"We wanted to be a bit provocative," says Seth J. Masters, chief investment officer for investment manager AllianceBersntein LP's wealth-management business. So he's touring the country, meeting with Bernstein account managers and clients and making "The Case for the 20,000 Dow."
20,000 -- when? By 2017, Masters argues in his presentation, if earnings stay high and keep growing 6% a year (assuming 3% inflation, 2% productivity growth and 1% population growth)...
Why hasn't that happened already? It's as if investors, battered by the weak decade of the 2000s when the 1980s-90s bull market stopped, "don't really believe" corporate earnings have risen the way companies say they have. That's why investors have preferred to buy bonds, even with "pathetic" low yields that threaten to leave savers broke, Masters told me.
So if the market is value, what's going to turn investors back on? The November election? "I don't believe in catalysts," Masters told me. Sooner or later, once bonds have outperformed stocks long enough, stocks turn around.
How's that message selling? Investors mostly lose money buying stock and bond funds, because they buy after prices rose and sold after they fell, instead of holding on for the long term. Some people need to sell: they're old and can't afford to wait for stocks to rebound. But mostly, "the average person is significantly underweight stocks" and long low-rate fixed-income instruments "that won't help them meet their longterm objective," says John Polidori, head of Bernstein's Philadelphia office.
Blame the Internet and the 24-hour news cycle: "People have been barraged by shortterm noise. It has heightened their anxiety," added Masters. "They are asking, why invest, if it sounds like a casino? We are reminding people: there is much we cannot control in the short run, but there are longterm fundamental relationships" between population and productivity and profit; if you have a strategy, they will work."