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Title: Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies by Jeremy J. Siegel ISBN: 0-07-137048-X Publisher: McGraw-Hill Trade Pub. Date: 21 June, 2002 Format: Hardcover Volumes: 1 List Price(USD): $29.95 |
Average Customer Rating: 4.1 (42 reviews)
Rating: 5
Summary: The Best Introduction and Reference, Praise is Deserved
Comment: Siegel's third edition is the best introduction to the traditional assets classes (i.e., stocks and bonds) that I have ever read, hands-down. This book has two strengths: One, it is a rigorous empirical study of historical market returns and their components. Two, it is broad and accessible introduction to various investment theories and styles, economic influences (e.g., inflation, business cycles, economic data) and newer product categories like exchange-traded funds. This is an ambitiously broad anthology chock-full of important topics, so it serves as a great starting point for new students of investment theory. For example, his Chapter on "Gold, the Federal Reserve and Inflation" is a brief, helpful introduction to the history of monetary policy. Another great Chapter is "Market Volatility," which illustrates that market volatility has been remarkably stable over the long run, with some violent exceptions.
What I really love about Siegel is his intent: he wants to educate the average investor and he is not dogmatic. I understand that a handful of negative reviews arise from a credible concern that the stock market could be a lot more hazardous in the future than in the past, but Siegel is not blindly extrapolating into the future. It is pretty unfair to call this "naïve empiricism," by the way. His conclusion is more specific and relative: he believes stocks should outperform bonds, but they will downshift from the long-run historical pattern to outperform bonds by about 2%, give or take.
He reaches this conclusion by showing how the stock market has historically averaged roughly 7% percent in real returns over any long-run stretch. He then presents various alternative valuation models and shares his carefully qualified conclusion: that economic factors justify an modest upward revision in the price-earnings ratio (P-E ratio) to the low 20s, and from that starting point, we might look forward to real equity returns of "4 to 5 percent." Granted, he then goes on to discuss some factors that could well propel returns even higher, and one big unfavorable factor that could send them lower (i.e., the demographic problem of fewer investors in the developed world). But you get to see how his model works, and he serves up each assumption logically and in balanced form so that you can consider the conclusion for yourself. In this vein and offered as a minor critique at the margin, I happen to question his assumption that higher equity valuations per se lead to increased earnings (via cheaper stock offerings and hence cheaper investment capital) because I do not think you can necessarily assume that more capital leads to better investments. Also, he does not address or incorporate the dilution effects of employee stock options.
Similarly, his case for "buy and hold" is balanced. The data in the Chapter on "Stocks and the Business Cycle" could in fact be used to advocate market timing. Siegel shows that successful timing (or more specifically, buying near the bottom) produces impressive returns. He just thinks it is really hard to predict business cycles.
This is the bible of traditional classes, and so I would note that there is no discussion of so-called alternative investments (e.g., hedge fund, private equity, real estates). Also, I missed the lack of an explicit discussion of asset allocation; can we maybe get that in the next edition?
Rating: 1
Summary: Primitive and Naive Empiricism
Comment: This is the first bad review I have written in my life; it took some effort on my part to do so and I would have not done it had I not thought that the ideas in the book were dangerously misleading and merit some warning in their interpretation --particularly that I look around me and see people close to retirement having to suffer from the consequences of such toxic ideas. That stocks (in the Anglo Saxon world) HAVE YIELDED high returns does not mean much for the future.
As a skeptical empiricist I believe that it is this kind of books that helped fuel the naive bull market and the naive belief in some stock market properties (which it my or may not have). The fact that the book was written by an academic gives it a credibility it should not have.
The book follow arguments that to a middlebrow seem compelling but fraught with what I call survivorship biases.
To get the argument read Maggie Mahar's book on the boom; it shows why such ideas can be extemely destructive.
All I can say is that we have a catalogue here of the following :
1) naive empricicism
2) primitive inference/inductive fallacies
3) promulgation of dangerous ideas
Rating: 5
Summary: Long Run Indeed (pt 2)
Comment: I must say that on re-reading this book I find the data pretty convincing. Stocks do hold up fairly well against other forms of investment, and that's Siegel's message.
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Title: A Random Walk Down Wall Street, Completely Revised and Updated Edition by Burton G. Malkiel ISBN: 0393057828 Publisher: W.W. Norton & Company Pub. Date: April, 2003 List Price(USD): $29.95 |
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Title: A Random Walk Down Wall Street Seventh Edition by Burton Gordon Malkiel ISBN: 0393320405 Publisher: W.W. Norton & Company Pub. Date: June, 2000 List Price(USD): $17.95 |
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Title: Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor by John C. Bogle ISBN: 0471392286 Publisher: John Wiley & Sons Pub. Date: 06 October, 2000 List Price(USD): $19.95 |
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Title: The Intelligent Investor: The Definitive Book On Value Investing, Revised Edition by Benjamin Graham, Jason Zweig ISBN: 0060555661 Publisher: HarperBusiness Pub. Date: 08 July, 2003 List Price(USD): $19.95 |
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Title: Winning the Loser's Game by Charles D. Ellis, John J. Brennan ISBN: 0071387676 Publisher: McGraw-Hill Trade Pub. Date: 14 March, 2002 List Price(USD): $24.95 |
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