In this segment of the Market Foolery podcast, host Mac Greer, Total Income's Ron Gross, and Million Dollar Portfolio's Jason Moser consider the meaning behind the impressive year that the Dow Jones Industrial Average has turned in.
With new high marks set on 70 days so far this year, and with the highest point-value gain in its more century-plus of existence, there was plenty to smile about. But the past, as they say, is prologue, and the guys have some Foolish, forward-looking advice to dispense for investors and would-be investors. And they speculate a bit about what we'll see in the markets in 2018.
A full transcript follows the video.
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This video was recorded on Dec. 19, 2017.
Mac Greer: For the first time in its 121-year history, the Dow Jones Industrial Average has gone up more than 5,000 points in a year. That's the biggest annual points gain ever. Guys, the Dow has also closed at a record high 70 times this year. Jason, as an investor, what does that all mean, and what does it not mean?
Jason Moser: What it means is what we've always been saying: You need to be invested, and you need to be doing that over the course of many years. And it's OK if you're not invested to get started now, because it's never too late. It does not mean that 2018, the market is going to have to go down because it just went up so much in 2017. If we look back all the way back to 2007, from 2007 till now, the S&P 500 was down only one year. Granted, it was down 37% that one year.
Ron Gross: [laughs] That was a pretty big year.
Moser: But let's be clear here. From 2007 --
Gross: I still have hives from that year.
Moser: From 2007 through 2016, if you had plunked just $100 in the S&P index funds, that $100 at the end of 2016 would have been $195.68, had you just left it alone. So the returns are real. They do happen. One down year doesn't ruin your life. My point is, it can always keep on going up. I'm not saying it will.
Gross: I heard you just say it will. Send your emails to ...
Moser: I'm not saying that. Don't assume that it must go down because it's had such a good year, because I think it had a good year because of a lot of good fundamentals.
Gross: When you talk about the Dow, I think you have to be careful when you talk about points, because the higher it goes, the less important the points are. When the Dow was new, if you said it went up 5,000 points in one year, it'd be like, oh my God, that's unbelievable! The higher it gets, the less that means. So it's better to talk in terms of percentages.
Now, the Dow has had a great year outperforming the S&P 500. But what is all this Dow stuff? The only time I hear about the Dow is if I turn on the news. I don't invest in the Dow. I'm sure there are ways, there are ETFs and mutual funds, but for the most part professional investors and regular everyday investors invest in the S&P 500, typically, if they want to invest in an index. So I, on a daily basis, am much more focused on that as a proxy for the market. The Dow doesn't even really cross my radar unless I pop open CNBC or something.
Greer: You're a buzzkill, but I'll go with that right now. Let's talk about the market writ large, then.
Gross: Don't forget, the Dow is 30 stocks.
Greer: Point taken. But when you look at the market writ large and the market hitting new all-time highs, someone who's not fully invested or not invested at all, they hear that old saw "buy low, sell high." So when the market is hitting new all-time highs, is there still time for someone to get in?
Moser: Well, yeah, because you need to be looking out for the next 10 years. Instead of looking at this and saying this last year was so great, yeah, the last year was so great, but really, when you're investing, when we're investing, we're telling people you want to invest with that five- to 10-year outlook. Don't put money in the market that you need over the course of the next five years. If you can do that, then you can remain patient. I think, generally speaking, I have a hard time understanding where money is going to go besides the stock market, because interest rates, even as they start bumping up a little bit, are still going to be extremely low. There's going to be zero return opportunity on fixed income. A savings account just isn't going to cut it. So you have to be putting your money into the market in some way, shape or form.
And I think a lot of people don't even really consider the fact that, if you just participate in your company's 401(k) plan, that's getting your money invested. You're in some type of index or mutual fund there, and that's getting your money in that market. But instead of thinking buy low, sell high, I like to think, just keep on buying. You want to just keep buying, and do that over the course of the next 10 to 20 years. If you do that, things are going to work out OK.
Greer: Ron, on last week's Motley Fool Money, we interviewed CNBC's Carl Quintanilla. And Chris, as the last question of the interview, asked him, what is he looking at in the year head and what are some questions he has? And one of the questions Carl mentioned is, he wondered if we're finally going to start seeing retail investors start talking about stocks the way they did back in 2000. And this market feels very different to me. We hear a lot about institutional investors versus individual investors. What do you make of that? Is this a rally? Is this a market that so far hasn't really included enough individual investors? Or is that just a false construct?
Gross: It's so interesting that you ask this question, because on my very long commute this morning, I was actually thinking to myself, gosh, I hope we don't go back to the 1999 days, where I couldn't go to a cocktail party -- not that I was invited to many cocktail parties -- but, I couldn't get together with friends without somebody saying, "Oh my God, I just bought ridiculous company-dot-com and tripled my money! Did you buy that?" And I would say, "Oh, no, I don't really speculate or things like that." And they would be like, "Oh my God, you have to do it! It's like free money. You have to do it. We're just minting money every day, every day!" I stopped going to parties, I couldn't handle it. It was just ridiculous conversations. And eventually the irrational exuberance popped, and everything came back down to Earth.
I don't feel like we're in that kind of a situation right now. There are certain hot things like bitcoin, where you'll hear those kinds of conversations at a party, but it doesn't feel anything like back then. You'll hear more talk about politics, I think, than you hear about the stock market. I think people are just happy to see their account balances continue to rise. Every now and then, if there's a hot stock of the week, maybe you'll hear it being talked about. But you don't get the novice investor all of a sudden thinking they can do no wrong and they're just minting money.
Moser: Yeah, I feel like that discussion is all centering around bitcoin and cryptocurrencies. Honestly, I feel like that's probably a good thing, because it's letting the market keep flying under the radar, so to speak. Everybody's attention is on the next great cryptocurrency opportunity. And perhaps those will work out. I'm happy to just admit that I don't know enough about it to want to participate. But yeah, I feel like that conversation is happening around cryptocurrencies, and it's letting the market keep on doing its thing.
Greer: Ron, what do you think of bitcoin?
Gross: That's a tough one, man. I think about bitcoin the same way I think about gold. I don't know. It doesn't have any cash flows associated with it. It doesn't do anything to produce cash flows. So I don't know how to value it. And if I don't know how to value it, I don't know how to buy it or sell it, and therefore I have nothing to do but stay away.