Keeping the focus on long term

17:00, May 18 2013
Carmel Fisher
Fisher Funds' Carmel Fisher.

Did you get excited when the Dow Jones broke through 15,000 last week? Did you even know . . . or care?

There are some who take these market milestones very seriously. I remember discussing the importance of the Dow Jones breaking through 13,000 back in February 2012. It was important then because for many investors it meant their investments were back to their pre-2008 level after a few long, hard years.

The market took a further 12 months to get to 14,000 and then, just in the past three months the Dow Jones burst through the 15,000 mark for the first time ever. This has of course led some investors to be wary, fearing the rally has gone too far, too fast.

But a piece from Wall Street columnist Chuck Jaffe provides a bit of perspective.

Jaffe reminded us this week of a prediction made by veteran fund manager Bill Berger in 1995, when the Dow was at 4500. Berger predicted that the index would hit 116,200 in 2040 and said that if he was proved wrong, he would be happy to discuss it at the time. Unfortunately he died a few years after making his prediction.

The curious thing is that 18 years later, his prediction is not as off the wall as it seems.


Berger did not attempt to predict market events like the bursting of the internet bubble in the 2000s or the financial crisis of 2008.

He simply based his forecast on what he had experienced during 45 years in the investment business. He saw the Dow go from below 200 to over 4000 and extrapolated these past movements into the future. To get to 116,200, the Dow had to roughly triple in 16.5 years, and it did, crossing through 13,000 in 2012.

If this rate of return - which equates to around 7 per cent per year - holds into the future, the market will triple twice more in the next 32 years and will shoot through the 100,000 mark sometime in the 2040s. A 7 per cent annual lift is not completely outside the realms of possibility, though the likelihood of it being a straight line is slim.

Berger acknowledged that there would be periods where his prediction looked balmy, and that has certainly been the case in the past two decades. But that was not his central point.

He said: "There's not an investor who has been alive for the last 60 years or more who hasn't seen the market rise over their lifetimes. So I don't know exactly where the market is going over the next five or six decades, but I know it will be up."

He warned that market milestones brought out the forecasters and soothsayers and that investors should remember the two rules of forecasting. Rule 1: For each forecast, there is an equal and opposite forecast. Rule 2: Both of them are wrong.

So, when you hear comments about markets breaking through milestones and psychological barriers, bear in mind the limited value of forecasts, and keep the long term - like the really long term - in mind.

Carmel Fisher is managing director of Fisher Funds, an investment manager and KiwiSaver provider.

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