Revisiting 1999’s best-seller.
Once upon a time, people purchased books about the stock market. (Now, they read Internet articles instead, about which I will not complain.) Among the most popular of those titles was Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market.
Dow 36,000 differed from other best-sellers in that its authors lacked star power. James Glassman was a former Washington Post columnist who appeared on Sunday morning political talk shows, and Kevin Hassett had worked briefly for a think tank. What the book had, instead, was impeccable timing. Its publication date was October 1999, the height of the New Era.
The first rule of investment advice is that if you wish to help people, tell them what they should do. If you wish to help yourself, tell them what they think they should do. The first approach gathers polite applause, and is forgotten by 90% of the audience 10 minutes after they file out of the auditorium. The second inspires. It sways, impresses, influences. No counsel appears sounder than that which tells a man what he already thinks that he knows.
Whether the authors were cynical, or genuinely convinced by their thesis, is not for me to know. Suffice it to say that there has rarely been an occasion when so many stock investors believed that this time was different. Great bull markets inevitably call into question the possibility of future stock-market failures. The Great Bull Market of the 1990s, accompanied by the breathtaking development of the Internet, cast an even greater doubt. Had the New Era eliminated (or at least greatly reduced) economic recessions? Dow 36,000 was an idea whose time had come.
You know how that played out. Stock prices topped six months later, the NASDAQ Composite Index shed almost 80% of its peak value, and Glassman/Hassett became a parlor joke among economists and portfolio managers. Barry Ritholtz writes that the authors possessed “the audacity of cluelessness” (good phrase, that); a Berkeley economist celebrated a “month-long April Fool’s festival” in their honor; an Internet blogger placed Dow 36,000 on his list of the five worst investment books ever written.
However, as any business school professor will affirm, predictions should not be judged on their accuracy. If two dice are rolled and the outcome is 12, that doesn’t make a forecast that the number was unlikely to be 12 incorrect. Nor does it make a sucker out of the person who was willing to pay $25 on a $1 bet should such an event occur. Glassman and Hassett weren’t disproved because the Dow Jones Industrial Average did not behave as their book suggested.
(Also, the authors didn’t directly claim that the Dow would trade at 36,000. Rather, they argued that if investors were rational, they would bid stocks up to that level. That was where the market should have been. So, technically at least, they could excuse themselves on that account—although their frequent promises of upcoming profits would serve as counterevidence.)
A Kernel of Truth
Such has been the history. Looking back 18 years later, with the benefit of perspective, were Glassman and Hassett onto something, as many (even among the reputable; the book was blurbed by, among others, the president of Kiplinger’s and a Carnegie Mellon professor) believed at the time? Or was the volume entirely, thoroughly hogwash, as later became the consensus?