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BULLS & BEARS: Despite decade's bad start, market points to upswing

February 7, 2005

The four most dangerous words an investor can mutter are, "It's different this time."

You heard the phrase a lot in the late 1990s and it was usually surrounded by words like "new economy" and "paradigm shift."

We should all know by now that it's never really different. Boom and bust trajectories pretty much look the same whether they are tulip bulb prices, radio stocks, Internet stocks or Britney Spears' record sales.

Using the premise that same-old, sameold will rule, I'll make a crazy prediction that the market almost certainly should be up at least 60 percent by the end of 2009 and easily could be up as much as 100 percent!

What? The Dow Jones industrial average trading between 16,000 and 21,000 in five years?

Before you quit reading right here and move your attention to Keenan Hauke's (probably more rational) column across the page, hear me out.

Standard and Poor's started tracking the returns of the S&P 500 index in 1928 and many of you know the 77-year average return for that index is about 10 percent. Let's not look at the super-long haul, though, because-as John Maynard Keynes quipped-"In the long run, we're all dead."

Instead, let's look at the returns by decade. And since we are halfway through this decade, my guess is most of you reading this will live to see the end of it.

We have just finished the first half of this decade and so far the S&P 500's annual average is off 2.3 percent.

The curmudgeon market seers say we will have at least a whole decade of poor returns to look forward to. Their belief is the prior two decades were so good that this decade has to be bad, thus allowing the averages to "revert to the mean."

But be honest, is there any reason to believe this decade will be worse than the 1930s?

The S&P 500 index started this decade at 1,464. To just equal the paltry 5.3 percent average return during the 1930s, the S&P 500 would have to close the decade at 2,125, or up 80 percent from today's level. Up 80 percent would put the Dow Jones industrial average at almost 19,000.

Even if we can squeeze out returns only half as good as the 1930s, the market will end up 60 percent higher than it is today.

My earlier, wild-eyed prediction of up 50 percent doesn't look so outlandish anymore, does it?

OK, now you can read the next article.



Dave Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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