Dow 36,000 again

No, no, I am not making a stock market prediction. 36,000 seems less likely to me than 3,600 – and both seem so far out on the tail of a probability curve that I’m not losing any sleep. Rather, it occurs to me that someone out there, right now, is working on a book like Dow 36,000 for the investors of 2009.

In case you missed the original back in 1999 (and copies are hard to find today), a couple of guys ran some analysis on the market of the Nineties and concluded that risk wasn’t what it was cracked up to be. The authors said investors in the dot-com “bubble” weren’t irrationally exuberant, because equities were grossly under-valued:

Stocks are now, we believe, in the midst of a one-time-only rise to much higher ground – to the neighborhood of 36,000 for the Dow Jones Industrial Average. After they complete this historic ascent, owning them will still be profitable but the returns will decline.

Euphoria kinda takes your breath away, eh? Well … My point is that the market does experience mood swings. In the current dreary stage, people are wondering if we’ve hit bottom in 2008, or how long the carnage will continue. Warren Buffett says it’s time to buy, though it’s hard to know whether he is being real or statesman-like. Bulls and bears are vocal now. And probably the stock market’s obituary will be written a few more times.

But I do imagine we’ll see, in three or six or 12 months, a return to optimism. Perhaps new cheerleaders will publish Dow 36,000-type articles and books. Assuming the recession of 2008-09 doesn’t turn into Great Depression II, the market’s mood will change. Fear will yield to greed. Memories will start to fade. A new bubble may test its buoyancy, not that bubbles are healthy. Eventually people will believe it’s different this time.

My real point is that investor relations professionals need to be thinking through the cycle – for the market, our industries and our companies. Where are we today in valuation – and how will that change as the cycle progresses? Who are the likely buyers of our securities in this phase – and the next? What’s realistic? What are the risks? What are our messages – for uncertain times, for a recession, for the recovery that lies beyond?

In our IR tactics, we need to avoid getting ahead of the market, but we do need to be thinking ahead.

(For the record, a bit over Dow 14,000 was the peak – in October 2007. Maybe next year’s book could just chart a path back to Dow 10,000?)

© Copyright 2008 Johnson Strategic Communications Inc.


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