It Pays to be Optimistic: Musings About the DJIA

My journey in the investment business began in June, 1981 at USAA Investment Management Company as a Portfolio Assistant to the aggressive growth fund portfolio manager.  I don't remember the exact date, but June 14 is as good a date as any to start this historical journey.  On June 12, 1981, the Dow Jones Industrial Average ("DJIA" or "the Dow") closed at 1006.28.  This was the beginning of a long, grinding bear market, during which a recession was weighing on the economy as well as the stock market.  One of my jobs was to record the ending value of the Dow every trading day, along with it's percentage change, and distribute a report to the management team of this and other critical market data.  Recording this every day was a bit depressing: it seemed like the blows would never end as the Dow drifted downward.

One day, one of the portfolio managers and I discussed the state of the stock market.  He wanted to make a bet that in 10 years, the DJIA would close above 3000.    I declined the bet, even though his idea seemed so far fetched that I could not believe that his prediction would ever come to pass, given that the Dow had not even breached  and sustained the 1000 level in ten years' time. (The DJIA had first hit 1000 on November 14, 1972, and had never meaningfully risen above that figure and sustained that level.  Indeed, in 1982, it was mired way below that figure.)

My last day on the job was August 16, 1982.  The DJIA had dropped to 792.43, having flirted with a low of 776.92 on August 12.   I was bound for Rice University to work on a MBA degree.  The following day, I reported to the HR department for an exit interview.  The radio was on in my automobile as I motored to USAA's headquarters.  The reporter was breathlessly reporting that the DJIA had closed up 38.81 points, amounting to a percentage gain of 4.9%, a huge move!

Thus began the great bull market of 1982-2000.

During my time at Rice University's Jesse H. Jones Graduate School of Business, it seemed like the DJIA hardly ever looked back, rising 305.18 points, or 39% to 1097.61 on June 13, 1984 (the day that I reported to Arthur Andersen & Co. ("AA&Co.") as a new Staff Auditor, my first job post-graduation).  During my time at Rice, I was sitting in a study hall one evening, and some of us were talking about the stock market.  The DJIA had just closed above 1100, and we were speculating whether or not the Dow would ever permanently move higher than 1100.  After my experience at USAA, I was not convinced that it would ever happen.  The DJIA peaked during my time at Rice, at 1287.20 on November 29, 1983, but was 14.7% off of this level the day that I reported to AA& Co.. 

I did not get back into the investment game until June 1989, having spent some time at a major regional Texas bank administering corporate bond issues before landing a job at a small independent trust company in Houston, Texas.  From June 13, 1984, to June 12, 1989, the stock market rose 1421.23 points, or 229.5%.

US Treasury Secretary, Don Reagan, formerly the head of Merrill Lynch, said that he felt like a kid with his nose pressed up against the candy shop window but he could not get in.  I felt the same way.

On August 12, 1992, ten years after I left USAA, the Dow had risen to 3320.83, just as the portfolio manager at USAA had predicted.  The Dow had risen 2528.4 points, or 419.1% since I had departed USAA.

During my tenure at the trust company, I read a report from Ed Yardeni, then the Chief Economist at Prudential Securities.  It was, as I recall, entitled "Dow 5000".  Ed predicted that the Dow would rise to 5000 in five years.  Ed's predictions had proved to be pretty prescient, but it was hard for me to believe that Dow 5000 was achievable and sustainable in such a short time frame.  From June 1989 to December 30, 1994, the Dow rose to 3834.44, then to 5117.12 on December 29, 1995.

After leaving the trust company, I joined the trust department of a large regional bank in Cincinnati, Ohio.  My time there lasted until September 29, 1998, when I started my own investment management business.  On that day, the Dow closed at 10213.48, up 9207.2 points, or 914.97% since my first day on the job at USAA in 1981.

As of August 24, 2012, the Dow closed at 13057.46, up 27.85% from the day that I started my investment management firm.  Although it is hard to believe, given all that has happened since September 1998, the stock market has risen.  But it has been a very uncomfortable journey.

My career in the investment management business has been both magical and filled with angst.  In large measure, it has been a journey of discovery and education, and about how the world works.  I have learned over the years that initial experiences can color one's views about something for a long time.  It has also been a revelation:  trends don't last forever.  While we are now in the midst of a very painful economic period, I do feel good about our long-term prospects.