Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies

by Siegel, Jeremy J.

• ISBN13: 9780070580435
• ISBN10: 007058043X
• Edition: 2nd
• Format: Hardcover
• Copyright: 1998-01-01
• Publisher: MCGRAW HILL BOOK COMPANY

Summary

This book combines a compelling and timely portrait of today's turbulent stock market with the strategies, tools, and techniques investors need to maintain their focus and achieve meaningful stock returns over time.

Table of Contents

Acknowledgments	xi	(2)
Foreword	xiii	(3)
Preface	xvi
PART 1 THE VERDICT OF HISTORY	3	(52)
Chapter 1 Stock and Bond Returns Since 1802	3	(22)
"Everybody Ought to be Rich"	3	(2)
Financial Market Returns from 1802	5	(2)
Historical Series on Bonds	7	(2)
The Price Level and Gold	9	(1)
Total Real Returns	10	(2)
Interpretation of Returns	12	(2)
Long Period Returns	12	(1)
Short Period Returns	13	(1)
Real Returns on Fixed-Income Assets	14	(1)
Explanations for the Fall in Fixed-Income Returns	15	(1)
Equity Premium	16	(2)
International Returns	18	(4)
Germany	19	(1)
United Kingdom	20	(1)
Japan	20	(1)
Foreign Bonds	21	(1)
Conclusion	22	(1)
Appendix 1: Stocks from 1802 to 1871	22	(1)
Appendix 2: Arithmetic and Geometric Returns	23	(2)
Chapter 2 Risk, Return and the Coming Age Wave	25	(18)
Measuring Risk and Return	25	(1)
Risk and Holding Period	26	(2)
Investor Holding Periods	28	(1)
Investor Returns from Market Peaks	29	(2)
Standard Measures of Risk	31	(2)
Correlation Between Stock and Bond Returns	33	(2)
Efficient Frontiers	35	(1)
Recommended Portfolio Allocations	36	(2)
Inflation-Indexed Bonds	38	(1)
The Coming Age Wave	38	(3)
Solution to the "Age Wave Crisis"	41	(2)
Chapter 3 Perspectives on Stocks as Investments	43	(12)
Early Views of Stock Investing	45	(1)
Influence of Smith's Work	46	(2)
Common Stock Theory of Investment	48	(1)
A Radical Shift in Sentiment	49	(1)
Post-Crash View of Stock Returns	49	(2)
Investment Philosophy and the Valuation of Equity	51	(4)
PART 2 STOCK RETURNS	55	(88)
Chapter 4 Stocks, Stock Averages, and the Dow Strategy	55	(16)
Market Averages	55	(5)
The Dow-Jones	55	(2)
Computation of the Dow Index	57	(1)
Long-Term Trends in the Dow-Jones	58	(1)
Use of Trend Lines to Predict Trends	59	(1)
Value-Weighted Indexes	60	(5)
The Cowles Index	60	(1)
Standard & Poor's Index	60	(1)
Indexes of Large and Small U.S. Stocks	61	(1)
Market Capitalization of Individual Stocks	62	(1)
Return Biases in Stock Indexes	63	(2)
Dow 10 Strategy	65	(4)
How to Play the Dow 10 Strategy	68	(1)
Appendix A: What Happened to the Original 12 Dow Industrials?	69	(2)
Chapter 5 Dividends, Earnings, and Investor Sentiment	71	(20)
An Evil Omen Returns	71	(10)
Valuation of Cash Flows from Stocks	73	(1)
Short and Long-Term Returns from Stocks	74	(2)
Sources of Shareholder Value	76	(2)
Does the Value of Stocks Depend on Dividends or Earnings?	78	(1)
Total Returns to Stocks	79	(1)
Economic Growth, Earnings Growth, and P-E Ratios	80	(1)
Historical Yardsticks for Valuing the Market	81	(5)
Price-Earnings Ratios and the Rule of 19	81	(1)
Book Value, Market Value, and "Tobin's Q"	82	(3)
Corporate Profits and Market Value to GDP	85	(1)
Valuation: Fundamentals or Sentiment?	86	(5)
Contrarian Indicators	87	(2)
Current Trends and Conclusions	89	(2)
Chapter 6 Large Stocks, Small Stocks, Value Stocks, Growth Stocks	91	(14)
Outperforming the Market	91	(5)
Risks and Returns in Small Stocks	92	(2)
Trends in Small Stock Returns	94	(2)
Value Criteria	96	(7)
Price-Earnings Ratios	96	(1)
Price-to-Book Ratios	97	(1)
Value and Growth Stocks	98	(2)
Dividend Yields	100	(1)
Distressed Firms	101	(1)
Initial Public Offerings	102	(1)
Are Small Stocks Growth Stocks?	103	(1)
Investment Strategy	103	(2)
Chapter 7 The Nifty Fifty Revisited	105	(10)
The Nifty Fifty	106	(1)
Returns of the Nifty Fifty	106	(4)
Evaluation of Data	108	(2)
What is the Right P/E Ratio to Pay for a Growth Stock?	110	(2)
Earnings Growth and Valuation	111	(1)
Conclusion	112	(1)
Appendix: Corporate Changes in the Nifty Fifty Stocks	113	(2)
Chapter 8 Taxes and Stock Returns	115	(9)
Historical Taxes on Income and Capital Gains	115	(2)
A Total After-Tax Returns Index	117	(2)
The Benefits of Deferring Capital Gains Taxes	119	(3)
Stocks or Bonds in Tax-Deferred Accounts?	121	(1)
Summary	122	(1)
Appendix: History of the Tax Code	122	(2)
Chapter 9 Global Investing	124	(19)
Foreign Stock Returns	124	(2)
Summary Data on Global Markets	126	(3)
Economic Growth and Stock Returns	129	(2)
Sources of Dollar Risk in International Stocks	131	(1)
Exchange-Rate Risk	131	(1)
Diversification to Foreign Stocks	132	(3)
Optimal Allocation for Foreign Equities	132	(2)
Cross-Country Correlations of Stock Returns	134	(1)
Hedging Foreign Exchange Risks	135	(1)
Stocks and the Breakdown of the European Exchange-Rate Mechanism	136	(3)
Summary	139	(4)
PART 3 ECONOMIC ENVIRONMENT OF INVESTING	143	(64)
Chapter 10 Money, Gold, and Central Banks	143	(14)
Money and Prices	144	(1)
The Gold Standard	145	(2)
The Establishment of the Federal Reserve	147	(1)
Fall of the Gold Standard	148	(3)
Postdevaluation Policy	148	(2)
Postgold Monetary Policy	150	(1)
The Federal Reserve and Money Creation	151	(4)
How the Fed Affects Interest Rates	151	(1)
Who Makes the Decisions about Monetary Creation and Interest Rates?	152	(1)
Fed Policy Actions and Interest Rates	153	(2)
Conclusion	155	(2)
Chapter 11 Inflation and Stocks	157	(11)
Stocks as Inflationary Hedges	158	(1)
Why Stocks Fail as a Short-Term Inflation Hedge	159	(3)
Higher Interest Rates	159	(2)
Supply-Induced Inflation	161	(1)
Fed Policy, the Business Cycle, and Government Spending	162	(1)
Inflation and the U.S. Tax Code	162	(1)
Inflationary Distortions to Corporate Earnings	163	(4)
Inflation Biases in Interest Costs	164	(1)
Inflation and the Capital Gains Tax	164	(3)
Conclusion	167	(1)
Chapter 12 Stocks and the Business Cycle	168	(13)
Who Calls the Business Cycle?	169	(3)
Stock Returns Around Business-Cycle Turning Points	172	(3)
Gains Through Timing the Business Cycle	175	(1)
How Hard is it to Predict the Business Cycle?	176	(3)
Concluding Comments	179	(2)
Chapter 13 World Events Which Impact Financial Markets	181	(12)
What Moves the Market?	182	(2)
Uncertainty and the Market	184	(1)
Democrats and Republicans	185	(3)
Stocks and War	188	(4)
The World Wars	190	(1)
Post-1945 Conflicts	191	(1)
Summary	192	(1)
Chapter 14 Stocks, Bonds and the Flow of Economic Data	193	(14)
Principles of Market Reaction	195	(1)
Information Content of Data Releases	196	(1)
Economic Growth and Stock Prices	197	(1)
The Employment Report	197	(2)
The Cycle of Announcements	199	(3)
Inflation Reports	200	(1)
Core Inflation	201	(1)
Employment Costs	202	(1)
Impact on Financial Markets	202	(1)
Fed Policy	202	(1)
Summary	203	(4)
PART 4 STOCK FLUCTUATIONS IN THE SHORT RUN	207	(64)
Chapter 15 Stock Index Futures, Options and Spiders	207	(17)
Stock Index Futures	207	(2)
The Impact of Index Futures	209	(1)
Basics of Futures Markets	210	(3)
Index Arbitrage	213	(2)
Predicting the New York Open with Globex Trading	215	(1)
Double and Triple Witching	216	(1)
Margin and Leverage	216	(1)
Advantage to Trading Futures	217	(1)
Spiders	218	(1)
Using Spiders or Futures	218	(1)
Index Options	219	(2)
Buying Index Options	221	(1)
Selling Index Options	222	(1)
Long-Term Trends and Stock Index Futures	223	(1)
Chapter 16 Market Volatility and the Stock Crash of October 1987	224	(16)
The Stock Crash of October 1987	226	(2)
Causes of the Stock Crash	228	(4)
Exchange Rate Policies	228	(1)
The Stock Crash and the Futures Market	229	(2)
Circuit Breakers	231	(1)
The Nature of Market Volatility	232	(1)
Historical Trends of Stock Volatility	232	(3)
Distribution of Large Daily Changes	235	(2)
The Economics of Market Volatility	237	(2)
Epilogue to the Crash	239	(1)
Chapter 17 Technical Analysis and Investing with the Trend	240	(13)
The Nature of Technical Analysis	240	(1)
Charles Dow, Technical Analyst	241	(1)
Randomness of Stock Prices	241	(2)
Simulations of Random Stock Prices	243	(1)
Trending Markets and Price Reversals	243	(2)
Moving Averages	245	(6)
Testing the Moving Average Strategy	246	(1)
Backtesting the 200-day Moving Average	247	(4)
Conclusion	251	(2)
Chapter 18 Calendar Anomalies	253	(18)
The January Effect	254	(6)
Causes of the January Effect	256	(2)
The January Effect in Value Stocks	258	(2)
Monthly Returns	260	(3)
The September Effect	262	(1)
Intramonth Returns	263	(1)
Day-of-the-Week Effects	264	(2)
What's an Investor To Do?	266	(5)
PART 5 BUILDING WEALTH THROUGH STOCKS	271	(20)
Chapter 19 Funds, Managers, and "Beating the Market"	271	(11)
Performance of Equity Mutual Funds	272	(5)
Finding Skilled Money Managers	277	(1)
Reasons for Underperformance of Managed Money	278	(1)
A Little Learning is a Dangerous Thing	279	(1)
Profiting from Informed Trading	279	(1)
How Costs Affect Returns	280	(1)
What's an Investor to Do?	280	(2)
Chapter 20 Structuring a Portfolio for Long-Term Growth	282	(9)
Practical Aspects of Investing	283	(7)
Return-Enhancing Strategies	287	(2)
Implementing the Plan and the Role of an Investment Advisor	289	(1)
Conclusion	290	(1)
Index	291