The Dow Jumped to All-Time Highs. What Now?


The Dow Jones Industrial Average took the subprime crisis hard in 2008. The index had been on an absolute tear, setting all-time highs nearly every day in 2005 through 2007. But the crash brought Dow values down to levels not seen since 1997.

Getting back to pre-crash levels has hardly been a smooth ride. The last five years have shown us flash crashes, fiscal-cliff panics, the death of the PC, and perfectly sane companies doing crazy things. Southern Europe's economic woes kept America on her toes, and the gnawing fear that another shoe could drop never went away. It's been one heck of a rollercoaster at times, whether you like thrill rides or not.

But now we're back to record-setting performance levels. The Dow bounced back by 116% from the recession lows that were set almost exactly four years ago.

Big winners
Credit card issuer American Express soared the most from those dungeon-like lows. Consumers didn't cut up their cards en masse as market makers had feared during the crisis, and earnings have grown at a compounded annual rate of 36% in the last three years. The stock has increased in value nearly sevenfold.

Second-place Dow gainer Home Depot jumped 341% in four years. The company took the collapsing housing market as a cue to lower costs and run a more efficient business. Earnings are growing at 24% annually on just 4% higher revenues. These improvements will serve the Depot well in good times and bad.

Big Dow helpers
But those two stocks are not the biggest contributors to the Dow's overall improvement. Thanks to their mere double-digit share prices, they each added about 420 points to the index's value in four years.

No, the most generous Dow helper is, of course, Big and Blue. IBM only increased its stock price by 158%, but its hefty price per share translates into nearly 1,000 Dow points gained. Former CEO Sam Palmisano handed the reins over to current leader Ginny Rometti with nary a hitch, continuing IBM's decades-long domination of enterprise computing. Like Home Depot, IBM squeezes a ton of profit and shareholder value out of modest revenue gains.

Act like you've been there before
Yes, the Dow set a record on Tuesday. It happened again on Wednesday. Barring any major calamities, this will be a common theme from now on. The all-time-high streak won't go on forever, but the general trend is clear.

So this is not the time to spike the ball, sell all your shares, and declare victory over an obstinate market. That way, you'd miss out on the slow but steady gains we'll see over the next five, 10, and 50 years.

Touchdown dances have their place, but long-term investors simply hand the ball to the nearest ref and jog off to the sidelines to find the next terrific buy. Act like Jerry Rice taking a walk down Wall Street.

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Originally published