Jason Zweig on the "Real Wealth Dow"

This weekend’s Intelligent Investor piece from my friend Jason Zweig should be your first stop this weekend.  Zweig tackles the issue of whether or not the current investing climate is as bad (or as good) as they say it is.  He looks at it through the prism of the recent Dow Jones advance through 13,000…

From the Wall Street Journal:

So I asked Meir Statman, a finance professor at Santa Clara University, and Jonathan Scheid, president of Bellatore Financial, an investment firm in San Jose, Calif., to calculate where the Dow would be today with all dividends reinvested back into the index. Counting dividends, the Dow would have closed this Tuesday at 1339410.97—more than 100 times above its official close.

Dividends are like one of those mirrors in a funhouse, blowing the Dow up to elephantine proportions. But you also can stand the Dow in front of a funhouse mirror that shrinks everything by taking inflation into account.

Recalibrating the index to factor in inflation, the Dow would have closed on Tuesday at 456.22. That is 96.5% below its nominal value. From this angle, the customary way of citing the Dow appears ridiculously overstated.

Now consider what Messrs. Statman and Scheid call the “Real Wealth Dow.” This theoretical index, which accounts for dividends and inflation alike, would have closed on Tuesday at 46986.48.

Head over below for the whole thing, including Jason’s take on Tadas Viskanta’s controversial “There’s never been a better time to be an investor” pronouncement.

Source:

Dow 1,339,410: The Latest Milestone (WSJ)