Stocks For The Long Run

. . . . . . Second Edition

Stocks For The Long Run

The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies

Jeremy J. Siegel Professor of Finance-- the Wharton School of the University of Pennsylvania

Mc Gr aw-Hill New York San Francisco W ashing ton,

D.C. Auckland Bog ot? Caracas Lisbon London Madrid Mexico City Milan

Montreal New Delhi San Juan Sing apore Sydney Tokyo Toronto

I

.

.

.

Library of Congress Cataloging-in-Publication Data

Author: Siegel, Jeremy J. Title: Stocks for the long run/Jeremy J. Siegel. Edition: 2nd ed. Published: New York: McGraw-Hill, 1998. Description: p. cm LC Call No.: HG4661 .S53 1998 ISBN: 007058043X Notes: Includes index. Subjects: Stocks.

Stocks--History. Rate of return. Control No.: 98005103

Copyright ? 1998, 1994 by Jeremy J. Siegel. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher.

7 8 9 0 DOC/DOC 9 0 3 2 1 0 9

ISBN 0-07-058043-X (HC)

The sponsoring editor for this book was Jeffrey Krames, the editing supervisor was Kellie Hagen, and the production supervisor was Suzanne W. B. Rapcavage. It was set in Palatino by Jan Fisher through the services of Barry E. Brown (Broker--Editing, Design and Production).

Printed and bound by R. R. Donnelley & Sons Company.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. --From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.

McGraw-Hill books are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. For more information, please write to the Director of Special Sales, McGraw-Hill, 11 West 19th Street, New York, NY 10011. Or contact your local bookstore.

II

CONTENTS

Acknowledgments

xi

Foreword

xiii

Preface

xvi

Part 1 The Verdict of History

Chapter 1

3

Stock and Bond Returns Since 1802

"Everybody Ought to be Rich"

3

Financial Market Returns from 1802

5

Historical Series on Bonds

7

The Price Level and Gold

9

Total Real Returns

10

Interpretation of Returns

12

Long Period Returns

12

Short Period Returns

13

Real Returns on Fixed-Income Assets

14

Explanations for the Fall in Fixed-Income Returns

15

Equity Premium

16

International Returns

18

Germany

19

United Kingdom

20

Japan

20

Foreign Bonds

21

Conclusion

22

Appendix 1: Stocks from 1802 to 1871

22

III

Appendix 2: Arithmetic and Geometric Returns

23

Chapter 2

25

Risk, Return and the Coming Age Wave

Measuring Risk and Return

25

Risk and Holding Period

26

IV

Investor Holding Periods

28

Investor Returns from Market Peaks

29

Standard Measures of Risk

31

Correlation Between Stock and Bond Returns

33

Efficient Frontiers

35

Recommended Portfolio Allocations

36

Inflation-Indexed Bonds

38

The Coming Age Wave

38

Solution to the "Age Wave Crisis"

41

Chapter 3

Perspectives on Stocks as Investments

43

Early Views of Stock Investing

45

Influence of Smith's Work

46

Common Stock Theory of Investment

48

A Radical Shift in Sentiment

49

Post-Crash View of Stock Returns

49

Investment Philosophy and the Valuation of Equity

51

Part 2 Stock Returns

Chapter 4

Stocks, Stock Averages, and the Dow Strategy

55

Market Averages

55

The Dow-Jones

55

Computation of the Dow Index

57

Long-Term Trends in the Dow-Jones

58

Use of Trend Lines to Predict Trends

59

Value-Weighted Indexes

60

V

The Cowles Index

60

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download