I almost choked on my tongue while reading a recent Wall Street Journal article entitled, Keeping Up with the Dow Joneses. The author, Justin Lahart, began that article by describing the Dow Jones Industrial Average as an “arbitrary collection” of stocks that is “arcanely constructed.”
Charles Dow must be rolling over in his grave to think that such a piece could be published in his WSJ – let alone employ a person who has absolutely no understanding of the DJIA’s masterful construction method. That prompted me to do something I never do, which was to email Mr. Lahart and offer him a free copy of my book where he could learn a little something about Dow Theory.
In any event, that article went on to highlight one important fact. Although the Dow has surpassed its previous high watermark set back in October 2007, the Average has failed to keep pace with inflation. Those who have read my book know full well that the DJIA is a stock portfolio designed and constructed to indicate the market (GDP). And because the Dow is priced in current dollars, and therefore not adjusted for inflation, it looks to indicate the direction of Nominal GDP. Its long track record of reliability has earned it the honor of being referred to as “the market.”
As you will see in the chart below, the Dow has barely reached the level of Real GDP. The difference between Real and Nominal GDP is inflation. In money terms, 15,872 Dow points today is equivalent to 14,165 in 2007. In other words, almost 1,500 points of inflation currently resides in the stock market average since 2007 – about 10% its current value. See below.
If your stock portfolio has not outperformed the DJIA since 2007 you are losing money in Real terms. I made this point in my very first blog entitled, The Truth About Investment Performance.—Inflation will rob you like a thief in the night if you let it.
That’s why you need to employ the Lose Your Broker method. The chart below is the same exact timeframe as the above except that the 15-51 Indicator and gold are included.
Investment is about making money with money – in Real terms. The only way to do that is to beat the Dow Average and Nominal GDP over the long term, which is easy to do with superior 15-51 construction.
You can do it too.
And let me know if you need help.