Predicting Dow One Million – Was Warren Buffett Being Bold or Overly Cautious?

In a recent speech, Warren Buffett came down boldly on the side of optimism when it comes to both the economy and financial markets. What he said was “being short America has been a loser’s game… And it will continue to be a loser’s game.”
And to throw down the gauntlet against some the current negative talk in the markets, Mr. Buffett boldly predicted something quite extraordinary – which was that in 100 years “the Dow will be over a million.”
Is that even remotely believable, or is Mr. Buffett getting carried away by his own optimism?
The Challenge by Buffett: Check the Math
Warren Buffett knew as he predicted Dow One Million that this would seem unbelievable to many people or even ridiculous. Which is why he also said this “is not a ridiculous forecast at all if you do the math”.
In this analysis, we will do that math using two key assumptions.
First, we will use an absolutely average historical rate of inflation.
We will also take a look at the Dow Jones Industrial Average in the same terms that Mr. Buffett was talking about – which is price changes in an index (but not including dividends). In the process we’re going to learn some valuable lessons with a great deal of real-world applicability not just going out 100 years, but also for the next 10, 20 and 30 years when it comes to retirement financial planning and other forms of long-term investment.

This post was published at FinancialSense on 10/16/2017.