On May 26, 1896, Charles Dow, an editor at the Wall Street Journal and co-founder of Dow Jones & Company, created a new stock market index and named it the Dow Jones Industrial Average. Never did he dream of it hitting 20,000 when it opened at 32. By 1905, 10 years after it had been created, the DJIA had doubled to 65.
Fifteen years later, in 1925, it had doubled again to 120, and just 5 years after that, had teetered on the cusp of 300 by April of 1930, right before it took a nose dive. In 2 short years, by June, 1932, the DJIA had fallen to 44 as a result of the Great Depression.
March 29, 1954, twenty years later, the DJIA had recovered from the Great Depression bolstered by the rise of America as a preeminent superpower after WWII, and once again hit 300.
By this time, the DJIA had begun to experience exponential growth, the underlying basis for financial planners around the world to entice people into investing into their 401(k)s via compound interest. A dollar invested per day, at a high enough growth rate, leads to fantastically big numbers – big enough to retire on.
Almost 100 years after its inception, on December 28, 1976, the DJIA closed at 1000.08, and three days later, 1004.
From there, mathematics took over, and the rise of the DJIA doubling upon itself led to higher and higher numbers, in 1987 doubling again to 2000, and a mere seven years later, on March 10, 1995, catching 4,000. And somewhat miraculously, because of the dot-com technology hysteria, the DJIA colossally broke through 10,000 on March 29, 1999 closing at 10,006.
The dot-com bust of 2000 took a 25% chunk out of the DJIA in two years, knocking it down to 7,500 in October, 2002, and though the DJIA fought its way up to 14,000 in July of 2007, the crash of 2008 beat it down more than a few pegs, dropping 50% of its value to 6,500 by March, 2009.
Now, we’ve hit the momentous milestone of 20,000.
What we can learn from history is that although the DJIA has its flaws in that it’s not the best predictor of the market given that it is a price-weighted index and only comprises of the top 30 stocks (rather than the 500 included in the S&P 500), is that the exponential growth over the past 100 years is the best predictor that the DJIA will continue to rise. Markets rise and fall, as everyone knows, and we must keep in mind that because of exponential growth, the DJIA hitting 20,000 is more of a psychological milestone than anything else. Going from 19,000 to 20,000 is a 5% rise, whereas it took 17 years for the DJIA to go from 10,000 to 20,000, a more accurate, if history is any indication, barometer of the growth rate.
So, around 2030, will we see the DJIA hit 40,000?