Tuesday screencast: Dow drama

• abnormalreturns
• September 28th, 2010

There is nothing like a big, outlandish market call to make headlines and stir things up in the blogosphere.  Recently Jeffrey Hirsch of the Stock Traders Almanac made a projection for the Dow of 38,820 by 2025.  Fortunately the Hirsch the mathematics of his call is not particularly onerous especially if you take into account an expectation of higher secular inflation.  In short, compounding matters.

Investors (and traders alike) should take these secular calls with a big grain of salt.  These projections highlight the dangers of false precision and can take investors out of their game.  In short, investors need to have an approach to the markets that takes into account a range of outcomes.  Investors who have an approach that recognizes that the long term, i.e 15 years from now, is going to be made up a series of short-term outcomes all of which represent an opportunity to active investors.  Therefore focusing on any single projection can cause one to miss out on big market moves in the interim.  In today’s screencast we examine the light (and heat) of this debate.

Posts mentioned in the above screencast:

How the Dow can get to 38,820 by 2025.  (StockTraders Almanac)

Outlandish predictions and the power of compounding. (Lex)

Knee jerk contrarians take note of big market projections.  (Money Game)

Be wary of big secular calls made on limited history.  (Big Picture)

The bulls are basking in their recent success. (The Reformed Broker)

Big market calls ultimately don’t matter.  (Crossing Wall Street)

also:

“The main driver of long term equity performance is nominal GDP.”  (EconomPic Data)

How times have changed.  10% annualized returns used to be thought of as “an inalienable right.”  (Bespoke)

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