BLOOMBERG – It's probably been dunked on more than your average Nerf basketball hoop. And yet the prediction in the book Dow 36,000 now has been fulfilled, with the 30-stock Dow Jones Industrial Average touching the level promised in the title by authors James Glassman and Kevin Hassett.
The only problem? The book was published in September 1999 and the authors guessed the 36 000 level would be reached in three to five years – not the 22 years it actually took.
Still, Glassman said in a recent interview that he has no regrets about the eye-catching title of the book, even though it took on legendary status as an emblem of out-of-control investor optimism during the dot-com era. It would be called, among other things, "perhaps the most spectacularly wrong investing book ever." That was in the Washington Post – the same paper where Glassman worked as a columnist.
Still, both authors went on to prominence in Republican circles: Glassman as an under secretary of state for President George W. Bush and Hassett as a chief economic adviser for President Donald Trump. And aside from the title and the maths that got the authors to 36 000, the underlying message of the book – that a buy-and-hold diversified portfolio of stocks is the best bet for investors over the long term – has stood the test of time. Harvard's Kenneth Rogoff even wrote a Wall Street Journal op-ed in September arguing "Why the Dow 36 000 Forecast Was Right".
Glassman has written extensively about what he believes they got wrong in the book, including not appreciating the lingering nature of the equity risk premium the authors believed would dissipate. "Investors set the price for stocks," Glassman wrote in Kiplinger this year. "And they demand a higher return from them, no matter what history shows."
With the Dow finally hitting the target, we reached out to Glassman to fill in some of the blanks about his experience with Dow 36,000.
Q: Do you recall who came up with the name of the book? And did you ever wish you could change the name? (If so, to what?)
A. I recall walking across Central Park in the spring of 1999 for a meeting with John Mahaney, my editor at what was then called Times Books. This was the showdown. The book was done, but we had to come up with a title. My own ideas were stupid. For example, "The Money Tree." Kevin and I joked that we should call the book "A Treatise on a Prospective Solution to the Equity Premium Puzzle".
Anyway, I walked into Mahaney's office and he shoved a folded piece of paper across the desk to me with two words on it: "Dow 36,000". I knew in an instant it was the right title, and Kevin needed no convincing. No, I do not regret it – though, obviously, the title was easy to caricature.
Q: How would you describe the notoriety that came along with the book? Was it a net positive or negative for your career?
A: I've had the career I've had, and it's hard to imagine an alternative one without D36K. I have done a lot of things, and I doubt D36K affected them one way or another. The Washington Post didn't fire me. I got confirmed twice, unanimously each time, by the U.S. Senate. President Bush hired me to run his policy institute, and I have done consulting for lots of Fortune 500 companies.
What I do regret is intimating that Dow 36 000 was going to happen soon, that is, within a few years. The late Alan Meltzer, a serious economist and student of the Fed who gave our book a very nice blurb, told me: "Never associate a date with a number." Good advice.
Also, as I have written several times, I believe we were mistaken to believe that investors were "wrong" in demanding high returns to compensate for extra risk that equities, in truth, did not possess. Our mistake was to define risk in only one way – volatility of stock prices. I have learned a lot about risk since writing the book, as have all Americans with such events as 9/11 and the Covid pandemic.
Q: The book's main takeaway about the benefits of buying and holding a diversified equity portfolio seems to be the most under-appreciated thing about it, even all these years later. Is it frustrating that that message got overshadowed by the focus on the name of the book?
A: Yes, it is frustrating. Though, again, I wouldn't change the name of the book. What is really disappointing is that a lower proportion of American households own stocks, stock funds, and stock investments in 401(k)s today (56%) than did when we wrote the book (60%), according to Gallup.
It's not just the book. I have been a buy-and-hold fanatic for 40 years of writing about stocks and, still, Americans don't own stocks, or they jump in and out of them.
Our book was praised by several of the gods of buy-and-hold investing, including the late John Bogle and Knight Kiplinger. Despite the book's name. I am proud of that.
Q: Now that we're nearing in on 36 000, I'm curious how you're viewing the market? Is buying and holding a diversified portfolio (say, in index funds) still the best bet, or would you tweak that at all for the current environment?
A: Yes. Still the best bet. People like to own individual stocks, in part to show themselves (and maybe their friends and relations) how smart they are, and I would never deny them that pleasure. I do it myself. I urge people to buy index funds and a few stocks and see which does better.
I think the current environment is good for stocks, and even if I didn't, I would tell people to ignore what I think and invest anyway. If you do the following, it is hard to go wrong: 1) buy index funds, 2) make purchases automatically, using the same amount of money each month, 3) try to pay no attention to the market or your balance, 4) don't sell until you absolutely have to, and 5) watch tax consequences.