Licensed through Adobe StockWhen the Dow Jones Industrial Average (DJIA) closed above 40,000 recently it reminded me of an incident from years ago. Sometime in the mid-1990s I had the pleasure of speaking to the Rotary Club of McComb, a large and attentive group. The DJIA, a collection of 30 industry leading companies, had been on an impressive run and was fast approaching, or had recently hit, 5,000.  When wrapping up my comments I told attendees that I was sure some might want to hear my prediction of where the market would go from there. My answer was that within the next 7-10 years I expected it could hit 10,000. You would think I had said NASA would be putting astronauts on Mars in the next decade as well.
How could I have been so confident as to believe that such a feat was likely? It was basic math and the compounding of returns as I explained to the Rotary members and guests. Since 1926, common stocks’ historical annualized rate of return had been about 10%. Any number compounded at 10% per year will double in slightly more than 7 years and I explained that if common stocks, as measured by the DJIA, continue to grow at 10%, we should see DOW-10,000 in the next decade, give or take a year or two. There were no guarantees, but it was certainly possible.
Beginning around the time the DJIA hit the 5,000 milestone, “DOW-10,000” would be the subject of countless commentaries by market strategists, economists, pundits, and financial journalists, many of whom believed it would not be reached for decades. As it turned out, it took less than four years after first closing above 5,000 on 11/21/1995 for the DJIA to close above 10,000 on 03/29/1999. In hindsight, the market was over-valued at the time and experienced a significant pull-back starting in March 2000, but it doubled nevertheless and has since doubled twice more from that DOW-10,000 milestone, closing above 40,000 for the first time on 05/17/2024.
I’ll never forget a retired gentleman approaching me after the meeting’s conclusion who told me he sold all of his equities when the DJIA hit 3,500, believing it was over-valued at 3,000. I’ve often wondered if he ever swallowed his pride and bought back in at levels above his exit point. Maybe not, and, if so, what a shame. The greater shame is believing anyone can accurately time market inflections and step off the train of permanent wealth creation known as company ownership simply to avoid the pain of a temporary interruption in that wealth creation process. Space travelers may one day land on Mars, but I’ll bet it won’t be before DOW-80,000.
Don’t give up your seat on this remarkable journey.

Samuel J. Taylor, CIMA®, AIF®, CRPC®