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1. Comment by:
   Great Faulkner's Ghost
   

   In the previous editions of Stocks for the Long Run, Wharton Finance professor Jeremy Siegel offered a thoroughly bullish take on the merits of equity investing that has proved highly influential and largely correct through the end of the post-Millennial Bull Market in mid-2007. In the latest edition of this classic, released in a much more difficult period of substantial market declines, Siegel has added important and more nuanced insights derived from his previous and somewhat overlooked book “The Future for Investors,” which came out in 2006. 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.

   In addition to emphasizing the importance of the contribution of stock dividends to equity portfolio performance, this book also grapples with a perplexing challenge to Siegel’s original stocks for the long run mantra, the much vexed question of what will happen if and when the populous Baby Boom generation attempts to cash in its stock and bond retirement portfolios by selling them to the smaller demographic of Gen X and Gen Y. An entire school of catastrophe futurologists, most notably Harry Dent, but also more mainstream voices like Peter G. Peterson (The Grey Wave) have warned that this so-called Age Wave is about to wreak havoc with stock market investments. In this book, Siegel does not dismiss this issue, but deals with it in a logical and generally less alarmist point of view. At the risk of oversimplifying a complex analysis, Siegel’s bottom line is that while it is true that there are not enough younger generation Americans to absorb the Boomers stock and bond assets at current prices, investors in emerging countries, like China and India, will more than make up for that and will end up buying the Baby Boomer’s paper assets as the Boomers sell them off to fund their retirements. The upshot is that foreigners will end up owning a lot of our companies by the year 2050. A potential snag, says Siegel, is whether America will be willing to let this happen, or will pass laws or adopt polices to discourage the transfer of US assets to foreign countries. This remains to be seen, but he is optimistic. On the other hand, the implications for the typical Baby Boomer’s most important asset, his or her house, is rather dire, because homes can’t be sold as readily to foreigners, for obvious reasons. Siegel doesn’t provide an answer for the housing market, which is outside the scope of a book on stock investing in any event. Overall, this remains one of the best written and most sensible investment books available today, now offering a more nuanced and even more helpful sets of advice than the previous editions. With new information and analysis, this is well worth owning, even if you have a previous edition.
   Rating: 5 / 5

2. Comment by:
   Nikolai N Bezroukov
   

   True believers in the gospel of “Stocks for the Long Run” beware:

   1. CDs beat Stocks from 1994 to 2009

   2. Bonds outperformed stocks from 1968 to 2009. As of June 30, U.S. stocks have underperformed long-term Treasury bonds for the past five, 10, 15, 20 and 25 years.

   3. A 401K investor who from 1996 used cost averaging and invested all money in S&P500 lost approximately 45% in comparison with 401K investor who used stable value fund for the same period (I used Vanguard stable value fund data as a base).

   4. Prof. Siegel extended history of U.S. stock returns is statistically incorrect and smells fudging: he overstated the return from 1802 till 1990 by a wide margin. As WSJ noted “Prof. Siegel calculated in his 1992 article that $1 invested in stocks in 1802 would have grown, after inflation, to $86,100 by 1990. In his book just two years later, however, he estimated that $1 in 1802 would have mushroomed into $260,000 by 1992″. See “Does Stock-Market Data Really Go Back 200 Years?” by By JASON ZWEIG.

   5. The 1802-to-1870 stock indexes are rotten with methodological flaws. So it is silly to base our long-term investment decisions on statistical hallucinations of a Wharton professor.

   Rating: 3 / 5

3. Comment by:
   WalpoleBassMan
   

   This is the book to read after studying the general investing books that cover all asset classes.
   
   it’s comprehensive in that it includes discussion of indexes, markets, risk, historical returns, equity investment vehicles, etc.
   
   Also includes newer topics such as Behavioral Psychology.
   
   At 400 pages it’s at the right level of detail for do-it-yourself investor who doesn’t want to get bogged in analysis of efficient frontiers or CAPM.
   
   Unfortunately it was published just before our current crisis so we will have to wait until the next edition to get the author’s thoughts on conditions we are experiencing now.
   
   Rating: 5 / 5

4. Comment by:
   Professor
   

   This book has been derided by some using short-term market data, but the first chapter contains LONG-TERM data covering 200 years that are easily worth more than the purchase price of the book. One table includes inflation-adjusted returns of most major asset classes spanning the entire time period to give a comprehensive overview of performance without the clouding of recent data that is so common. Never forget to make long-term investing decisions with long-term data! If we get that one thing correct, we will avoid most of the worst investing mistakes.
   Rating: 5 / 5

5. Comment by:
   Nat Hunt
   

   Stocks for the Long Run has a reputation for being the essential introduction to learning about investing in stocks. I can’t disagree — at all. It covers all the ground, and with this 4th edition it brings in a lot of relevant information about ETF’s, foreign markets (China, etc.), and other more recent “players” in the stock market.

   Of course, this edition was put out before the amazing collapse of 2008, so it will be interesting to see how Siegel covers that disaster in the 5th edition. But until then, this book will still give you the best overview (that I’m aware of) of the stock market here in the U.S. since its inception 200 or so years ago.

   The real genius of this book, other than its introductory/educational value (which is great), is to show beyond a shadow of a doubt that stocks have returned waaaaaaaaaaaaaay more money than any other investment vehicle over history. It’s not even close: everything else (bonds, gold, notes) is piddlier than piddly in comparison to stocks. There is a graph right in the front of the book which makes this real clear, and that graph alone (if you couldn’t get it online) is worth the price of this book.
   
   Rating: 5 / 5

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