Monday, May 27, 2013

Why Harry Dent is Wrong About the Dow Going to 3,300

I just saw an advertisement noting that Harry Dent, who is some sort of stock expert is predicting the Dow 30 will drop to 3,300.  It is important to note the Mr. Dent made that prediction sometime in 2011, when the Dow was some 2000 points lower than the 15,303 it stand at now.  At least if this happens, the drop will be even more dramatic and Mr. Dent may be even more successful at selling whatever it is he trying see on his website.

But, IMO, it's not going to happen, and here is why.  The Dow isn't traded on it's own.  It's made up of 30 stocks that are traded individually.  And if the Dow is to drop by 80%, then those stocks would have to drop an average of 80%.

So, McDonald's would have to drop from 100 to 20, AND Exxon would have to drop from 91 to 18 along with all the other Dow stocks, or some other crazy combination that would drop the Dow an average of 80%. 

Which, BTW, unless those two stocks dropped their dividends, would mean they would have a dividend yield of 15% and 13% respectively.  Nope, not gonna happen.  The great crash of 2008 cut the Dow by only (?) 50%.  This would have to be much worse.  And unless McDonald's is hiding billions of dollars of bad hamburgers off it's balance sheet, there is no reason to even comtemplate a crash of that size. 

Just be upbeat, keep investing in good companies like those mentioned above, and don't worry about a crash.  If prices decline, you will still own companies that make money. 

I don't own any stocks mentioned in this article. 

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