7.8 /10 1 Votes
Language English Pages 380 Dewey Decimal 332.63/22 20 Originally published 1994 Page count 380 Country United States of America | 3.9/5 Goodreads Publication date 1994 ISBN 978-1-55623-804-8 LC Class HG4661 .S53 1994 Publisher McGraw-Hill Education OCLC 29361231 | |||||||||||||||||||||||||||||||||
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Finance books Common Stocks and Uncomm, Irrational Exuberance, Common Sense on Mutual Fu, Et si vous en saviez assez po, Beating the Street | ||||||||||||||||||||||||||||||||||
Investing book recommendation 3 stocks for the long run by jeremy siegel
Stocks for the Long Run is a book on investing by Jeremy Siegel. Its first edition was released in 1994. Its fifth edition was released on January 7, 2014. According to Pablo Galarza of Money, "His 1994 book Stocks for the Long Run sealed the conventional wisdom that most of us should be in the stock market." James K. Glassman, financial columnist for The Washington Post called it one of the 10 best investment books of all time.
Contents
Overview
Siegel is a professor of finance at the Wharton School of the University of Pennsylvania and a contributor to financial publications like The Wall Street Journal, Barron's, The New York Times, and the Financial Times.
The book takes a long-term view of the financial markets, starting in 1802, mainly in the United States (but with some comparisons to other financial markets as well). Siegel takes an empirical perspective in answering investing questions.
Even though the book has been termed "the buy and hold Bible", the author occasionally concedes that there are market inefficiencies that can be exploited.
Siegel argues that stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. He expects returns to be somewhat lower in the next couple of decades. In an article presented at the Equity Risk Premium forum of November 8, 2001, Siegel states:
An analysis of the historical relationships among real stock returns, P/Es, earnings growth, and dividend yields and an awareness of the biases justify a future P/E of 20 to 25, an economic growth rate of 3 percent, expected real returns for equities of 4.5–5.5 percent, and an equity risk premium of 2 percent (200 bps).
Outline
The book covers the following topics.
According to Siegel's web site the next edition will include a chapter on globalization with the premise that the growth of emerging economies will soon out pace that of the developed nations. A discussion on fundamentally weighted indexes which have historically resulted in better returns and lower volatility may also be added.
Principles
The data below is taken from Table 1.1, 1.2, Fig 1.5 and Fig 6.4 in the 2002 edition of the book.
This table presents some of the main findings presented in Chapter 1 and some related text. Stocks on the long term have returned 6.8% per year after inflation, whereas gold has returned -0.4% (i.e. failed to keep up with inflation) and bonds have returned 1.7%. The equity risk premium (excess return of stocks over bonds) has ranged between 0 and 11%, it was 3% in 2001. Also see [1] where equity risk premium is computed slightly differently. The Fed model of stock valuation was not applicable before 1966. Before 1982, the treasury yields were generally less than stock earnings yield.
Why the long-term return is relatively constant, remains a mystery.
The dividend yield is correlated with real GDP growth, as shown in Table 6.1.
Explanation of abnormal behavior:
In Chapter 2, he argues (Figure 2.1) that given a sufficiently long period of time, stocks are less risky than bonds, where risk is defined as the standard deviation of annual return. During 1802–2001, the worst 1-year returns for stocks and bonds were -38.6% and -21.9% respectively. However, for a holding period of 10-years, the worst performance for stocks and bonds were -4.1% and -5.4%; and for a holding period of 20 years, stocks have always been profitable. Figure 2.6 shows that the optimally lowest risk portfolio even for a one-year holding, will include some stocks.
In Chapter 5, he shows that after-tax returns for bonds can be negative for a significant period of time.
Criticism
Some critics argue that the book uses a perspective that is too long to be applicable to today's long-term investors who, in many cases, are not investing for a 20–30 year period. In addition, Yale economist Robert Shiller, who wrote Irrational Exuberance (Princeton, 2000) warns that even a 20 or 30 year holding period is not necessarily risk free. This is because the 20th century, on which many of Siegel's conclusions are based, was the most economically successful century in the short history of the United States and will not necessarily repeat itself.