According to Warren Buffet, the next century of the DOW will be an eventful one, and potentially reach 1 million points within the next hundred years.
This comes on the heels of some hesitation regarding the American economy and the current DOW market, which has recently reached 22,000 points. As one of the richest men in the world and one of the most respected analysts and investors, Buffet’s opinion of the market may have its own impact.
Not Such a Crazy Prediction
The DOW’s recent jump to 22,000 points has some analysts concerned regarding the potential for a crash. In general, when the stock market soars to unprecedented peaks, it is often indicative of a bubble or an otherwise sustainable situation. Though the stock market does trend upwards very clearly over time, a long period of growth is often followed by a sharp decline — in other words, a crash.
The United States has recently recovered from its recession following the prior economic crash and the crash of the housing market, which had itself followed the Dot Com Bubble. Consequently, many analysts believe that another crash may occur soon.
Buffet’s prediction for a 1 Million DOW exchange may seem astonishing, but it’s important to remember that the stock market hovered around 80 points as of 1917. In the last century alone, the stock market has grown over 200 times its size. To achieve 1 million, the DOW exchange would need to grow 45 times its current size — which means that Buffet may actually be conservative in his estimates.
One hundred years is a significant time for the stock market, which has historically been shown to well outpace inflation even with temporary hiccups such as crashes, recessions, and even depressions.
The Ramifications for Investors
The implication for a 1-million-point DOW is ultimately that the market is going to continue to grow over time. Though this may be a simple statement, it’s important as it recasts the idea of investment.
Rather than investing in individual stocks, Buffet is looking towards a broader perspective in which the importance lies in the overall growth of the economy. The disparity between centuries, from 200 times growth to 45 times growth, can easily be applied to the way that the market has grown and the opportunities available for expansion.
Though the way the economy is structured has changed significantly over the past decade, it has still grown exponentially. Even as manufacturing changed, real estate markets rise and fall, technology advances, the economy itself still overall improves.
Altogether, this shows a positive outlook for those who are interested to remain invested long-term. But it’s important to note that it does not have as reliable an implication for short-term investors. Short-term investors are not going to look for a century worth of growth at a time, thus they are more likely to be impacted by the volatility of the market.
The Likelihood of a Crash
When investing, the general advice is that an investor should expect a major crash to their portfolio at least once or twice. With that in mind, it is possible that a crash may occur soon and that this crash could have consequences for investors hoping to pull out the market or embroiled in short-term investing.
Market analysts generally suggest that investors begin balancing the risk of their portfolio towards their retirement. But of course, if an individual is continuing to build wealth then these crashes occur, they will have a limited impact. Whether there will be a crash is impossible to predict, but what is possible to consider is history — which does imply that crashes generally occur over long and significant periods of growth.
Warren Buffet’s arguably most repeated advice to investors is to buy and hold — with the assumption that investors purchasing stock are purchasing it to keep forever. This investment strategy has not only served him well, but also implies that the investment is not so much in the stocks that are held but rather in the country and economy.
Buffet has stated that betting against America is unwise, with the implication that a well-balanced portfolio will perform well as long as the country continues to perform well.
Regards,
Ethan Warrick
Editor
Wealth Authority
