– Scott Reed
We have been flirting with 30,000 on the Dow Jones Industrial Average for a while now. We got close before COVID-19 sent the Dow down to almost 18,000 in March. But we have climbed our way back up and this past week we finally hit the mark. I think we should celebrate these big numbers. They are milestones that deserve attention. But let’s be careful not to read too much into what that number might mean.
My first day in the investment business was Aug. 19, 1985. On that day the Dow Jones Industrial Average closed at 1,312.50. The Dow has increased almost 23 times that number now. That means that if I had put $10,000 into a Dow Jones Industrial Average Index on that day, it would now be worth over $230,000 and that doesn’t even include the dividends that would have been paid out over that time.
The past week is a stark reminder of just how big and efficient the world equity markets really are. For over a century the U.S. equity markets have been up about 70% of the time and down 30%.They have averaged between 9%-10% a year for decades. People keep proposing that we are in a new paradigm and things are going to be different now. They said that in the 80s, the 90s, and all through the 2000s. It has yet to prove to be true.
The U.S. economy was based primarily on agriculture in the early 1900s. It then moved to an industrial society, followed by technology and now the service sector has taken the top spot. Through it all we have seen failures, startups and breakthroughs. We have seen big companies become obsolete and small companies take over an entire market. There are always individual winners and losers and that is where the risk lies in investing in the stock market. But the market itself has been about as consistent as you could possibly hope for – 70% of the time up, 30% of the time down and a long-term annualized return of over 9%.
So if you want to roll the dice, find one or two stocks and put your money in them and hope. But if you want something that has proven itself over and over again, through many different economies, many different political parties, and many different conflicts over the past 100 years maybe it is time to buy the whole market and let it do its thing. Let the most efficient system in the world work for you and get on what we call the, “Get rich slowly” train. It is not as sexy as finding the next hot stock but there is an historical consistency to it that you can feel good about.
A lot of people have asked me if the market is too high now that we have broken through 30,000. In the short-term that is a fair question. The short-term is about emotions and if enough people think we are too high then the markets will drop. But I have seen a whole lot of “new all-time highs” since I got in the business with the Dow at 1,312.50 and so far it has never been a bad time to buy the equity markets for your long-term money. I would be surprised if that trend didn’t continue.
Be careful out there and stay safe for just a little longer. There is light at the end of the COVID-19 tunnel.
