Back in 1999, two American Enterprise Institute guys, James K. Glassman and Kevin Hassett, wrote a book called Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market
Almost instantly infamous—a stock crash began within months—it would become synonymous with crazed bubble-era thinking. Dow 36,000 became the poster child of the kind of dubious, hyped-up personal-finance journalism that is unfortunately never in short supply. Or as Knight A. Kiplinger, editor of Kiplinger’s Personal Finance, put it in a review at the time:
Rock-solid investment advice… Long-term investors can place it on an altar next to the works of Benjamin Graham and Peter Lynch, as well as Warren Buffett’s annual homilies to his Berkshire Hathaway investors.
Glassman and Hassett have spent the last 14 years walking back their book, and saying they didn’t really mean what everybody thought they meant when Glassman, for instance, wrote in the Washington Post the week Dow 36,000 came out that stocks were intrinsically worth triple their then price— if only investors weren’t so unfairly bearish on equities vis-à-vis bonds—and that price-to-earnings ratios should be somewhere around 100. Really!
We say in the book that the Dow should be at 36,000 today, but that realistically the process should take about five years…
We did the arithmetic and found, much to our surprise, that stocks would have to triple or quadruple. P/E ratios could easily be 100…
Now, investors are getting more reasonable. While many market analysts think that investors are currently off their rockers, we think that, to the contrary, they are finally becoming rational—recognizing the true value of stocks for the long term.
This was mainstream stuff, written at the height of the mania in one of the nation’s top papers. Three months later The New York Times/IHT let Glassman push the specious line—a big bubble backdrop—that the stock market boom was making everybody rich:
If the Dow rises to 36,000, those holdings will be worth about $40 trillion. Since there are roughly 100 million U.S. households, the average family owned about $110,000 in stocks in 1998. When stocks are properly priced, those stockholdings will be worth about $400,000.
A classic AEI example of misleading with statistics, Glassman used average family rather than median family, which gave the false impression that stock wealth is widely held. More than 53 percent of U.S. households had no stocks at all as of 2010, meaning the median American household had zero dollars in stocks 11 years after Glassman was writing.
Glassman’s and Hassett’s walking-back of their book began almost immediately since the stock market began to crash so soon after the book came out.
In a preface to a 2000 edition of the book, Glassman and Hassett sniffed at the “delight of the bears” at the incipient downturn and touted the rise in Cisco, GE, and ADP—stocks they had called cheap—since the book launched. Only ADP is up, slightly, since then (and it took 14 years to get into positive territory). If you bought GE and Cisco after reading that updated preface, you’ve lost about two thirds of your money. Where Glassman and Hassett called Cisco cheap in 1999 when it’s price-to-earnings ratio was at an enormous 85, the company’s P/E now is at a much more realistic 12.5.
By the next year, 2001, the stock crash was undeniable, and earnings multiples had collapsed. Amidst the carnage of the tech wreck, the Post gave Glassman real estate yet again to write this (emphasis mine):
My co-author, economist Kevin Hassett, and I did not predict when this blessed event would occur, and we warned that outside events could send markets down in shocking ways.
Never mind that he had written, in the same paper two years earlier, that “realistically the process should take about five years” to get to 36,000.
A year later, in 2002, he wrote this in a Wall Street Journal op-ed:
What went wrong? Actually, nothing. Despite its flamboyant title, “Dow 36,000” was a book of sober explanation, not of wild prognostication. We calculated that 36000 was the point at which the 30 stocks that comprise the Dow Industrials would be fully valued, and we warned that “it is impossible to predict how long it will take.”
But picking target prices was not what our book was about—nor is it what investing is about.
In other words, never mind the title of my book!
By April of 2007, with credit-default-swap indices already flashing red on a major securitization-market malfunction, Glassman took to the pages of Kiplinger’s to write about “Why Stocks Are a Bargain,” again, six months before the peak of the market.
That’s a whole lotta wrong.