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Rating: 
Summary: Truly Supurb analysis
Review: A wonderful book that has increased my wealth markedly by reading it. I am a contraian investor and took this as my final signal that the top was in. Such Bullish sentiment is helpful in telling me when I need to get short asap. Regards to the authors , thanks for swelling my trading account, shame you had to screw over countless people who actually took your mindless pap seriously! Also if you are one of those CNBC watching muppets and think the bearmarket is over think again. I will go long again when these guys release the "dow will never break 1000 again" I await with baited breath! :-) the best market timing tool I have ever used keep up the good work!
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Summary: waiting .....
Review: As an addendum to my previous review, where I wrote that one reason I got out of the market was this book, let me add that before I get back into the market I'm waiting for "Dow 36" by Glassman and Hassett.
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Summary: Valuable and important book!
Review: Here's why I think this is a valuable and important book. 1. It looks forwards instead of backwards at what a stock should be worth to you. The histories of companies and stocks can certainly be entertaining, but I'd much rather know what's in it for me! A lot of the apparent uncertainties of the market get washed away when you can look at a reasonable stream of future dividends and figure out that it's several times a bond yield. You can easily plug in your own assumptions and get a straightforward, rational answer that helps you make decisions. 2. It demystifies market risk. Millions of column inches get written every day about how the stock market bounces around; all that ink is just a distraction that confuses people about the long term stability of the growth of economies. If you're planning to take all your money and buy a car in a year (like a friend of mine), stocks may be the wrong choice. If you're really focused 20 years out, do yourself a favor and quit watching the ticker. 3. It respects both investing psychology and efficient markets. Psychology tells you that a) people behave within a context -- they do things that "make sense" -- and b) they don't make decisions the way mathematicians say they should, but they usually get pretty good results anyway (by using rules of thumb to simplify decisions). Similarly, markets are efficient, but only within a context. Investment analysts on Wall Street will reasonably argue today whether IBM is worth $130 or $135 a share, even while I may be convinced it's worth $400 or more over time. It can make perfect sense that many individuals have done extremely well over the last few years while investment analysts and fund managers mostly haven't. 4. It respects the fact that the world changes. If "past performance is no guarantee of future results," who do the pros behave as if it is? The market behaved differently prewar and postwar, in the 1950s vs. the 1960s vs. 1982-1994 vs. since 1994. Investors behave extremely differently now than before IRAs and 401(k)s. 5. Even if the conclusions turn out to be wrong, the advice is still good. Personally, I think these guys are probably right. But if you've taken their advice and the market doesn't do what they say, you've still bought fairly-valued stocks, saved and invested your money, and resisted short term churning and flailing. You'll probably still make out pretty well -- certainly better than most fund managers and day traders.
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Summary: Flawed logic but still a major contribution
Review: People should be aware that there has been a very active debate amongst economists on this book which you can find with a web search on Glassman, Hassett, Clive Cook, Bruce Gottlieb, Peter Brimelow, Ben Wattenberg, and Paul Krugman. The krux of the argument is that Glassman and Hassett made a mistake in economic/finance logic in using earnings per share rather than dividends per share to value equities. This creates a double counting that produces the 100 market PE. Companies must use a portion of their earnings to reinvest in their businesses to produce future earnings growth. If you value earnings as relevant cash flow for valuation purposes than you can't assume higher growth in future earnings. It's unfortunate that the two sides on this issue can't admit that both are partially right and both are partially wrong. The major contribution of G&H is that the equity risk premium is systematically declining. I really like their argument that financial planners are providing the equivalent of financial psychiatry to reassure investors of the merits of equity investing. In essence, they are telling investors that stocks are a good reward/risk investment which results in price appreciation as people move into equities. I developed a three period dividend discount model (which corrects for their oversight) to test G&H's arguments. I found that under reasonable conservative assumptions the market PE should be about 40 within the next 15 years. A far cry from their 100 but consistent with a continuation of the bull market. This is based on assuming the market risk premium falls to 1% over the next 15 years. In my opinion, we are about half way through the adjustment process that G&H have identified. The whole internet valuation phenomena also comes into play. Using the same 3 stage DDM model it is totally plausible to see most of the internet stocks as fair to under valued. I know this isn't the standard line by the bubble pessimists but I just don't see the case for over valuation yet. In summary, the book is well worth the read as long as you realize they have made mistakes but the importance of their argument for declining equity risk premiums can not be over emphasized.
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Summary: Paradigm Shifting? Not Yet.
Review: The Dow 36,000 Theory is all about predicting a paradigm shift in current investors' perceptions. Tomorrow's investors are expected to forsake the old paradigm and embrace a new one. Authors James K. Glassman and Kevin A. Hassett present the "discounted dividend" model of the stock market as their reason why stock prices will soar, eventually. In 1999, they said it could happen anytime but put a window on it of 3-5 years. Hasn't happened yet. But this book is important as a look-see into how academic constructs originate and work their way into "commonly accepted stock market wisdom." The P/E was once a kernel of an idea in someone's head. Now, it's the basic way to value stocks. So, conceptions do change over time.
Dividends, say Glassman and Hassett, whether paid out quarterly or totally retained in the company, are the only important way to determine a company's true worth. They call it the PRP (perfectly reasonable price).
To justify lofty expectations, the words "assume" and "assumption" are used dozens of times and lie at the bottom of what, so far, is wrong with this concept. Just because they calculate something as being worth many times what it's selling for today doesn't mean prices will skyrocket tomorrow. It requires acknowledgement and action by investors. We're back to the old high school conundrum of whether a tree makes any noise if it falls in a forest without anybody hearing it. It this case, the question is whether a stock will ever sell at its "true value" if nobody ever bids the price up that far? Obviously not.
Their credo, "Buy anytime, hold forever," as well as the recommended use of index funds is a recipe for never having to admit you're wrong regardless of what happens to your investment account. You never have to confront performance because that far away goal just hasn't been reached yet. Continue to hold. It's an enviable position, if you can get people to take you seriously. But Dow 36,000...is it possible? Sure, anything is possible if the paradigm shifts. It's shifted before and will shift again. The trouble with paradigm shifts is like Greenspan's recognition of a bubble. You won't know about it until it's already happened...and then it's too late,,,
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