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David Elias has always liked to make bold predictions about the stock market.

The Williamsville money manager did it in 1994, at a time when the Dow Jones industrial average was around 3,000, when he predicted that the benchmark index would hit 11,000 by the end of the decade.

Elias was on the mark then, and now he's out with another forecast that sounds even more outlandish at first glance. He says the Dow will hit 40,000 by the year 2016.

That's four times higher than the index's current value, but Elias makes a case in his new book, Dow 40,000, that getting there won't be as difficult as it might seem at first.

In fact, much of Elias' optimism is firmly rooted in the New Economy that has developed in the years following the end of the Cold War and helped drive the stock market during its record-setting run over the last five years.

It's been an almost perfect time for the economy and the stock market, with interest rates falling, low inflation, moderate economic growth, rising corporate profits, low unemployment, improving productivity and even a federal budget surplus.

And Elias sees the good times continuing.

"If you look down the road 10 or 15 or 20 years, there are thousands of points on the upside," Elias said. "This does not mean we're not going to have another recession or that we're not going to have another bear market. It means that the long-term trend is up."

Elias isn't alone in his optimism. These are prime times for writing books that make eye-popping predictions about the stock market, including Dow 100,000 by Charles W. Kadlec, the chief investment strategist for the Seligman mutual fund company, and Dow 36,000 by James K. Glassman and Kevin A. Hassett.

Of the three books, Dow 36,000 is the most controversial because it contends that the Dow's fair value today isn't 10,279, but 36,000. Critics, including top academics, contend that the book is off the mark because it's based on a model that assumes that stocks are no more risky than bonds.

Elias and Kadlec take a more conventional route to their lofty predictions. Essentially, Kadlec predicts that the Dow will return 11 percent a year through 2020, which is a tad better than big company stocks have fared since 1926. Even Yale finance professor Roger Ibbotson, who has done the leading research on historical stock price trends, predicts that the Dow will hit 100,000 by 2024, based on a 10 percent annual growth rate.

Elias actually takes a conservative path to get the Dow to 40,000 during the next 17 years. He assumes that stocks will go up 9 percent a year, on average, which is less than what big company stocks have averaged over the last 73 years.

"They sound pretty shocking and amazing, but you can come up with numbers like that if you assume a fairly normal growth rate over a long period of time," said Hugh A. Johnson, the chief investment officer at First Albany Corp.

That's exactly what Elias did. "We weren't out to make some bold statement or grab headlines," Elias said. "We wanted to state a case for a long-term, reasonable approach to the market.

Elias argues that the aging of the Baby Boomer generation will boost savings as workers in the 40s and 50s finish putting their children through college and start putting money away for retirement in a big way.

And he thinks the technology revolution will have a tremendous impact in making companies more productive, driving down costs and reshaping everyday life throughout the world. "Basically, the sky is the limit from a technological standpoint," Elias said.

That's why Elias argues that the Dow hitting 40,000 by 2016 really isn't all that outlandish. If the stock market rises at just an average rate during that time, the Dow will easily top 40,000 by Elias' target date.

"We wanted to get investor expectations down and we wanted to come up with a number that was a done deal," said Elias, who thinks 40,000 could turn out to be a low-ball estimate. "The real question is whether it's going to 50,000, 60,000 or 70,000."

That doesn't mean Elias sees the Dow going straight up during its journey to 40,000. In fact, Elias said the stock market could drop as much as 3,000 points and stumble through bear markets and recessions along the way.

"There are going to be some years where there are going to be single-digit returns and flat to down returns," Elias said.

That's why it's essential that investors ignore the daily, weekly or even yearly ups and downs and keep their sights focused on where the market will be five years from now, or even later, he said.

"Unless people have a five-year time horizon, they shouldn't be in the stock market," Elias said. By looking at stocks as investments that won't be tapped for years and years, Elias said, investors will give themselves time to ride out the rough spots and still reap the benefits of the New Economy that he sees driving the stock market well into the next century.

In particular, Elias thinks investors should build their portfolios around two types of stocks. About 60 percent of your investments should be in what Elias calls "Face of the Earth" stocks, led by big multinational companies with long track records in the technology, financial and health care industries. Those include companies like AT&T, Citigroup, General Electric, Exxon and Merck.

The rest of your money should be in stocks that Elias calls "The Dominators" because they are far and away the leaders in their markets. That includes companies like Microsoft, Intel, Wal-Mart and Home Depot.

If you think long term, Elias said, it makes no difference when you buy your stocks, or whether the market might be in the middle of a slump or if share prices are overvalued at a particular time.

"If you have a five-year time horizon, now is the time to get in, with the understanding that the market could go down another 500 or 1,000 points," Elias said.

Trying to figure out just the right time to jump into the stock market is bound to fail. "When you try to time the market, more times than not, you're going to miss the train," he said. "You never know where that bottom is going to be."

Still, Elias said stocks aren't necessarily for everyone, especially if you don't think you could bear the thought of waking up some morning to the knowledge that your investments are worth 20 percent less than they were a few months earlier.

"There is no investment that's worth losing a night's sleep over," he said.

If Elias is right and the Dow makes it to 40,000 over the next 17 years, then investors will be in for some pretty restful nights.

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