What a Y2K 10K Dow Means

In February of 1989, legendary global investment adviser Sir John Templeton went out on a limb. He forecast a Dow Jones industrials average of 10,000 by the year 2000.

Most market gurus, while respecting Templeton's record, scoffed. When he wrote (for the Monitor), the Dow was at a meager 2,200. In 1987 it had plunged to a low of 1,677. How could it possibly manage a five-fold increase in a decade?

But Templeton was right. Here we are just a whisker short of 10,000.

So what should Americans - eagerly or anxiously trying to provide for retirement, college tuition, or a house - make of this financial milestone?

Let us tender two pieces of advice. One for the overeager. One for the overanxious.

First, for the eager - both the speculator and the unwary whom Alan Greenspan labeled irrationally exuberant. Their mood is captured in a late December vignette.

SkyMall Inc., a small firm that sells goods via in-flight airline magazines, announced that its Internet sales had jumped 600 percent. Ignoring the fact that those Net sales were still minuscule, speculators went on a buying (and selling) rampage. They bid up SkyMall's share price 10-fold. But little of it was investing. On a singe day, Dec. 28, the firm's shares were bought and sold an average 10 times each.

So-called day traders were jumping in and out like joy-stick game players, hoping some naif would come along to pay still more. What they forgot was that at any moment a rush for the door could leave any one of them the naif holding the burst balloon.

Moral: Beware of fads.

Next, advice for the anxious: In trying to avoid irrational exuberance don't become irrationally gloomy. Sure, speculators may create bubbles that burst - whether in tulips, gold, Beanie Babies, or Internet glitter. But the verities of real value investing remain unshaken.

When Templeton made his 1989 forecast, he wasn't using an equation based on manias or materialism. He cited milestones of human progress. He allowed, of course, for occasional bubbles. For federal budget excess. For central banks applying the brakes too soon.

But his basics involved confidence in mankind's progress. Since the early 1900s, he said, inflation-adjusted wages had increased more than 10-fold. The standard of living worldwide had quadrupled. North American life expectancy had more than doubled in two centuries. The number of people worldwide enjoying retirement benefits had risen more than 100-fold.

Analysis led him to project another quadrupling of living standards in the next 40 years. That doesn't mean four times as much food at meals or four times as many cars in garages. But it does mean, potentially, a spreading of benefits in the world: more travel, more communication, more environment conservation, more cultural richness, more retirement benefits.

Real investment shouldn't be about numbers and greed, but about helping to improve lives worldwide.