Barron's ...
Toward 30,000 in 2010
A decade ago, he forecast 10,000 in '99; he's still bullish
By Peter C. Du Bois
An Interview With Frank Jennings ~ A long-term investor in an increasingly short-term world, Jennings took over the $480 million Oppenheimer Global Growth & Income fund in October 1995, and has steered it to the best five-year record in its Lipper Analytical category, which is global flexible. In December 1989, he correctly predicted that the Dow Jones Industrial Average would hit 10,000 in 1999. Now, for a variety of reasons, he sees the DJIA reaching 30,000 in 2010. He worries that the U.S. stock market is narrowly focused, but so long as the biggest caps don't all collapse at once, he sees the "powers of light" prevailing over the "powers of darkness." What do Fidel Castro, Mr. Magoo, Charles Ponzi and Charles Munger have to do with all this, and which stocks does Jennings especially like now? Read on.
Barron's: You certainly saw the big picture late in 1989. You correctly said, and we printed your prediction, that the Dow Jones Industrial Average, then 2700-plus, would hit 10,000 within 10 years, with some violent fluctuations along the way. You also saw individual investors returning to the fray and big-capitalization growth stocks outperforming asset plays. You identified some industry sectors, including computers, semiconductors and global telecommunications, that would be good bets over the decade. What does your crystal ball tell you now?
Jennings: It's important to see things in terms of overwhelming forces. I think that the powers of light still have the upper hand over the powers of darkness. I don't see any fundamental reason -- interest rates, inflation, inventories, corporate profits -- to believe that a bear market is imminent.
Q: For how long?
A: The indefinite future.
Q: Do you have a target for the Dow Industrials?
A: I have a mathematical target of 30,000 in 2010. That would be an exponential gain of 11% a year. Of course there will be violent corrections along the way, but I don't see one any time soon. We have had a meaningful move upward here to 10,000. That move probably requires a major consolidation. In this context, you can have a lot of backing and filling and turning around, including some panicky activity. Remember Mr. Magoo, the nearsighted cartoon character? There is a Mr. Magoo pattern to Wall Street. It's very short-sighted, obsessed with current news and current earnings. If there is any sort of disappointment, or sense of disappointment, or sense that other people will be disappointed, Wall Street is able to panic about any given situation. When you start talking about 10-year projections, you are talking about a different time horizon than Mr. Magoo has. He's focused on very short-term cycles.
Q: What's your main investment theme these days?
A: The really big opportunity right now is in small-cap stocks because so many of them simply are so cheap.
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Q: You said you like small-caps because they're cheap. Please explain.
A: I'm a M-U-L-D investor. I look for Massive Upside potential and Limited Downside risk. I like situations where if the coin lands heads up, you make a lot of money in the stock, and if it comes up tails, you won't lose too much. These stocks obviously are hard to find. By their very nature of having limited downside, they tend to be unpopular.
If you think of a stock as being just like a bond, it has an implied interest rate. There are many small-cap stocks with implied rates of 15%-20%, whereas megacaps have implied rates of only 2%-3%. The obvious opportunity is in the little guys.
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