Vol. 12, No. 2,856W - The American Reporter - March 18, 2006

Market Mover

by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.

BOCA RATON, Fla., April 25, 2005 -- Every few months it's good to both literally and figuratively take stock of things, and a recent review begs me to proclaim a Dow Jones Industrial Target of 15,000 or higher within the next four years.

If I had a preconceived notion, it might have been that a quantitative review going back to the pre-Crash high in 1987 of Dow 2,722-when subtracted from Dow 10,000 would show such modest results that big numbers are overdue. I was wrong. My upside optimism came about for other reasons.

But first things first.

Most of my data is arbitrary, subjective, and helpful for my personal use and not necessarily for others. So, take my recommendation with a grain of salt.

I started with a base year of 1987 because it is the landmark case of frightened retail customers who "play the market" losing out to institutional professionals, or smart conservative amateurs who stay the course instead of bailing out at signs of trouble. It is the year of the worst post-1929 crash in history, and the year when - listen up: If you did nothing after the August highs and the October Crash, your conservative, investment-grade portfolio rebounded to still make a gain for the year by Christmas. In other words, those who did nothing during the crash were winners.

I also include the terrible doldrums of 1999-2003, when the dot-com bubble's burst, compounded by a devastating blue-chip pullback triggered by poor Proctor & Gamble earnings, gave investors the worst four-year run since World War II.

Finally, the DJIA is shorthand for a media event for 30 stocks. The list changes as Dow Jones decides U.S. industry has changed. Companies which stagnate or underperform, or merge, or acquire, are often dropped. It is not the broad market as expressed by the S&P 100, 500 or the huge Russell 2000 Indices. However, when I ran the charts for the S&P 500 over the same period, the ratios were very similar for about 15 of the last 17 years, so we'll use the Dow Jones Industrials for our projection.

My raw data source is the Intelligence Gathering unit of FT.com (London's Financial Times) Website. using BigCharts with their own formats. The results:

  • Including the lousy post-1999 years, "the market" has averaged +15.27 percent per year since 1987. Depending on what day in 1987 you invested, the "average" might be as low as approximately +14.60 percent annually.

  • For a more current look, I started with 1999 and went out 10 years, since in every year since 1999 the DJIA has straddled above, below, or at the 10,000 watermark.

  • Projecting a decade from 1999-2009 (approximately four years from now), and using the intra-year 1999 low of approximately Dow 9,000, what would a Dow 15,000 at the end of 2009 mean? It would mean a very, very, very modest +6.6 percent per-year gain over a decade.

To the long-term investor, the promise of sitting back in your chair on New year's Eve 2009 and reflecting on a portfolio which earned +6.6 percent per year (either taxable or tax-deferred in an IRA, 401k, annuity, etc) might be "okay, but just okay." Is this possible? "Yes." Is this plausible? "Yes."

But the significant part of my scenario is Dow 15,000 vs. Dow 10,206 at this writing. The 4,794 point gain (+46.97 percent) in a projected 3.75 years means annualized 2005-2009 returns of +12.52 percent per year.

When perceived as the glass more than half full, the prudent question - with deficits climbing, interest rates rising, oil high, retail weakening, and the national debt soaring = is, "Can we sustain the 15.27 percent annual U.S. stock market gain in the next few years?"

The prudent investor responds, "Maybe not, but a very, very modest gain by historic standards - a gain of only about 6.6 percent per year over a decade, gets us back on track for the next four years of 12 percent-plus results annually!

Finally, even with pension and health care woes, IBM trading in the $70-range; cash rich Microsoft, and innovative Intel languishing in the $20s, and great blue-chip names from McCormick to Caterpillar to Walgreens at bargain prices, the market appears to be oversold. I am a buyer of quality here.

Unlike Jonathan Swift, my "modest proposal" does not involve devouring our young. However, we might all start to devour some pessimists and use the rest of 2005 to buy quality stocks which are selling at fire-sale prices. Mark Scheinbaum is chief investment strategist for Boston Stock Exchange member firm Kaplan & Company Securities, Inc. (www.kaplansecurities.com). He may have positions in some of the stocks he recommends.

Copyright 2006 Joe Shea The American Reporter. All Rights Reserved.

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