Jeremy Siegel


graphics/jeremy.gif

Professor Jeremy Siegel has been a Professor of Finance at The Wharton School of the University of Pennsylvania since 1976. Professor Siegel received his Ph.D. from MIT and taught for four years at the Graduate School of Business of the University of Chicago before joining the Wharton faculty.

His book, Stocks for the Long Run , was named by Business Week as one of the top ten business books of the year in 1994. An expanded version was published in 1998 and was named one of the ten-best investment books of all time by The Washington Post .

Books

Stocks for the Long Run , McGraw-Hill, 1998

Stocks for the long run, and diversification

The rules below are reproduced with the permission of The McGraw-Hill Companies from STOCKS FOR THE LONG RUN, by Jeremy J. Siegel, copyright 1998, published by McGraw-Hill.

  1. Stocks should constitute the overwhelming proportion of all long- term financial portfolios.

    Stocks are unquestionably riskier than bonds in the short run, but for longer periods of time, their risk falls below that on bonds. For 20 year holding periods, they have never fallen behind inflation, while bonds and bills have fallen 3 percent per year behind inflation over the same time period. So although it might appear to be riskier to hold stocks than bonds , precisely the opposite is true if you take a long-term view.

  2. Investors worried about equity exposure should consider government inflation-indexed bonds as an alternative.

    Inflation-indexed bonds offer after-inflation returns that are competitive with standard bonds, and much safer in terms of purchasing power because the rate they pay is linked to inflation. Although they currently offer only half the long term yield of stocks, history suggest that over ten year periods they will outperform equities about one-quarter of the time. For investors who do not have a long-term time horizon, they are a safe alternative to stocks.

  3. Invest the largest percentage - the core holdings of your stock portfolio - in highly diversified mutual funds with very low expense ratios.

    Unless you can consistently choose stocks with superior returns, a goal very few investors have reached, your best balance of risk and reward will be achieved by investing in index funds or other highly diversified funds with very low expense ratios. Index funds do not attempt to beat the market, but by holding a large number of stocks in proportion to their market capitalization, they match the performance of the market as a whole at very low cost. From your point of view, matching the market is good enough to obtain the superior returns that have been achieved in stocks over time.

  4. Place up to one-quarter of your stocks in mid- and small-cap stock funds.

    Small stocks sometimes outperform large stocks, and sometimes underperform them. Since it is not possible to predict the times of relative performance, and since it is impractical to invest in all small caps individually, the best strategy is to invest in a small-stock index fund and leave your money there. If you ignore small caps entirely, your long-term returns are likely to be lower.

  5. Allocate about one quarter of your stock portfolio to international equities, divided equally among Europe, the Far East, and emerging markets.

    Since almost two-third's of the world's capital is now located outside the United States, international equities must be the basis of any well-diversified portfolio. Japanese stocks, despite their long bear market, should not be excluded because they have a low correlation with the rest of the world's markets, making them good portfolio diversifiers.

  6. Do not overweight the emerging markets. High growth is already factored into the prices of many of the stocks of these countries .

    There is a tendency for many investors to overinvest in emerging markets where promises of capital appreciation are high. But the markets of developing countries are extremely risky. It is important to spread your investing globally between Latin America, the Far East, and Central and Eastern Europe. As investors witnessed in 1997, problems can strike whole geographical areas quickly, such as the currency crises that began in Thailand and spread to other Asian markets. Again, diversification is the key to reducing your risk exposure.

  7. Large 'growth' stocks perform as well as large 'value' stocks over the long run.

    Tech stocks on the whole have not been good long-term performers and investors should avoid or underweight stocks with P/E ratios over 50. Historically, large growth stocks with low dividend yield and high P/E ratios, have performed just as well over the long run as large value stocks with higher dividend yields and lower P/E ratios. But when the P/E ratio becomes excessive, as it did in 2000 for tech stocks, it is mandatory to cut down on one's exposure.

  8. The 'Dow 10' strategy of buying the 10 highest-yielding Dow Industrial stocks has outperformed the market consistently over long periods of time.

    This outperformance is mostly due to the fact that all of the Dow Industrials have been superior companies in their respective industries. These stocks are very responsive to a contrarian strategy that accumulates the stocks when they have fallen over a period of several years. A high dividend yield by itself is not a very important criterion in performance.

  9. Small value stocks appear to significantly outperform small growth stocks.

    In contrast to the big capitalization stocks, value does appear to outperform growth among the mid- and small-cap stocks. The very small growth stocks do worst of any class of stocks examined. Dreams of buying another Microsoft or Intel often compel investors to overpay for these stocks.

  10. Avoid initial public offerings (IPOs) unless you buy at the offering price.

    If you can buy new issues at their offering price, it is usually wise to do so. But don't hold on. IPOs, which often include small growth stocks, are extremely poor performers for long-term investors.

www.jeremysiegel.com

'Making an investment in a supposed beneficiary of a government decision is highly dangerous, because helping private sector companies make money is bottom of any government's list of priorities, while getting them to spend money on the government's behalf for no return is pretty high up.'

”Max King



Global-Investor Book of Investing Rules(c) Invaluable Advice from 150 Master Investors
The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors
ISBN: 0130094013
EAN: 2147483647
Year: 2005
Pages: 164

flylib.com © 2008-2017.
If you may any questions please contact us: flylib@qtcs.net