Legendary investor Warren Buffett rarely makes predictions about market movements. He once quipped that while predictions can’t tell you anything about the future, they can tell you “a lot about the person who predicted it.”
Still, he made a stunning market prediction in September 2017. ForbesBuffett predicted, Dow Jones Industrial Average (DJINDICES: ^DJI) It will reach 1 million in 100 years.
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At the time, the Dow was trading at 22,370, meaning it would need to rise 4,179% to reach 1 million.
How can Buffett be so sure in the face of all the uncertainties, including a once-in-a-century pandemic, inflation reaching a 40-year high, and the “unknown unknowns” that 2022 will be the worst year for the stock market since 2008?
Despite all the uncertainty ahead, the fact that the Dow moved 66.08 points during the 20th century and closed at 11,497 is worth nothing. The 17,299% growth was achieved despite multiple disasters, including two world wars, the Great Depression, the Cuban Missile Crisis and the “stagflation” of the 1970s, when unemployment soared and inflation approached 15%.
Speaking of inflation, how do the Dow’s returns compare to price changes? The U.S. Bureau of Labor Statistics began collecting Consumer Price Index (CPI) data in 1913. Over the next 87 years, the CPI rose 1,582%. The Dow Jones returned 14,490% during that period, beating inflation by nearly 10 to 1.
Buffett’s forecast may appear conservative, then, as it would mark a slowdown in past performance. Since he made his 2017 prediction, the Dow’s gains haven’t slowed down at all. Since Buffett made this decision, the stock has risen to 48,407 points as of Monday’s close. A gain of 107% equates to an annualized return of more than 9%, compared with the Dow’s average annual return of 5.29% during the 20th century.
If you think the wait is too long, there’s more good news. Buffett believes the Dow will rise in a shorter period of time as well.
Buffett said in an interview with reporters that he doesn’t know what will happen in the market next month or next year. “But 20 years from now, the number will be much higher.”
A simple, low-cost way to enter the market’s long, unstoppable rise is through Vanguard Total Stock Market ETF (NYSE:VTI). This exchange-traded fund offers broad diversification, investing in small, mid-cap, and large-cap companies simultaneously (unlike the Dow, which only tracks 30 large-cap companies).
