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45 of 48 people found the following review helpful:
5.0 out of 5 stars
Historical Investing Information for Quantitative Thinkers, August 25, 2000
Psychologically, almost every human being believes that he or she is potentially able to outperform every other human being. This optimism is a useful quality for spurring people on to strive for better results. When it comes to investing, it can lead to harmful results, however. Too much risk can lead to too little reward. This book is the best summary of the historical data on investing. Some of the data go back to 1802. Rather than summarize everything the book shows, let me focus in on a few key points that might slip past you. These are contrary to the conventional wisdom in some cases, and different from what you will hear on television. I suggest you pay careful heed. (1) Diversification and historical data suggest that you should be sure to invest outside of the United States with part of your financial assets. Currently, for many people, this should be up to 25 percent of the total portfolio in international stocks. These stocks should be equally weighted between Europe, Asia, and emerging countries. (2) Written in 1997 for this edition when the Dow was 7400, nothing in the book justifies a Dow of 11,000. If you look at the long-term chart of stock-price multiples, there has been a severe downdraft after the two other times when multiples expanded so much. This suggests caution. (3) Small cap value stocks provided superior returns historically, and those returns were highly concentrated in January of each year. This suggests a potential trading strategy opportunity of owning those stocks in January and shifting into other stocks at the end of January, depending on the 200 day moving average trends. (4) Almost no professional investors keep up with the market averages over 10 years. Although he doesn't express it, individual investors tend to do worse. Why will it be different for you over the next 10 years? Therein lies the case for index funds and the Dow 10 strategy (buy the 10 highest yielding Dow Industrial stocks each January). (5) The main cause of more rapid stock price growth in the last 30 years was the ending of the gold standard. Central banks pump up the money supply after gold is taken away, which expands multiples. Over time, this also drives up inflation, which is brutal on stock-price multiples. Alan Greenspan is very aggressive in building up the money supply, even when he is raising interest rates. All of that money eventually causes prices to rise. This will probably happen in this country as the growth in the baby boom population reaching 45 slows. Companies eventually overcome inflation, but the near-term losses can be large. Witness the fact that many Internet stocks are down over 80 percent in the last year. Whether you agree with these perspectives or not, you should be aware of them. Professor Siegel has done us a service by making the information available. On the other hand, this book needs a third edition to update the data to reflect on the current multiples. If you are not a quantitative thinker, you will not like this book. Just read my comments and think about them. If you are a quantitative thinker, you will get many new and important perspectives from this work which suggests that it's not a random walk after all. Good luck with your investing. Before taking any large risks, be sure you know what the risks are and think through how you will handle them if they turn out to be irresistible forces pushing you in the wrong direction.
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70 of 81 people found the following review helpful:
3.0 out of 5 stars
Good for Stocks, Bad for the Individual Investor, September 2, 1998
By A Customer
Siegel's book is a good read, and he makes the case for equities a compelling one. However, if you're already aware that bonds, savings accounts, and gold are terrible long-term investments due to erosion from taxes and inflation (let alone lousy performance), then this book's strongest point is moot. Siegel's extensive research (some of which has been previously published) overwhelmingly supports the long-term investor; not the long-term investor as defined by today's market paradigm, i.e., long = 12-18 months, but rather looooong, like 20-30 years long...Two-day corrections or eighteen month bear markets can't hold a candle to Siegel's evidence proving that being 100% invested for long periods of time makes for sound financial acumen. Unfortunately, after all that great evidence, Siegel leaves individual investors at the altar, as he concludes that the only way for us to enjoy any investment success is to plunk most of our money in diversified mutual funds with low expense ratios (preferably index funds). This comes off like some kind of a thinly-veiled Vanguard endorsement and is extremely anti-climactic, considering all the great info in the previous chapters. I guess it's good to have on your bookshelf the next time the market drops 512 points and you become tempted to liquidate, because Seigel definitively proves you're better off sticking with stocks through thick and thin.
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37 of 43 people found the following review helpful:
5.0 out of 5 stars
Read it, study it, apply it, reap the rewards, March 11, 2004
This review is from: Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies (Hardcover)
Wharton finance professor Jeremy Siegel is one of the most credible, most astute stock market analysts in the world. He is not a mindless stock cheerleader; in fact, his March 14, 2000 Wall Street Journal article entitled "Why Big Cap Tech Stocks Are a Sucker's Bet" persuasively pointed out how the high tech stock emperor had no clothes, and helped burst the insanely overvalued tech bubble. This was at a time when the vast majority of Wall Street analysts were inventing new valuation methods to justify insane stock prices, while other more pessimistic analysts had declared an "irrational exuberance" years before the market actually topped. "Stocks for the Long Run" is Siegel's seminal work (now in its third edition), an excellent introduction to investing for the average investor looking to save for retirement. If the SEC were to choose one book to force people to read before they were allowed to invest their money in the stock market, this book would be it. In fact, the people who lost their retirement money because it was all invested in one stock such as Enron or Worldcom (or a bunch of dot-coms), or who lost a fortune day trading when the market tanked, would have been so much better off if they had just read this book and applied its lessons. They would be better off, the market would be much less volatile, the allocation of capital would be more efficient, the economy would be stronger, and the world would be a better place, if only more people would read this book. "Stocks for the Long Run" gives you all the knowledge you need to implement a solid investment strategy. Siegel educates and informs (this book will teach you all the basics you need to know to watch CNBC and to understand the market), and he packs his book with as much long-term data and supporting evidence as possible. He is a firm believer in the scientific method and data; he does not posit recommendations unless they are firmly supported by historical evidence. The good news in the third edition (post 1990s/2000 bubble) is that the case for investing in stocks is still a strong one. Siegel presents extremely persuasive arguments why, long term, stocks hold their value and gain value better than any other type of investment (fundamentally, we must never lose sight of the fact that stocks are claims on real assets and the cash flows generated by enterprises). Surprisingly, stocks are lower risk, long-term, than bonds. Siegel presents some good arguments why stocks now deserve a higher-than-long-term-average P/E, but also shows how index investing (which he still heartily recommends) is distorting the market, and how our expectations for returns from stocks need to come down slightly. He correctly identifies TIPS as the best investment for those seeking short-term safety. Siegel's main argument is that investors should get into stocks in such a way as to match the overall return of the market, which will provide them with a healthy long-term return on investment. He does show a number of ways to improve on that return and beat the market, such as by recognizing when the market is under and overvalued, thereby buying low and selling high. Thus, I would recommend that a new investor first read, study and apply "Stocks in the Long Run", and then move on to Ben Stein's "Yes You Can Time the Market" as a way to optimize the lessons from "Stocks in the Long Run".
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