So, after a nearly decade-long bull market that already had seen the Dow rise more than fourfold, Glassman and Hassett told investors that stocks were still cheap.
"Anyone, even in retirement, who passes up the chance to gain from this one-time-only rise in stock prices that we see occurring, would be making an enormous mistake," they wrote. "All investors should have a substantial chunk of their money in stocks over the next 10 years."
The sobering effect of reality
Unfortunately, their argument was built on sand. The "equity risk premium," or the extra return that investors expect to get for taking on the additional risk of stock, emerged like Jason from the lake in the "Friday the 13th" movies.
Traditional valuation measures such as the price-to-earnings ratio and the price-to-book value, which the two had written off as so 20th century, also came back into style.
Result: The Dow actually fell 35% from its 2000 high to its 2002 low, and lost 54% from peak to trough in 2007-2009.
Set aside all the things that Glassman himself has blamed for the failure of the Dow to reach his target, like the relative economic decline of the United States and rising risk in the markets.
The idea that stocks were no more risky than bonds was what really did him in -- in the wallet. In "Dow 36,000," he and Hassett wrote that they each had 80% of their holdings in equities and 20% in bonds.
"Basically it got hammered like anybody who held an 80-20 portfolio," Glassman told me in an interview. He worked in President George W. Bush's administration starting in 2007, and had to sell some stock -- at the worst time -- to supplement his government salary. Kind of like a lot of retirees, no?
"My own experience has colored my views in writing the (new) book," he said. "Also, it led to a greater appreciation on my part for what investors go through."
Part of that was more respect for the role of investor psychology. Mathematical retirement models might tell people to put 60% or more of their portfolios into stocks, but many real people can't stick with the program when the market goes crazy, which Glassman thinks will happen more often in coming years.
"What you really want is protection on the downside," he said. "Yes, you give up something on the upside to protect yourself."
Hence, he provides his "margin of safety" portfolio, which consists of a 50-50 split of stocks and bonds.
Good advice, but not perfect
It's hard for me to object to that 50-50 split. I advised the same mix a couple of years ago, although I think you should own more stocks if you have the stomach for it, especially if you're under 50.
Unfortunately, Glassman is urging people to buy more bonds now, after a $650 billion bond-fund buying binge in 2009 and 2010, virtually identical with the amount that investors poured into stock funds during the dot-com bubble! And most advisers are convinced that interest rates will head higher.
So, once again, he may be looking in the rearview mirror. His specific fixed-income recommendations are pretty good, however, avoiding bonds that are most exposed to interest-rate risk.
Other pundits made outrageous predictions back during the boom days, too. Charles Kadlec, David Elias and Harry S. Dent Jr. said the Dow would go even higher than 36,000. None of them got the ink that Glassman did.
Also, Glassman at least admits clearly that he was wrong. But he stops short of a full apology, and on that point, he defiantly sticks to his guns.
"Investors who followed the Dow 36,000 strategy emphatically did not LOSE money," he wrote in a follow-up e-mail. He pointed out that for anyone who invested 100% of their money in the Dow stocks then -- which he said he did not recommend in the book -- "the return would have been a total of 19%, plus dividends."
If they stuck it out through two bear markets, of course.
I can understand why many investors would choose to ignore Glassman. "Dow 36,000" added jet fuel to what was already a raging inferno, and it all ended in tears. But the 50-50 stock-bond portfolio is pretty good advice for most people, most of the time.
So, to paraphrase another great writer, D.H. Lawrence, even if you don't trust the teller, at least trust the tale.
Howard R. Gold is a columnist for MarketWatch and editor at large for MoneyShow.com. You can follow him on Twitter @howardrgold.
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