When Warren Buffett said last week that the Dow Jones Industrial Average would hit 1 million by 2117, no one criticized him for the pick. No one even suggested it was outrageous, although the index currently stands near record highs at roughly 22,500.
Buffett himself said as much, acknowledging that he hadn’t made “a ridiculous forecast at all, if you do the math on it.” And while 1 million on the Dow is 4,500 percent above current levels, the math says that the benchmark need only return an average of 3.87 percent annualized over the next century to make the Oracle of Omaha look like, well, an oracle.
Buffett’s call to bet on America for the rest of our lifetimes didn’t take a lot of nerve, nor is it likely to truly inform a generation of investors.
But a different stock market call – more specific and unusual – made 20-plus years ago to a group of journalists has been informing investors ever since, and Buffett’s more-generic market call is a good reason to re-examine the unique forecast of the late Bill Berger and how it is progressing.
Berger, the founder of the now-defunct Berger Funds, was something of a mutual-fund celebrity when he came to Boston in 1995 to speak at the first-ever personal finance conference held by the Society of American Business Editors and Writers. The kindly white-haired man with the beard and the rosy cheeks of Santa Claus regularly graced magazine advertisements, touting his funds and their solid track record.
The stock market hadn’t yet caught Internet fever when Berger came out and said the Dow would hit 116,200 by 2040. Berger wasn’t expecting the market to take off; he had simply been in the investment business for 45 years and had seen the Dow go from below 200 to just over 4,300.
Berger expected the Dow’s future, mathematically, to reflect its past, which meant that the next 45 years would carry the benchmark from where it stood on the day of the speech to 116,200. The 70-something Berger – whose firm was merged out of existence a few years later after his death – wryly suggested that if he was proved wrong, people should visit him in the 2040s to discuss it.
Berger was talking more about predictions and prognostications than the market. In one of the most memorable speeches I have ever sat through, he cited what he called “the two rules of forecasting.”
- Rule 1: For each forecast, there is an equal and opposite forecast.
- Rule 2: Both of them are wrong.
Every time I have written about Berger’s forecast – which I seem to do every few years – the 116,200 number is greeted with some measure of ridicule and incredulity. Where no one is critical of Buffett because he’s the savviest investor of our time, anyone else looking that big and that far forward is subject to maximum skepticism.
And yet, Berger is pretty much on target.
On the surface, that’s hard to believe because we are halfway into Berger’s 45-year time frame and we’re not close to half-way there on the Dow. The benchmark is up roughly 400 percent thus far, however, and if it averages a gain somewhere in the 7 to 7.2 percent range for two-plus decades, it should the 116,200 mark almost exactly on Berger’s time frame.
Berger couldn’t have foreseen the events that have shaped the market since his prediction, including two devastating bear markets and the longest bull run of our lifetimes; Buffett didn’t even try to predict anything other than that the Dow could reach seven figures.
Beyond the folly of forecasting, what both shared was a message about the power of the market and the strength of America.
What Berger said in 1995 holds true today: “There’s not an investor who has been alive for the last 60 years or more who hasn’t seen the market rise over their lifetimes.” That period included a chunk of the Great Depression.
“So I don’t know exactly where the market is going over the next five or six decades,” Berger said, “but I know it will be up.”
Ultimately, what investors should take from both of these prognostications is the folly of basing your actions on the countless forecasts that can take your eye off of the big picture.
No one is truly investing long on the market because of Berger’s old call or Buffett’s new one. They are investing with the idea that a core of great companies or the domestic stock market is going to deliver reasonable returns over a lifetime, with setbacks and downturns proving temporary along the way.
At a time when it is easy to find messages about how the bull market can’t continue without a correction or how a crash is coming, a reminder that core, long-term holdings should have market exposure that lasts a lifetime is worth listening to, even if it comes cloaked in a message of just how high the Dow will be someday.
Berger and Buffett are both right, though only time will tell just how accurate they are. The Dow will hit 116,200 within the next three decades and 1 million within a century.
Still, the only thing investors should count on is that the journey from here to those lofty heights will be bumpy, nerve-wracking and filled with times that test an investor’s resolve.
Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at firstname.lastname@example.org.