Dow Jones at 52,000: What 35 Years of Compounding Reminds Us About Long-Term Investing

The New York Stock Exchange once had an online gift shop that sold NYSE-branded items, including mugs, golf accessories, souvenirs, and hats. When the Dow first crossed 10,000 many years ago, the exchange offered a limited-edition “DOW 10,000” hat. Years later, when the Dow crossed 20,000, the NYSE released a “DOW 20,000” hat as well. Since then, the NYSE has closed its online shop, so milestone hats are no longer available.

 

Wanting to keep the tradition going and have a little fun as the market moved higher, I began writing each new 1,000-point milestone—21,000, then 22,000, and so on—on a piece of paper and taping it over the 20,000 on my NYSE hat. After taking a photo and sending it to an advisor friend, I would tape the number to the glass door of my credenza.

 

Over the years, that door has filled up with Dow milestones all the way to 52,000. The market has often pulled back after reaching a new high, and at times, simply getting back to a previous milestone felt like an accomplishment. But eventually, another new number would find its way onto my “Dow Wall.”

 

This marks the 35^th anniversary edition of Observations on the Market. After 35 years, you hope you have learned something—but the market has a way of reminding everyone that no one ever truly “figures it out.”

 

From 3,000 in 1991 to 52,000 Today

35 years ago, the Dow Jones Industrial Average stood at just 3,000. My “Dow Wall” is a constant reminder of the power of compounding; those numbers keep growing larger. It is easy to think that if we had a second chance to invest when the Dow was at 3000, we would bet the farm on the American economy. You forget the challenges back then.

What the “Dow Wall” demonstrates is that, over time, the market continues to grow because the economy continues to grow. In 1991, U.S. GDP was about $6 trillion. Today, it is roughly $32 trillion. Warren Buffett is known for reminding investors: “Don’t bet against the American economy.”

Recessions, Market Crashes, and the Case for Staying Invested

Since 1991, investors have lived through two major market declines of 50% or more, repeated periods of political unrest, several recessions, and a pandemic that virtually shut down the global economy. If someone had told you in 1991, with complete certainty, that all those events would unfold over the next 35 years, would you still have invested with conviction? For most investors, the answer is clearly no. In fact, the average holding period for stocks today is less than one year.

The real question we should all ask ourselves is this: Do we believe in the American economy? If the answer is yes, then at some point in the future—especially for younger investors—many people may look back and ask, “Why didn’t I invest when the Dow was at 52,000?” Why is that question so difficult to ask today? Because the Dow could fall to 26,000 before it ever reaches almost 900,000 over the next 35 years, which would match the rate of appreciation of the previous 35-year period.

Returns over the next 35 years are unlikely to be that strong for reasons worth discussing another time. Still, a Dow of 500,000 would represent roughly a 7% annual return, and that is a realistic outcome.

These numbers are hard to comprehend, but they are simply compounding in action. For investors who do not have 35 years, the message still applies. As the saying goes, a journey begins with the first step. The best time to plant a tree was 20 years ago; the second-best time is today. The key is to be intentional and take the first step.

For perspective, the dividend of the S&P 500 in 1991 was $12. Today, it is $81. You might ask, “Who knew?” But if you truly believe in the American economy and the power of compounding, what appears next on the “Dow Wall” should not come as a surprise.

Observations on the Market No. 420