Can the Dow Hold Above 25,000?

Every time the Dow achieves a significant milestone, I’m reminded of my early days on Bay St. and a true gentleman that I had the privilege of working with.

After graduating from university (see embarrassing photo) and completing my required back office initiation, I was given the opportunity to work and learn the business in the Research Department of brokerage firm, Midland Doherty. There, I worked with, and was mentored by, one John Francis Gascombe Smele, C.F.A.

Mr. Smele was born in England in 1912, and served in the British Army from 1939 to 1946 before being demobilized with the rank of Major and being decorated with the Military Cross 1942 Burma Operations. He was often found, surrounded by young admirers, telling stories of marching his troops around the Indian sub-continent either in the middle of the night or in the middle of the day, before retiring to his tent to enjoy a refreshing gin drink with his fellow officers. I guess what they say about mad dogs and Englishmen is correct. His tales of brave and harrowing midnight raids were absolutely spellbinding.

Mr. and Mrs. Smele emigrated to Canada in 1950, where John’s strong analytical skills drew him to a long and colourful career on Bay St. He survived polio in 1957, but from that time forward, he was easily and broadly recognized by his distinctive gait and well-choreographed cane work. Mr. Smele was a very early Chartered Financial Analyst charter holder and used to frustrate those studying for the three-year program by showing them the small single text book that he was required to study from, for the single exam he was required to pass. He served as president of the Toronto CFA Society in 1966/7.

Professionally, I benefitted immensely from my time with Mr. Smele. Personally, he would, from time to time, test my fortitude, as he had that of his troops. While the stakes were embarrassingly menial in comparison, he challenged me, whenever we had to walk (at a modest pace, mind you) the six blocks to The King Edward Hotel for an investor presentation, not to wear an overcoat, regardless of the January temperature or the wind chill. At the other extreme, we would, on occasion, lunch at one of the few Indian food restaurants in the city, and he would order a lamb vindaloo on my behalf with a smile and instructions to the waiter, spoken in Hindi. By the time we returned to the office, my hair would be matted to my head by the perspiration streaming from its dome.

So. Let’s get back to milestones. The Dow Jones Industrial Average recently set a record and surpassed the 25,000-point mark for the first time on Jan 4, 2018. On October 14, 1982, John Smele authored a commentary titled, “Whither the Market? Can the Dow Hold Above 1000?”. Three days earlier, the Dow Jones Industrial Average had risen above the 1,000-point level for the third time in its history. The index was unable to maintain the level on its first two tries, but Mr. Smele was about to make another brave call. Before we get to that, I will excerpt his description of the Dow’s first breach of the 1,000-point barrier. Pure poetry. “November 1972 was really the first time the Dow emerged from its shroud into the effulgence of light surrounding the mystique; its sudden propulsion into the bright lights stemmed from a lifting of price controls, and the belief that companies would report substantial earnings gains in an improving and rising economy.”

Upon achieving four-digit status again in 1982, even “…with economic prospects at the bleakest, unemployment rising to unprecedented levels, and grave international developments…” Mr. Smele was resolute. “Incredible though it may seem, we view the longer-term with complete optimism and look for an invasion of the previous high of 1051.70, established in January of 1973, to be completed well before 1982 year-end¹. Do we think, then, the 1000 Dow is here to stay: unreservedly, our answer is “yes”.”

t’s hard to imagine that the 25,000 level is here to stay without backing and filling, but do we believe that equities will grow wealth for our clients over the long term? Unreservedly, our answer is “yes”. JEH