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NewsTalk

Welcome to the archives for NewsTalk, an IBJ blog published from November 2007 through December 2010.

Auer: Dow 20,000 by 2020

July 29, 2010

After a decade like the last one, when stock prices pretty much went nowhere, Bob Auer’s forecast is refreshing. Let’s hope he’s right.

Auer, founder of SB Auer Funds LLC in Indianapolis and senior portfolio manager of its Auer Growth Fund, is convinced the Dow will hit 20,000 by the end of this decade. In other words, he anticipates stocks’ roughly doubling in value.

“Every time we have come out of a recession, we emerge even stronger,” says Auer. “We have just needed the part of, let’s get back to thinking right.”

Thinking right, as in a realistic perspective on conditions.

Why is Bob Auer worth listening to? SBAuer Growth Fund beat the S&P 500 handily last year but is down against the popular index so far this year.

Auer’s real success is over the long term. The fund started publicly in late 2007, but Auer had run a private fund with the same strategy since 1987. Because the private fund was carried over into the public fund and the strategy stayed the same, the Securities and Exchange Commission allows Auer to use figures from the private fund in its prospectus.

The fund, which stands at $205 million in assets, including $16 million belonging to the Auer family, saw an average annual rate of return of 30 percent from its start in 1987 until it opened to the public. That’s a far sight better than the overall market.

Since the fund went public, it has underperformed the market, a problem the fund blames on the market’s temporary infatuation with Google and other glamour stocks. Auer focuses on looking for undervalued stocks.

Back to Auer’s optimism about the future.

He points out that the recession is over, and he doubts widespread fears of a double-dip recession will materialize. The recession cleansed the economy like fire clears dead wood from forest floors, and the surviving companies are lean, and their managers chastened and looking for reasons to invest.

Auer also anticipates a thaw in the financial system and lenders’ putting money back on the table. Federal Reserve chair Ben Bernanke continues to assure that the Fed will keep interest rates low in order to get the economy going.

Demand is bound to return, too, Auer says. “Everything that gets manufactured gets consumed.”

He reminds that the Dow, now at 10,500, hit 14,000 back in 2007. Yes, he allows, it was whipped into a froth by the debt binge. But he emphasizes that not all of the boom was vapor, and so reaching from 14,000 to 20,000 isn’t terribly difficult to envision.

The national debt isn’t as big of a problem as some investors fear, he says. Sure, the debt has exploded, now standing at $13 trillion and is projected to rocket higher. But to keep it in perspective, everything Americans own—real estate, bonds, stocks, you name it—still add up to $46 trillion. That’s down from a peak of $51 trillion but up from $42 trillion a year or so ago.

So, Auer contends, our collective balance sheet will more than compensate for the debt and allow space for economic expansion.

“If we keep going like this, we could be like Greece,” he says. “But we’re not even like Greece.”

Another reason the debt won’t be crippling is that citizens are beginning to wake up to its scope and growth, Auer adds. The result will be increasing pressure on politicians to reign in spending. He hopes to see the day when it becomes more popular to cut, rather than to increase spending.

What are your thoughts about Auer’s optimism? Will the Dow double in this decade?

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