Dow 13,000 now; 116,200 by 2046

BOSTON (MarketWatch) � My favorite market forecast of all time came in the fall of 1995, when mutual fund pioneer Bill Berger came to Boston and predicted the Dow Jones Industrial Average would rise to 116,200.

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He didn�t think it would happen overnight. In fact, the 70-something founder of the Berger Funds figured the market would need until the year 2040 to reach it. (He wryly suggested that if he was proved wrong, people come find him to discuss it; sadly, he died a few years later.)

Of course, Dow 116,200 would be a far more ridiculous thought than even, say, Dow 36,000, the title of a popular-but-wrong-headed book from the bubble days of the late 1990s, were it not for one thing: As the Dow DJIA �touched 13,000 this week (and the Nasdaq Composite COMP �flirted with 3,000), it�s actually stunningly close to being on track toward making Berger�s prediction come true.

Up, up and away

Given the market events that have happened since Berger�s outrageous prediction, that certainly feels unlikely. Given what investors have come to learn about the market since the Internet bubble burst in 2000, most people would be surprised to learn that the market could be on track for anything but misery.

But as investors consider Dow 13,000, they should also think of it as a moment in time and not a long-term indicator of anything.

To see why that is, let�s revisit Berger�s prediction.

In 1995, Berger had been in the investment business for 45 years, and had seen the Dow go from below 200 to about 4,500. Mathematically, he saw the Dow�s future as reflecting � more or less � what had happened in the past, which would move it from the 1995 level to 116,200 in 45 years.

Now let�s see just how close he is to being right.

At 13,000 the Dow has not quite tripled since Berger made his prediction in the fall of �95. Using easy, round numbers, we�ll say it has tripled over the last 17 years. Using the Rule of 115 � a rough measure of how long it takes for something to triple based on a constant return � that�s a gain of 6.75% per year.

/quotes/zigman/627449 DJIA 13,096.17, +217.29, +1.69%

If that rate of return holds for the future � squarely in the annualized average return that many market observers believe is realistic � then the Dow would triple again in 17 years, reaching roughly 39,000. If the Dow were to triple again from there � figure 17 more years � it would reach 117,000.

That would be 2046, a few years past Berger�s timetable, but surprisingly close considering that the forecast would have made investors break out in hysterics had it been made at any time in the last decade.

Counting the miles

It�s important to consider Berger�s larger point when looking at the media hoopla that comes up around any Dow landmark, like what was being kicked around this week.