Fruition, But Let’s Not Get Too Excited
Thursday, October 5th, 2006
By Michael Lombardi, MBA for Profit Confidential
By now you’ve likely heard the Dow Jones Industrial Average hit new all-time records highs over the past two days. This is an event I had been predicting in this column over the past couple of months. So, my prediction comes to fruition, but why aren’t we getting excited about new record highs by the Dow?
Likely, it’s because the new high by the most widely followed stock index in the world has been too long coming. Today, the Dow Jones sits at about 11,850, up a miniscule one percent since January, 2000. The Dow would have to go to 12,400 for investors to be up one percent per annum since 2000. This is hardly something for investors in big-cap stocks to get excited. As for dividends, the annual dividend the Dow Jones Industrial Average has been paying over the past six years hasn’t even covered inflation.
No, you won’t be hearing your neighbors and friends talking about stocks during the upcoming holiday season parties. (We know they won’t be talking real estate either because that market is passé now too.) The reality is that if investors pull out their mutual fund statements from 1999 and look at those same statements today, they were likely doing a lot better in the stock market back in 1999. The bear market of the past six years, quietly and slowly, has done a great job deteriorating passive investor wealth.
Would I go out and personally buy the Dow Jones stocks now because the index has moved to new highs? No, I would not. While I do expect the Dow to move higher over the next couple of months, moving the index pass the 12,000 level, the risk reward potential just isn’t attractive.
The energy and commodity stocks have taken quite a correction as of late. That’s where I’d put my money… the old buy low, sell high formula that always seems to work. Hopefully, you heeded my earlier prediction and got into bonds three months ago as the possibility of lower interest rates in the U.S. has literally set the bond market on fire.
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Tags: bear market, dow jones, Dow Jones Industrial Average, inflation, stock market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
