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51 of 51 people found the following review helpful:
3.0 out of 5 stars
Good Book, Has Some Holes, September 19, 2006
The Future for Investors has some really great points - the main one being that the compounding power of reinvested dividends should be a significant consideration in stock selection. I agree with this approach, and Siegel makes some persuasive arguments that it provides higher returns and less volitility than other approaches.
However, I agree with some of the criticisms of the book as well:
1) Siegel does not address the tax impact on dividends. His research uses 1957 as a starting point. While our current dividend tax rate is 15% at the federal level, during most of the period from 1957 the rate was higher (sometimes the same as the income rate). During these times, the reinvested amount of the dividend would have only been about 60-70% of the total. Thus, returns would have been lower. (Some people have said that this would only make a marginal difference - maybe so, but it might have changed his argument in comparing Standard Oil to IBM as well as the small advantages he pointed out in some of his stock recomendations. A 1% per annum difference over a multi-decade period amounts to serious money).
2) Siegel cites Altria as the best performing stock during this period. I won't disagree with the conclusion, but I will point out that going for high dividends and reinvesting them works well only when the company survives. What if Beth Steel had been your choice rather than Altria? You would have received lots of dividends and reinvested them, but the ultimate outcome would have been a disaster. The point is that reinvesting dividends works especially well when the reinvestment happens during a difficult time for the stock AND (most importantly) the stock MUST recover from those difficult times. This is not generally the case, but it was with Altria.
3) Siegel's idea that the developed world will sell assets (stocks, bonds, etc) to the developing world to fund the huge retirement wave is full of problems. While the strategy will work to maintain the standard of living of the baby boomers, it will also permanently ruin the future for all subsequent generations of Americans. If you sell the assets (companies) that create your wealth in order to live a comfortable retirement (read consumption), you are giving away your ability to earn in the future. This is something Warren Buffett has been warning us about for a few years now. You cannot indefinitely fund consumption with income producing assets. When you decrease your income producing assets by selling for consumption, you increase your current standard of living at the expense of your future standard of living.
Criticisms aside, this is still a thought provoking book that is well written. Ironically, even though I think there are some questions about many parts of the book, I generally agree with the ultimate types of investments that Siegel recommends - just for different reasons.
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226 of 247 people found the following review helpful:
4.0 out of 5 stars
Useful, with a caveat, March 12, 2005
Siegel's basic advice to stock investors is to focus less on growth stocks and index mutual funds (eg., Vanguard 500) and more on looking for tried and true stocks that pay high dividends. He argues that such reinvested dividends are the true source of stock returns, or the "El Dorado." (His term). Overall, this argument is well-presented and persuasive.
However, I am perplexed on a key element. His case is largely based on historical evidence that purports to show that high dividend yield stocks, with dividends reinvested, have accumulated more total return than growth stocks or index mutual funds. However, his calculations do not account for the deleterious effect of taxes on reinvested dividend. (He says in an endnote that taxes are not significant for the portfolios he chose, but does not explain why; for most common stock portfolios, taxes are significant.) Dividends are taxed yearly and until recently at a higher rate than that of capital gains and that of retained earnings, which are not taxed at all. If taxes have been paid on dividends, only the untaxed part can truly be considered "reinvested"; the part that is taxed has to be made up by a new infusions of cash from the investor. The effect of ignoring this is that his historical comparisons are not terribly meaningful because he is not calculating the returns on true (after tax) contributions to dividend stocks vs. growth stocks. Naturally, if more is contributed to the dividend stocks, there is likely to be more at the end. (BTW, this is basically the same fallacy that sunk the allegedly huge returns of the otherwise delightful "Beardstown Ladies" of yore.) Given that the magnitude of the "advantage" he posits of dividend stocks vs. growth stocks is not all that great, one cannot have confidence that he has truly made his case.
That said, his advice is very useful for investors in tax sheltered 401Ks. Also, the new lower tax rate on dividends also helps lessen, though not eliminate, the effects of yearly taxation of dividends.
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84 of 92 people found the following review helpful:
5.0 out of 5 stars
Insightful analysis without sensationalism, March 12, 2005
In his earlier book, Siegel had proven that stocks are the best investment vehicle for the long term. In a fitting "sequel" to his previous bestseller, Siegel answers the question "which stocks to buy for the long term". The book is divided into 5 parts - the first two parts focus on analysis of historic data using very unique perspective, mostly with respect to changing membership of SP500 index over the years. In the third part, he discusses the different measures to consider while analysing a company's performance from the shareholders' points of view. The fifth part is perhaps the most useful for readers seeking investment advice. He provides a sample portfolio based on the priciples he explains in the third and fourth parts of the book. In addition to percentage allocation for US and non-US markets, he provides allocation targets for some of the specific investment strategies he discusses in the book (these strategies are well discussed and their rationale is convincingly presented; most of them are centered around the dividend paid by the company). The author also provides a sector analysis of the market over the years and provides his "prediction" on which three sectors will likely perform the best over the long term. A real treasure for any long term investor! it should be pointed out that the analysis dont really address tax implications, but the conclusions derived from the analysis would still likely hold since the strategies focus on long term investing.
The book is thorough and comprehensive, but explained in an easy manner. Each chapter ends with a summary which provides a succinct representation of the chapter. A detailed list of references/citations used by the author and a set of appendices with more data analysis is also included, and is certainly a resource for any serious investor. Day traders and speculators may be disappointed with the book, but any long term investor will find this to be a cornerstone of any investment plan. A must have!
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