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Warren Buffett recently spoke at an event in New York celebrating the 100th anniversary of Forbes magazine. Forbes first published in September of 1917.
Warren Buffett’s Prediction
At the event, Warren Buffett made a bold prediction about the Dow Jones Industrial Average. He predicted that in 100 years, the Dow Jones will rise to “over one million.” Just a century ago, the Dow Jones was at 81. It is currently at 22,349. To predict that it will be at a million in 100 years from now sounds incredibly high, or is it?
If we use the current 22,349 figure, the Dow would need to gain roughly 4,500% from its current level to exceed one million. That sounds really high. However, when you consider at the annualized gain of 3.9%, it seems much more palpable.
100 Years Ago
For context, 100 years ago in September of 1917, the Dow Jones was at 81. It has risen to 22,349 currently, or an overall gain of 27,600%. When you break that down into a compounded annual gain, the Dow has returned 5.8% compounded annual gain, or 10% when including dividends.
100 Years from Now
This means that if the Dow Jones performance continues to rise at the same pace of 5.8% for the next 100 years, the Dow would be worth over 6 million in another century, or 6 times what Warren Buffett predicted. If the Dow somehow was able to eek out an additional .6% each year and reach 6.4%, it would increase to 10,000,000.
Long-Term Investors
Buffett shared that there have been over 1,500 people included on Forbes magazine’s annual list of the 400 richest Americans, since Forbes first started reporting these figures in 1982.
Many on this list were entrepreneurs. Others have made their money through real estate or in the stock market. “But the one thing you don’t see in those 1,500 names: you don’t see any short sellers,” Buffett said.
“Being short on America has been a loser’s game. I predict to you it will continue to be a loser’s game.”
Yes, Buffett was specifically referring to the Dow Jones. However, his point was that long-term investing in the stock market has been, and always will be, the best way to achieving wealth. I couldn’t agree with him more.
S&P 500 Index Fund
Buffett has said many times that the best investment most Americans can make is investing in a low-cost S&P 500 index fund. Buffett has even shared that when he passes away that his wife’s inheritance will be invested in this manner.
This investment strategy virtually guarantees that it will match the market’s long-term performance. Historically, this performance has been quite good.
Berkshire Hathaway
When it comes to betting long-term on American inventiveness, Warren Buffett has confidently and consistently been rewarded. Berkshire Hathaway has returned 20% plus annualized return since 1965.
That’s not too bad for a billionaire who rehabilitated a failing textile company. He turned Berkshire Hathaway into a conglomerate of more than 90 businesses worth over $400 billion.
Just imagine if Warren Buffet continues to run Berkshire Hathaway for the next 100 years with the same past performance. With Class A shares worth around $275,000 and a 20% return for the next 100 years, your single share would turn each shareholder into a trillionaire.
While that probably won’t happen, that doesn’t mean that you should eschew Buffett’s philosophy. There are always bumps in the road, yet America continues to prosper. Hopefully, investing long-term in the future for the next century will continue to reward investors.
Considering Warren Buffet has consistently predicted and significantly outperformed other investors over the course of his life, I’m betting he knows what he’s talking about. We do and will continue to invest most of our money in a low-cost total US stock index fund. I have heard too many professionals and financially independent individuals say the same thing too many times to ignore their advice. So far the autopilot strategy has worked out very well for us!
Mad Money Monster recently posted…Awesome Fall Dates Guaranteed To Fit Your Frugal Budget
I think if anything he low balled it. I definitely think the market can go much much higher. But Buffett is definitely better at predictions than me.
It is always great to hear what Warren Buffet has to say about the market. I think Dave Ramsey also recommends the S&P 500, so that’s where I will go once we are ready to invest in the stock market. ^.^
Ms. Frugal Asian Finance recently posted…When Love Doesn’t Make Financial Sense
I’m a big fan of the S&P 500. It’s nice to hear that Buffett is a big believer in passive index funds, if he’s not trading 🙂
The formula behind the Dow Jones is interesting, have you ever taken a look at the computations?
Wes recently posted…April 2017 Blog Numbers
I just read up on it. That’s crazy how the divisor has changed over time. Nuts…
In general, I don’t pay much attention to anyone’s predictions because anyone can say anything they want. If there are enough talking heads making predictions, eventually one will get it right. Just like the lottery.
With that being said, I have a lot of admiration for Buffett and I don’t discount anything that he said. I don’t really care if he’s right or wrong, but I am willing to bet that the general trend is up and I don’t want to be a short seller.
Leo T. Ly @ isaved5k.com recently posted…My 2017 Personal Net Worth Review – Q3
I definitely think that Buffett has a great outlook on the markets. I think he may have undershot it a bit but he knows better than me 🙂
Does Warren think the S&P will outperform Berkshire? If so, why doesn’t he exchange his Berkshire shares to buy S&P 500 shares? If he does think Berkshire will outperform, shouldn’t he tell us to buy Berkshire instead? I’ve always found his statement on the S&P a bit of a contradiction.
Jason@WinningPersonalFinance recently posted…Don’t Let Fear Prevent You From Winning
I agree. Kind of strange that he always advises to just buy low cost index funds and not Berkshire.
Grant @ Life Prep Couple recently posted…Benefits of 24 Hour Fasting
Do you have $280,000 lying around to buy ONE share in Berkshire Hathaway? I know I don’t. It’s far easier for the average person to buy an S&P ETF than to buy Berkshire stock.
Would he even be allowed to tell people to buy stocks in his own company? At the very least it’s a bit arrogant.
Money Miser recently posted…Monthly Updates – A Brief History Lesson
I know that he tried to alleviate some of the burden by offering the Class B shares which is 50 to 1 to the class A shares. So the average investor can somewhat get in now 🙂
I wonder if it’s due to the fact that he won’t be around forever. That’s the only thing I can think of.
I wonder if Buffett feels comfortable in his ability to predict the future of the market but not his predecessors. That’s the only thing I can think of 🙂
His predictions and insights are always fascinating. It will be interesting to see the future of Berkshire. Maybe they will finally start paying a dividend.
Turning Point Money recently posted…The Time I Made $100,000 By Reading a Finance Blog
I wouldn’t be opposed if they did it. Return some of that capital if they’re not going to use it. I have a feeling they probably won’t do that though.
While I don’t believe the Oracle is really an oracle, just a great business manager, I do agree here. (To explain my point Buffet isn’t investing like you or I. He has board seats and manages companies. That’s different). The us market and the world market will continue to go up over time so long as technical innovation persists. I don’t see an end to that.
FullTimeFinance recently posted…Protecting Yourself From Financial Scammers
Thanks for sharing Full Time Finance!!! I definitely agree that he has some opportunities that we definitely don’t as individual investors. I have a small percentage of my portfolio in BRK.B invested so I can reap some of Buffett’s rewards.
I don’t see the next 100 years providing the same returns as the previous 100 years, but I might be completely wrong!
Money Miser recently posted…Monthly Updates – A Brief History Lesson
It’ll definitely be interesting to see what happens over the next 100 years. I can’t even imagine what the jobs will be in the future.
If you are an optimist you are invested, plain and simple. If Buffet is right, we will prosper and if he is wrong and the US suffers some type of societal melt down – who cares, there’s no way to prepare for that anyway. It pays to be an optimist!
PedalsforPennies recently posted…Storage Wars – How I bought a house filled with stuff.
Thanks for sharing!!! I think the market will potentially outperform even what Buffett thinks. It will be interesting to see what happens in the future 🙂
In the documentary he was very positive about the opportunities given to woman compare to 100 years ago. It’ll double the production and power of the US was what he was saying. I don’t know but we’ll see! 🙂
Lily @ The Frugal Gene recently posted…September 2017 – Family Income Report (+$70,820 Net Worth Jump)
Great point Lily!!! I think we are in the midst of a great revolution in productivity in the world 🙂
If you assume 2% annual inflation and add 2% annual GDP growth over the next 100 years, you get to his 3.9% prediction. It assumes the future will be somewhat like the present in these areas. Seems like a reasonable expectation to me, but who really knows what will happen in 10 years let alone 100. Bullish or not, I plan to stay invested at my target asset allocation.
Tom @ Dividends Diversify recently posted…U.S. Utility Sector: Should You Invest Now?
Thanks for sharing Tom!!! Great points!!! Like you I am going to stay invested and hopefully the market will continue to rise for the future 🙂
While there are some things that I don’t agree with Buffett on, I do love his eternal optimism. I also like his comments towards those shorting the market. I certainly wouldn’t be doing that either. Although it can be a rocky road at times, the market tends to trend upward if history is any guide.
Mr Defined Sight recently posted…Suicide and Coping with Coworkers
I definitely agree!!! I think the market should continue to rise for the foreseeable future. Hopefully it stays that way for awhile 🙂
I’m sure that the Dow will eventually top the 1 million mark. Whether that will be in 100 years or less remains to be seen, but really it’s just matter of time.
SomeRandomGuyOnline recently posted…SRGO Portfolio: A Closer Look
I totally agree!! I’m rooting for less 🙂
I think Warren’s prediction will be true. For the next 100 years, the Dow will top 1million. It feels kind of crazy when you think of it hitting 1million, but when you look at the math, it really seems achievable!
Terence@TheTirelessWorker.com recently posted…3 Bite Sized Investment Lessons That Should Have Been Taught In School
I can’t wait to hear the Dow is worth a million. That will definitely be a huge day in the future 🙂
I wouldn’t be surprised if the Dow hits a million within 100 years. The way it’s going it could it hit a million in our lifetime but that might be too optimistic.
Kris recently posted…Expense Chronicles – September 2017
I definitely think that the Dow will hit a million and even probably sooner than Buffett says 🙂 But we’ll see…