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Jewish World Review Oct. 29, 1999 /17 Mar-Cheshvan, 5760

Ben Wattenberg

Ben Wattenberg
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Get rich slow -- THE STOCK MARKET, as measured by the Dow Jones Industrial Average, dropped by 5.9 percent during the week of Oct. 11-15, down 11.5 percent since its August high, momentarily falling below the 10,000 mark. The bears came roaring out of their caves, growling that the market is "over-valued." Why? Because "what goes up, comes down," because "it's just like 1929," because "the price-earnings ratio is too high," because Alan Greenspan hiccuped, because "it's a bubble," because it's all a "get-rich-quick" extravaganza.

The bears have been saying "sell" since 1982, while the market has gone up by more than 1,000 percent. If they are told by bulls "this time it's different," they reply "bulls always say the current bull market is different."

I am neither a stock maven, nor an economist. But I have just finished work on a one-hour PBS special, "The Stockholder Society." And now I have a firm opinion: This time -- it is different.

(The program airs on public television at 9 p.m. on the evening of October 29th, the 70th anniversary of the crash of 1929. After the market closes, uncrashed, and your blood pressure subsides, consult local schedules.)

Let us count some of the strands woven into this new market that, taken together, yield something new, in practice and theory. Deregulation has created new efficiencies. International trade is soaring. Foreign markets are rebounding. There is no major war in sight. New technologies dazzle us. The market system is everywhere. Inflation is low. The money supply is stable.

Over-arching is a new demographic and governmental situation. The leading edge of the once-in-a-millennium Baby Boom generation -- 75 million strong -- is now 53 years old.

They have to save and invest, lots, to ensure a stable retirement. Owning stocks is the best means to that end, as we shall see. It is no accident that participation in the stock market is soaring. About half of all Americans are now in the stock market, up from 37 percent in 1992, and 15 percent in 1970. Spurring this trend are government policies offering hard-to-refuse tax benefits, particularly through "defined contribution" 401(K) plans. Unlike earlier "defined benefit" plans, the 401(K)s provide outright ownership and portability of relatively large amounts of retirement dollars.

Today, average investors are doing what rich folks always did, harnessing compound interest, which Albert Einstein said was the most powerful force in the universe. A simpler expression of the strategy is Warren Buffet's: "Buy and hold."

Economics columnist Robert Samuelson says the three most influential people in the boom have been Buffet, Bill Gates and Jeremy Siegel, author of "Stocks for the Long Run," published in 1994, when the Dow was at 3,700. The new edition was published in 1997, when the Dow was at 7,000. Siegel dug through 200 years of stock market history. He underlined a hazy belief among the cognoscenti: that stocks do better than bonds or cash over time. And he pushed a new thought: that stocks are less volatile than bonds or cash.

Siegel says that over two centuries stocks went up by 11 percent per year, or 7 percent after washing out the inflation (7.5 percent since 1946). That compares to 3.5 percent for fixed income securities (1.1 percent since 1946). Siegel says that over any 10-year period, the worst performance for stocks has been better than the worst performance for bonds or treasury bills. He writes: "The safest long-term investment for the preservation of purchasing power has clearly been stocks, not bonds." Siegel calculates that one dollar invested and reinvested in bonds from 1802 to 1997 would be worth $803 after inflation. A similar dollar in stocks yields $558,945. (All you have to do is live for 200 years.)

Such thinking, spun widely over the last half dozen years, has made many investors understand that stocks are a very good buy. Such thinking forms much of the bedrock for the fascinating new book "Dow 36,000" by James Glassman and Kevin Hassett, colleagues of mine at the American Enterprise Institute. (Maybe 36,000 is high for the next few years, but what's wrong with 26,000? Or 16,000?)

The argument is made by bubble-mongers that we are vulnerable to screw-ups, unexpected events, recessions, crashing computers and ring-around-the-collar. But with all that, there are still those 75 million Boomers, essentially forced to continue investing, most of them believing that stocks are the way to go, propping up valuations. This does not preclude volatility; it minimizes it.

So, buy. But what? A headline in Barron's caught my eye, "Some Tempting Stocks for 10 Times Earnings," featuring equities that have been hammered recently but should recover. The list: Allstate, Bank One, Federal-Mogul, First Union, Mattel, Maytag, Raytheon, Sears Roebuck, Service Corp, V.F. Corp, Waste Management and Xerox. I bought Xerox.

Ben Wattenberg is a senior fellow at the American Enterprise Institute and is the moderator of PBS's "Think Tank." You may comment by clicking here.

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