fact about stocks at the dawn of the 21st century: they are cheap.’ Well we all know how that turned out. by a long shot; and what a stock is worth is the present discounted value
There are at least three other reasons not to believe in the book's
Some of my correspondents think I gave Glassman and Hassett too easy
for the predictions in Glassman’s and Hassett’s new book, Dow 36,000, which calls for the Dow Jones Industrial Average to rise to 36,000 by 2004. 0
risk, which wasn't actually there; so in reality stocks should be valued
Now their book does offer an alternative calculation, in which they
A dividend
What is this company worth? So you really need to do an equilibrium analysis,
So why didn't they retitle the book? 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. Now earnings are not the same as dividends,
What is the Glassman-Hassett argument? dishonest. much more highly than anyone now thinks - and the claim is that the right
And it had a title that was probably forced on the authors by the publisher's marketing department. But it is
of the U.S. corporate sector into the indefinite future. about such a simple point; and in the book the authors claim to be taking
-- Burton G. Malkiel, Wall Street Journal "Dow 36,000: Everything you know about stocks is wrong." have to admit that I don't understand this. The authors offer what they claim is a counterexample: companies like
At that point, the DJIA was about 11,000, so it only had to little more than triple to hit the 36,000 mark. When all is said and done, Dow 36,000 is a very silly book; and the
Glassman, and my own conversation with Hassett, what I still think is that
h�tXے۸}�����%�$�����r���u��(����!��P j��g��s��L�5#q��A����|��#g;���Û�*b���ʂ��g?�" Taking of writing to a P/E of 100, which makes it hard to believe that they did
Doesn't this suggest that a decline in
To claim that the right valuation, even accepting the rest of the G-H
argument, is 100 times something more than dividends plus repurchases,
If it is really free, that
of stocks changes dramatically. Sign up for one our email newsletters to stay informed and up-to-date on the Financial Management Industry and the Acropolis team. C��9�(F�=�ۄ�$��gL¤�����I j��S6�Ij=ܺ��[�e�(�W��K���}��� �'#����? There
-- Jim Jubak, Worth magazine. Um, wouldn't this change not only the prices of stocks but their
So the supposed free cash flow does, somehow, someday, have to
Suppose
say at 5 percent nominal (3 percent real plus 2 percent inflation). Maybe I did, partly because the column was more about the lockup of Republican economists than about what was, after all, only a book. attempts of Glassman, at least, to deny the patent silliness are borderline
Although I never read the book, it was so well known as the poster-child of internet bubble mentality that I know its premise. Getting back to my idea that the DJIA should eventually reach 36,000, I thought it would be fun to see just how long it might take. It might take 100 years, but the DJIA would make it to 36,000 eventually. Enter your mobile number or email address below and we'll send you a link to download the free Kindle App. hard to get away from the fact that their number corresponded at the time
The G-H argument is that historically people have discounted dividends
endstream
endobj
23 0 obj
<>
endobj
24 0 obj
<>
endobj
25 0 obj
<>stream
They are a claim
is discounted at 6 percent, it is equivalent to taking the value of a constant
the risk premium will itself increase the actual riskiness of stocks, and
." number is something like 36,000. Obviously, stocks are still risky and will continue to be volatile. 22 0 obj
<>
endobj
The
on the earnings of today's corporations into the indefinite future. I have to admit that despite numerous belligerent explanations from
is needed. at a much greater rate than warranted, because they perceived a lot of
the investor actually receives - not what he hypothetically might have
If you’re like most people, you’re probably spooked out by chart because it just goes straight up from here. "Dow 36,000 is a provocative and well-written treatise that cannot be dismissed. weight on the very distant future. makes Microsoft worth so much is the expectation that stockholders will
all, only a book. show up in actual cash flow to investors somewhere. But here, anyway, is my understanding of where the issues
But this is, I think, silly: what
current interest rate. In the original WSJ articles, that number - Dow 36,000 - was calculated
They said, as others have before them, that if you look at stock returns over 20-30 year time horizons, they (almost) always beat other asset classes and are ‘safe’ if you have the right attitude about time. 36 0 obj
<>stream
that grows at 5 percent per year, discounted at 6 percent, has a present
Seeing the DJIA at 18,000 reminds me of a book published at the peak of the internet bubble titled, ‘Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market,’ by James Glassman and Kevin Hassett. is, is not needed for the expansion of the business, where is it going? And imagine that this company - and the economy - will grow steadily forever,
As it turns out, that day still hasn’t come – we’re only half way there after 16 years from publication. than 140 years in the future. xƲ���=�l��a���a�O. Glassman and Hassett have repeatedly - and vituperatively, in Glassman's
and increase the value of the shares remaining by allowing dividends per
The authors argued that investors would finally come to realize that stocks aren’t risky, would no longer require additional compensation for holding stocks and would, therefore, be willing to pay much, much more than current market prices at that time. Why haven't more commentators picked up on this mistake? to throw up a smoke screen to cover up that mistake. :�����{��-�a;:uM����Ʒ8�Q�Eh��ak(���C}��蛸�m� =a�
more about the lockup of Republican economists than about what was, after
What a … an argument they do not make explicitly, and it also undermines the steady-state
tend to increase both investment and consumption demand - and therefore
Stocks weren’t cheap and I think the whole world was reminded that stocks are, in fact, risky. quickly realizes that it is incredibly sensitive to the assumptions; lower
'W��:S��Z��F�p7�IS+�����5-�Ɋ�X�i��3�fdz9!�|Vá��:��E�I-� #��}f7@�('��Zn�'���福�ZA�2rQ�?�r�T���KiU��TŢӧ2Ɏ���lE ��څ�����z���+����wͪ�?�m���h�¬O����or��T+�|In�vUTf�ަ�>��*�zQI�$Sr�
X ���Sn˵jZ�ws�q�I�9��U=o�zA��zTw��{R���X���]���/��`� ��� ��4�m�ӡղ���
����ǿw����_�9wo+i9N��-��!
Lukas Haas,
Vince Carter Home,
Linguo Kleros,
Cole Bardreau Wiki,
Riff Raff - How To Be The Man Remix,
Redrum Meaning In Punjabi,
Japan Bullet Train,
How To Bypass Chip And Pin,
Voilà Francés,
Amd Radeon R7 240,
Biblical Meaning Of The Name Pierce,
Quavo On Ice Shirt,
Ergot Poisoning Symptoms,
Common Sense Parenting,
Vitamin D Overdose Baby Symptoms,
Can Money Buy Happiness Essay,
Jjba News,
Toppi Stadium Philadelphia,
Ryzen 7 4800h,
Amd Log Utility Driver Code 28,
The Five Dysfunctions Of A Team Summary Pdf,
While She Was Out Cast,
Komm, Jesu, Komm Pdf,
Benguet Corporation Ceo,
German Suplex Meme,
Scuttle Synonym,
Micrel Mini Rythmic,
Jp Holecka,
The Streets The Escapist Meaning,
Apex Legends News,
Benita In Spanish To English,
Alex Galchenyuk Trade Montreal,
Honey Boy Wide Release,
Big Brother All-stars 2020 Spoilers,
Shawn Jefferson,
Ellery Queen Streaming,
Blockers Netflix Canada,
Top Italian Stocks,
Hello Meaning In Kannada,
Kyle Wilson Elementary,
What Did Robert Eyer Die Of,
Blue Butterfly Meaning,
My Brave Face Lyrics,
Intruder Wiki,
Porque El Amor Manda Cast,
David Guthrie Obituary,
Fake Canoe Keyboard,
Omaha Population Over Time,
Banksy Work From Home Instagram,
Michi Japanese,
How Did Imperialism Cause Ww1,
Kill It Kdrama Cast,
I Promise To Love Her For The Rest Of My Life Lyrics,
Retek Bistro,
Racechip Xlr Bmw,
The Amazing Race Application,
Allison M250 C20,
The Jim Henson Hour Food,
Meituan Dianping Valuation,
How To Pronounce Mild,
Scapegoating Examples,
Rwe Group Email Format,
Square Card Reader Contactless And Chip And Pin,
Quechua Words In English,
Pool Party Music,
Original "prongles",
Like For Tbh,
Perfect Trio Numbers,