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

by Siegel, Jeremy J.

• ISBN13: 9781556238048
• ISBN10: 1556238045
• Edition: 1st
• Format: Hardcover
• Copyright: 1994-01-01
• Publisher: IRWIN PROFESSIONAL PUBL

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

Foreword	p. xv
Preface	p. xix
Acknowledgments	p. xxiii
The Verdict of History
Stock and Bond Returns Since 1802	p. 3
"Everybody Ought to Be Rich"	p. 3
Financial Market Returns from 1802	p. 5
Historical Series on Bonds	p. 7
The Price Level and Gold	p. 9
Total Real Returns	p. 11
Interpretation of Returns	p. 12
Real Returns on Fixed-Income Assets	p. 14
The Fall in Fixed-Income Returns	p. 15
Equity Premium	p. 16
International Returns	p. 18
Conclusion	p. 22
Stocks from 1802 to 1871	p. 23
Arithmetic and Geometric Returns	p. 24
Risk, Return, and Portfolio Allocation	p. 25
Measuring Risk and Return	p. 25
Risk and Holding Period	p. 26
Investor Holding Periods	p. 29
Investor Returns from Market Peaks	p. 30
Standard Measures of Risk	p. 32
Correlation between Stock and Bond Returns	p. 34
Efficient Frontiers	p. 36
Recommended Portfolio Allocations	p. 37
Inflation-Indexed Bonds	p. 39
Conclusion	p. 41
Stock Indexes	p. 43
Market Averages	p. 43
The Dow Jones Averages	p. 44
Computation of the Dow Index	p. 45
Value-Weighted Indexes	p. 48
Worldwide Rank of Individual Firms	p. 52
Transformation of S&P 500 Index	p. 52
Return Biases in Stock Indexes	p. 54
What Happened to the Original 12 Dow Jones Industrials?	p. 55
The Impact of Taxes on Asset Returns	p. 57
Historical Taxes on Income and Capital Gains	p. 58
A Total After-Tax Returns Index	p. 58
The Benefits of Deferring Capital Gains Taxes	p. 61
Inflation and the Capital Gains Tax	p. 62
Increasingly Favorable Tax Factors for Equities	p. 64
Stocks or Bonds in Tax-Deferred Accounts?	p. 66
Conclusion	p. 67
History of the Tax Code	p. 68
Perspectives on Stocks as Investments	p. 71
Early Views of Stock Investing	p. 73
Influence of Smith's Work	p. 74
Common Stock Theory of Investment	p. 76
A Radical Shift in Sentiment	p. 76
Postcrash View of Stock Returns	p. 77
The Cult of Equities	p. 79
The Technology Boom	p. 82
Legacy of the Bull Market	p. 83
Valuation, Future Stock Returns, and Style Investing
Sources and Measures of Stock Market Value	p. 87
An Evil Omen Returns	p. 87
Valuation of Cash Flows from Stocks	p. 89
Sources of Shareholder Value	p. 90
Does the Value of Stocks Depend on Dividends or Earnings?	p. 92
Long-Term Earnings Growth and Economic Growth	p. 93
Historical Yardsticks for Valuing the Market	p. 95
Earnings Definitions and Controversy	p. 98
Book Value, Market Value, and Tobin's Q	p. 100
Market Value Relative to GDP	p. 103
The Fed Model of Market Valuation	p. 104
What Do These Valuation Measures Show?	p. 107
The Great Bull Market, the New Economy, the Age Wave, and Future Stock Returns	p. 111
The New Economy and Earnings Growth	p. 112
Corporate Profits and National Income	p. 112
Profits in the New Economy	p. 115
Factors Raising the Valuation Ratios	p. 115
The Equity Premium	p. 121
Future Equity Returns	p. 122
Terrorism	p. 124
The Age Wave	p. 125
Solutions to the Age Wave Crisis	p. 128
Conclusion	p. 129
Large Stocks, Small Stocks, Value Stocks, Growth Stocks	p. 131
Outperforming the Market	p. 131
Risks and Returns in Small Stocks	p. 132
Trends in Small Stock Returns	p. 133
Value-Based Criteria	p. 136
Value and Growth Stocks	p. 137
Nature of Growth and Value Stocks	p. 141
Dividend Yields	p. 141
Distressed Firms	p. 142
Initial Public Offerings	p. 143
Investment Strategy	p. 144
Valuation of Growth and Technology Stocks	p. 147
The Nifty Fifty of the 1970s	p. 150
Evaluation of Data	p. 153
What Was the Right P-E Ratio to Pay for the Nifty Fifty?	p. 153
Earnings Growth and Valuation	p. 154
Returns of High and Low P-E Nifty Fifty Stocks	p. 155
Justified P-E Ratios for Individual Stocks	p. 156
Conclusion	p. 160
Corporate Changes in the Nifty Fifty Stocks	p. 161
Global Investing	p. 163
Cycles in Foreign Markets	p. 164
Diversification in World Markets	p. 168
Hedging Foreign Exchange Risks	p. 174
Hedging in the Short Run	p. 175
The Emerging Market Crisis of 1998	p. 176
Aftermath of Crisis	p. 178
Conclusion	p. 179
Economic Environment of Investing
Gold, the Federal Reserve, and Inflation	p. 183
Money and Prices	p. 184
The Gold Standard	p. 186
Establishment of the Federal Reserve	p. 187
Fall of the Gold Standard	p. 187
Postdevaluation Policy	p. 188
Postgold Monetary Policy	p. 190
The Federal Reserve and Money Creation	p. 191
How the Fed Affects Interest Rates	p. 191
Fed Policy Actions and Interest Rates	p. 192
Stocks as Inflationary Hedges	p. 194
Why Stocks Fail as a Short-Term Inflation Hedge	p. 195
Fed Policy, the Business Cycle, and Government Spending	p. 198
Inflation and the U.S. Tax Code	p. 198
Conclusion	p. 201
Stocks and the Business Cycle	p. 203
Who Calls the Business Cycle?	p. 204
Stock Returns around Business Cycle Turning Points	p. 207
Gains through Timing the Business Cycle	p. 210
How Hard Is It to Predict the Business Cycle?	p. 211
Conclusion	p. 214
World Events That Impact Financial Markets	p. 215
September 11, 2001	p. 215
What Moves the Market?	p. 217
Uncertainty and the Market	p. 220
Democrats and Republicans	p. 221
Stocks and War	p. 224
Conclusion	p. 228
Reactions of Financial Markets to Economic Data	p. 229
Economic Data and the Market	p. 231
Principles of Market Reaction	p. 231
Information Content of Data Releases	p. 232
Economic Growth and Stock Prices	p. 233
The Employment Report	p. 234
The Cycle of Announcements	p. 235
Inflation Reports	p. 237
Impact on Financial Markets	p. 238
Central Bank Policy	p. 239
Conclusion	p. 239
Stock Fluctuations in the Short Run
Spiders, Cubes, Futures, and Options	p. 243
Exchange-Traded Funds	p. 244
Stock Index Futures	p. 245
The Impact of Index Futures	p. 247
Basics of Futures Markets	p. 248
Index Arbitrage	p. 251
Predicting the New York Open with Globex Trading	p. 253
Double and Triple Witching	p. 254
Margin and Leverage	p. 255
Using ETFs or Futures	p. 256
Comparing ETFs, Futures, and Index Mutual Funds	p. 256
Index Options	p. 258
Buying Index Options	p. 260
Selling Index Options	p. 261
Long-Term Trends and Stock Index Futures	p. 261
Market Volatility	p. 263
The Stock Market Crash of October 1987	p. 265
Causes of the Stock Market Crash	p. 267
Exchange-Rate Policies	p. 267
The Stock Market Crash and the Futures Market	p. 269
Circuit Breakers	p. 270
The Nature of Market Volatility	p. 271
Historical Trends of Stock Volatility	p. 272
VIX: The Volatility Index	p. 275
Distribution of Large Daily Changes	p. 277
The Economics of Market Volatility	p. 279
Epilogue to the Crash	p. 280
Technical Analysis and Investing with the Trend	p. 283
The Nature of Technical Analysis	p. 283
Charles Dow, Technical Analyst	p. 284
Randomness of Stock Prices	p. 285
Simulations of Random Stock Prices	p. 286
Trending Markets and Price Reversals	p. 288
Moving Averages	p. 289
Testing the Dow Jones Moving-Average Strategy	p. 290
The Nasdaq Moving-Average Strategy	p. 294
Distribution of Gains and Losses	p. 295
Conclusion	p. 295
Calendar Anomalies	p. 299
The January Effect	p. 300
Causes of the January Effect	p. 303
The January Effect in Value Stocks	p. 305
Monthly Returns	p. 306
The September Effect	p. 308
Intramonth Returns	p. 310
Day-of-the-Week Effects	p. 311
What's an Investor to Do?	p. 313
Behavioral Finance and the Psychology of Investing	p. 315
Technology Boom, 1999-2001	p. 316
Behavioral Finance	p. 318
Building Wealth Through Stocks
Fund Performance, Indexing, and Beating the Market	p. 341
Performance of Equity Mutual Funds	p. 342
Finding Skilled Money Managers	p. 347
Reasons for Underperformance of Managed Money	p. 349
A Little Learning Is a Dangerous Thing	p. 349
Profiting from Informed Trading	p. 350
How Costs Affect Returns	p. 350
Development of Indexing and Passive Investing	p. 351
Potential Pitfalls of Indexing	p. 352
Effect of Overpricing on Returns	p. 353
Effects of Overpricing on Portfolio Allocation	p. 355
Conclusion	p. 357
Structuring a Portfolio for Long-Term Growth	p. 359
Principles of Long-Term Investing	p. 360
Return-Enhancing Strategies	p. 366
Implement the Plan and the Role of an Investment Advisor	p. 368
Conclusion	p. 370
Index	p. 371
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