Pros: It’s the best wealth opportunity going if Harry understands how babies drive the stock market.
Cons: All investment advice is best taken with a grain of salt market futures.
The Bottom Line: It’s a great read, even if you can’t believe the Dow is headed for 41,000 by 2008, or that we’ll enter the next great depression soon after.
johnshepler's Full Review: Harry S. Dent - The Roaring 2000s Investor: Strate...
There’s nothing more fun than snoozing on the beach while your investments are skyrocketing and you’re getting wealthy for doing…well, nothing at all. Ah, money for nothing. Now THAT’s the true American Dream.
Sadly, the dream has taken quite a beating in the last year or so. Those stocks that were doubling and tripling in value as you watched have nosed over and plummeted. Some have left big craters as they burrowed, self-destructing, into the ground. Most of us have experienced at least a taste of reversal of fortune, and it’s a bitter taste indeed.
But wait! There is a great golden hope. It’s the unbridled optimism of Harry S. Dent and his prosperity predictions for what he calls the "Roaring 2000s." Harry says that the boom of the 1990s is not really over. Indeed, the bull is just starting to roar. He bases his predictions on demographics, and he is convinced that the future trends of the economy are quite readily predictable. What’s more, he’s so convinced that we can all make a bundle following his theory that he’s laid out the best investment strategies in his book, "The Roaring 2000s Investor – Strategies For The Life You Want."
Babies Make the Best Soothsayers
If you want to know where the economy is headed, count the babies. A chart showing how many babies were born, year by year, gives us fully half of what we need to know to predict the future. The other half is a chart that shows what these babies do during their lifetimes. The eat lots of baby food and go through baby clothes like crazy. But then they go to school, get jobs, buy cars, rent apartments, take honeymoons, make more babies, buy houses, trade up for better everything, and eventually start sucking down the social security trust fund.
We’re frighteningly predictable beings. We all pretty much need the same things at the same times in our lives. Insurance companies have known this all along. They don’t know exactly when you are going to die, but they have a very good idea of how many of your classmates will be around in 10, 20 or 50 years. That’s how they know how much to charge for insurance.
Harry Dent has tapped into this quite commonly available database and found a startling correlation between the Dow Jones Industrial Average and the number of births that occurred 46.5 years previously. Why that offset? Because the peak spending in the average family occurs when the parents are 46 and a half years old. All you have to do to predict where the stock market is going is to look at the chart of U.S. births lagged for peak spending. Harry has done this and you’ll find just such a chart on page 25 of the book. Where will the Dow peak? Looks like 41,000 in 2008.
Before you stand up and shout "that’s nuts," there is a bit of a caveat. Dent’s charts show an approximate correlation between the DJIA and family spending. It’s not a precise tracking, but it’s close enough to provide food for thought. If this man is right, we could be back in the gravy again soon, provided we haven’t gone screaming out of the market yet, vowing never to return.
If you can buy the theory and stomach the unpredictable short term gyrations of the stock market, "The Roaring 2000s Investor" may well be an excellent guide for making money in the years to come.
OK, Babies, How Do I Cash In?
Harry’s book, published in 1999, doesn’t really address the dot.bomb debacle of early 2001. He did predict a market correction in the second half of 2000 (page 27), but admits that 20% corrections are possible and you just have to ride through them. Better yet, knowing the future trend of the economy, you can use extra cash to buy stocks at bargain prices when the market takes a short-term dip.
From now until 2008, Harry Dent is expecting generally stable prices and a rising economy. He calls this the "Growth Boom," which started around 1980. The best investments? Large Company stocks, international stocks, and resort and high-end residential real estate.
After 2008, look out. We will enter the "Shakeout" phase when the baby boomers pass their peak spending years. It will be a flashback to the 1930s with a full-blown depression and massive unemployment. At that time you want to be out of big company stocks and into long term government and high quality corporate bonds, small town real estate and commercial properties. Small cap stocks will do well, but only after the impending stock market crash. By the way, Harry has the Dow crashing back to something like 7,000 in 2023.
What happens after 2023? The next boom begins and slowly winds its way back to the Dow 40,000 peak by about 2050. This will be a time for big company stocks again, but there will be some pitfalls along the way.
Other countries with different birth rate patterns than the USA will peak and dip at various times in the coming years. Japan doesn’t look good, but other Asian countries do. Thanks to the birth patterns generated by WWII, most of the world will boom and bust about the same times, but there are differences in regional areas that investors can take advantage of when the USA stock market tanks starting in 2008.
Prophet or Screwball?
It is said that if you laid all the economists in the world end to end they’d point in all directions. That’s likely true of investment writers, too, although I’ve noticed that the majority of them like to hop on whatever bandwagon is in vogue. Sadly, by the time most of us get a leg up on that bandwagon, the parade is about over.
So, is Harry Dent on to something fundamentally different than most money people? Or did he just hop on to ride the big bull market, and is likely to get thrown off as a cranky bull turns into a foul tempered bear for the "growling 2000s"?
I’m inclined to think that Harry Dent is promoting a good fundamental theory, based on societal demographics. The data is there for anyone to see. It only remains up to interpretation as to what the birth rates and spending patterns really mean. How strongly will they’ll really influence stock and bond prices in the future, compared to other factors? I’m struck by how closely the 46.5-year offset in birth rates matches the performance of the Dow adjusted for inflation, at least back to where the chart starts in 1953. That makes me both excited for the possibilities over the next 6 or 7 years and really nervous about what we’re in for after 2008.
I really enjoyed this book and am fascinated with the explanations of how Dent comes to his predictions. If your interest is piqued, I’d suggest not only reading "The Roaring 2000s Investor", but also his earlier book, "The Roaring 2000s."
As far as investment advice goes, I’m not giving any. I’m just a guy who dreams of napping on the beach as his wealth multiplies automatically. And it if does….see you at the yacht club!
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