By JLP | March 30, 2011
I’m reading Jeffrey Hirsch’s Super Boom: Why the Dow Will Hit 38,820 and How You Can Profit From It.
When I first read the number 38,820, I kind of chuckled to myself.
Then I did a little math.
At today’s close, the Dow is sitting at 12,279. To reach 38,820 by 2025 is a little less than 14 years (I’ll use exactly 14 years for simplicity’s sake). That implies an annual rate of return of 8.57% (or a total return over the period of 216.15%) as you can see from my graphic:
I’ve only just begun reading the book so I have no idea Hirsch’s rationale for selecting this particular number. I will say that based on the last 10 years, 8.79% seems like a high expected return. That said, I also know we tend to suffer from recency bias and expect the future to be like the recent past. Just for the heck of it, I went back and looked at 14-year rolling returns for the Dow Jones Industrial Average going back to 1929. Here is what I found out:
Out of the 69 14-year rolling periods, 31 of them had returns greater or equal to 216.15%, which is the total return we would need in order to get to 38,820 by the year 2025. So, a total return of 216.15% over a 14-year period isn’t unusual by historical standards. It just seems that way based on the challenges we face at this point in time.
I’ll read and review the book in the next week or so. It should be an interesting read.