Ten years ago people thought he was crazy. Today, most big-league stockbrokers still think he's nuts. But when Washington Post columnist and stock expert James Glassman spoke to a full house in Jefferson Hall Friday night, students listened in the hopes that what he predicted will ring true.
Co-sponsored by the Jefferson Literary and Debating Society and the Center for Governmental Studies, Glassman's speech focused on his controversial economic theory, which claims that the Dow Jones Industrial Average will reach 36,000 points in the next three to five years.
"We wanted to educate the public about finance in America and how it affects them," said Jonathan Carr, a fourth-year College student and vice president of the Jefferson Society.
The number 36,000 sounds absurd. But so did 10,000 points 10 years ago when Glassman was one of few individuals to predict that the Dow would soar to such heights.
"A friend told me, 'If you're wrong, your career is finished.' I said, 'No, I'm just a journalist. I'm not an economist. If I'm wrong, I'll just move on to something else,'" Glassman said.
But so far he hasn't been wrong. The Dow reached 10,000 in March, providing some proof for his theory outlined in his recent book, "Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market." Co-written with economist Kevin Hassett, the book has been called "dangerous" by more conservative brokers.
"Critics think people will read this book and think they can throw all their money into stocks. They say this book will mislead uneducated people," Glassman said. "We think the opposite. We think it is dangerous not to be in the stock market. The best chance for the average American to have a secure retirement is through the stock market."
His prediction of 36,000 is grounded in the belief that stocks historically have been undervalued. Glassman claimed that in the last two decades, Americans have begun to realize the true value of stocks, which has resulted in the Dow's unprecedented leap past 10,000. The revaluing process is not complete, he said, until the Dow reaches its true value of 36,000, a number he and Hassett calculated using economic principles.
"There is something profound happening in the stock market," Glassman said. "And we are trying to explain it."
Indeed, something profound must be occurring to draw a room full of students to listen to an economic guru on a Friday night. America has become fascinated with the market since its rise to 10,000, he said.
"I think it is a sign of the times that the economy is so enthralling to people our age. I try to familiarize myself with what's going on [with the economy] more through things like" Glassman's speech, said Brooke Brower, a fourth-year College student and president of the Jefferson Society.
Traditionally in the market, there has been "a notion that there's a ceiling to this current rise. People have said that stocks can't get this high without dropping," Glassman said.
He countered this claim with the most controversial part of his theory, hypothesizing that the risk in the stock market is not as great as people previously have thought and that the overall market grows with time even when a crash has diminished nearly all gains.
He told the audience Friday that when the stock market was at its worst during the stock market crash of 1929, investors still made money. Although the returns were only 1 percent of the initial investment, the payoff was still better than bonds. At their worst, bonds lost 3 percent of their initial value because of inflation.
While Glassman said that "even little changes over time compound into large numbers," as happened during the stock market crash, he told the audience that there will never be another stock market crash. According to Glassman, the Federal Reserve Board learned the disastrous effect of tightening the amount of money in circulation during economic declines.
"We had a great crash, but things got worse from bad policy. Instead of loosening the money supply, the federal reserve tightened it," he said. "They won't do that again."
New investors will come into the stock market, he added, having learned how the market grows over time and having realized why there will never be another great crash.
Americans also will gain confidence in the stock market as a result of established companies profiting from better utilization of technology, Glassman predicted.
With a booming economy, Americans also are more likely to buy stocks, he said.
"People have lost their irrational fear and have replaced it with rational exuberance," he added. "There will be periods when the Dow goes down, but it's a short-term phenomenon. That's the reason you don't want to be a short-term investor." Glassman defined a short-term investor as someone who stays in the market for fewer than five years.
Glassman's opponents however, who believe in a Dow ceiling, think investors will unlearn this more trusting view of stocks and eventually pull out of the market. But Glassman is more optimistic. He said the public is unable to unlearn an attitude toward the market, especially an attitude that will make them money.
In fact, Glassman has so much confidence in the small investor that he predicts the private investor will accumulate more wealth due to the rising market than the traditional Wall Street broker will.
"Sometimes people without academic knowledge do better, since they are not invested in the old paradigm" that supports a Dow ceiling, he said.
Additionally, newcomers not affiliated with Wall Street will make investments based on the actual cash the investment puts in their pockets. This will help determine how much stocks are worth, which Glassman's theory predicts will push stock values up. The more money a stock puts in an investor's pocket, the more the stock will be worth.
"You have the most important element on your side," Glassman told the room of students. "You have an element that I don't even have. You have time, which is more important than what you buy. Time allows the compounding effect."
Glassman advised students to invest in well-known companies that have a history of growth and profit. He also encouraged students to avoid "cheering for the market to go up too fast." If the market goes up to 36,000 before Glassman forecasts, students will not have time to graduate and secure a job that provides the earnings necessary to buy stocks, he said.
But even if students miss his hypothesized tripling of the Dow, they still will need to invest for their retirement, Glassman said. And this will require knowledge about how the market operates -- knowledge that the Jefferson Society was hoping to convey.
"I hope students walk away from this with a better understanding of how the stock market works," Carr said.
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