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Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies, 5th Edition

Book Description


Much has changed since the last edition of Stocks for the Long Run. The financial crisis, the deepest bear market since the Great Depression, and the continued growth of the emerging markets are just some of the contingencies directly affecting every portfolio in the world.

To help you navigate markets and make the best investment decisions, Jeremy Siegel has updated his bestselling guide to stock market investing.

This new edition of Stocks for the Long Run answers all the important questions of today: How did the crisis alter the fi nancial markets and the future of stock returns? What are the sources of long-term economic growth? How does the Fed really impact investing decisions? Should you hedge against currency instability?

Stocks for the Long Run, Fifth Edition, includes brand-new coverage of:

Siegel provides an expert’s analysis of the most important factors behind the crisis; the state of current stability/instability of the financial system and where the stock market fits in; and the viability of value investing as a long-term strategy.

The economies of these nations are more than one-third larger than they were before the 2008 financial crisis; you'll get the information you need to earn long-term profits in this new environment.

Learn all there is to know about the nature, size, and role of diversifi cation in today’s global economy; Siegel extends his projections of the global economy until the end of this century.

Can stocks still provide 6 to 7 percent per year after inflation? This edition forecasts future stock returns and shows how to determine whether the market is overvalued or not.

Essential reading for every investor and advisor who wants to fully understand the forces that move today's markets, Stocks for the Long Run provides the most complete summary available of historical trends that will help you develop a sound and profitable long-term portfolio.


“Jeremy Siegel is one of the great ones.” —JIM CRAMER, CNBC’s Mad Money

“[Jeremy Siegel’s] contributions to finance and investing are of such signifi cance as to change the direction of the profession.” —THE FINANCIAL ANALYST INSTITUTE

“A simply great book.” —FORBES

“One of the top ten business books of the year.” —BUSINESSWEEK

“Should command a central place on the desk of any ‘amateur’ investor or beginning professional.” —BARRON’S

“Siegel’s case for stocks is unbridled and compelling.” —USA TODAY

“A clearly written, neatly organized, highly persuasive exposition that lifts the veil of mystery from investing.” —JOHN C. BOGLE, founder and former Chairman, The Vanguard Group

"A book that all investors—nervous Nellies in particular—should read." —

Table of Contents

  1. Cover
  2. Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
  3. Copyright Page
  4. Contents
  5. Foreword
  6. Preface
  7. Acknowledgments
    1. Chapter 1 The Case for Equity Historical Facts and Media Fiction
      1. “Everybody Ought to Be Rich"
        1. Asset Returns Since 1802
      2. Historical Perspectives on Stocks as Investments
        1. The Influence of Smith’s Work
        2. Common Stock Theory of Investment
        3. The Market Peak
        4. Irving Fisher’s “Permanently High Plateau”
      3. A Radical Shift in Sentiment
      4. The Postcrash View of Stock Returns
      5. The Great Bull Market of 1982-2000
        1. Warnings of Overvaluation
        2. The Late Stage of the Great Bull Market, 1997-2000
        3. The Top of the Market
        4. The Tech Bubble Bursts
      6. Rumblings of the Financial Crisis
        1. Beginning of the End for Lehman Brothers
    2. Chapter 2 The Great Financial Crisis of 2008 Its Origins, Impact, and Legacy
      1. The Week That Rocked World Markets
      2. Could the Great Depression Happen Again?
      3. The Cause of the Financial Crisis
        1. The Great Moderation
        2. Subprime Mortgages
        3. The Crucial Rating Mistake
        4. The Real Estate Bubble
        5. Regulatory Failure
        6. Overleverage by Financial Institutions in Risky Assets
      4. The Role of the Federal Reserve in Mitigating the Crisis
        1. The Lender of Last Resort Springs to Action
        2. Should Lehman Brothers Have Been Saved?
        3. Reflections on the Crisis
    3. Chapter 3 The Markets, the Economy, and Government Policy in the Wake of the Crisis
      1. Avoiding Deflation
      2. Reaction of the Financial Markets to the Financial Crisis
        1. Stocks
        2. Real Estate
        3. Treasury Bond Markets
        4. The LIBOR Market
        5. Commodity Markets
        6. Foreign Currency Markets
        7. Impact of the Financial Crisis on Asset Returns and Correlations
        8. Decreased Correlations
        9. Legislative Fallout from the Financial Crisis
        10. Concluding Comments
    4. Chapter 4 The Entitlement Crisis Will the Age Wave Drown the Stock Market?
      1. The Realities We Face
      2. The Age Wave
      3. Rising Life Expectancy
      4. Falling Retirement Age
      5. The Retirement Age Must Rise
      6. World Demographics and the Age Wave
      7. Fundamental Question
      8. Emerging Economies Can Fill the Gap
      9. Can Productivity Growth Keep Pace?
      10. Conclusion
    1. Chapter 5 Stock and Bond Returns Since 1802
      1. Financial Market Data from 1802 to the Present
      2. Total Asset Returns
      3. The Long-Term Performance of Bonds
      4. Gold, the Dollar, and Inflation
      5. Total Real Returns
      6. Real Returns on Fixed-Income Assets
      7. The Continuing Decline in Fixed-Income Returns
      8. The Equity Premium
      9. Worldwide Equity and Bond Returns
      10. Conclusion: Stocks for the Long Run
      11. Appendix 1: Stocks from 1802 to 1870
    2. Chapter 6 Risk, Return, and Portfolio Allocation Why Stocks Are Less Risky Than Bonds in the Long Run
      1. Measuring Risk and Return
      2. Risk and Holding Period
      3. Standard Measures of Risk
      4. Varying Correlation Between Stock and Bond Returns
      5. Efficient Frontiers
      6. Conclusion
    3. Chapter 7 Stock Indexes Proxies for the Market
      1. Market Averages
      2. The Dow Jones Averages
        1. Computation of the Dow Index
        2. Long-Term Trends in the Dow Jones Industrial Average
        3. Beware the Use of Trendlines to Predict Future Returns
      3. Value-Weighted Indexes
        1. Standard & Poor’s Index
        2. Nasdaq Index
        3. Other Stock Indexes: The Center for Research in Security Prices
      4. Return Biases in Stock Indexes
      5. Appendix: What Happened to the Original 12 Dow Industrials?
    4. Chapter 8 The S&P 500 Index More Than a Half Century of U.S. Corporate History
      1. Sector Rotation in the S&P 500 Index
      2. Top-Performing Firms
      3. How Bad News for the Firm Becomes Good News for Investors
      4. Top-Performing Survivor Firms
      5. Other Firms That Turned Golden
      6. Outperformance of Original S&P 500 Firms
      7. Conclusion
    5. Chapter 9 The Impact of Taxes on Stock and Bond Returns Stocks Have the Edge
      1. Historical Taxes on Income and Capital Gains
      2. Before- and After-Tax Rates of Return
      3. The Benefits of Deferring Capital Gains Taxes
      4. Inflation and the Capital Gains Tax
      5. Increasingly Favorable Tax Factors for Equities
      6. Stocks or Bonds in Tax-Deferred Accounts?
      7. Conclusion
      8. Appendix: History of the Tax Code
    6. Chapter 10 Sources of Shareholder Value Earnings and Dividends
      1. Discounted Cash Flows
      2. Sources of Shareholder Value
      3. Historical Data on Dividends and Earnings Growth
        1. The Gordon Dividend Growth Model of Stock Valuation
        2. Discount Dividends, Not Earnings
      4. Earnings Concepts
        1. Earnings Reporting Methods
        2. Operating Earnings and NIPA Profits
        3. The Quarterly Earnings Report
      5. Conclusion
    7. Chapter 11 Yardsticks to Value the Stock Market
      1. An Evil Omen Returns
      2. Historical Yardsticks for Valuing the Market
      3. Price/Earnings Ratio and the Earnings Yield
        1. The Aggregation Bias
        2. The Earnings Yield
        3. The CAPE Ratio
        4. The Fed Model, Earnings Yields, and Bond Yields
        5. Corporate Profits and GDP
        6. Book Value, Market Value, and Tobin’s Q
        7. Profit Margins
      4. Factors That May Raise Future Valuation Ratios
        1. A Fall in Transaction Costs
        2. Lower Real Returns on Fixed-Income Assets
        3. The Equity Risk Premium
      5. Conclusion
    8. Chapter 12 Outperforming the Market The Importance of Size, Dividend Yields, and Price/Earnings Ratios
      1. Stocks That Outperform the Market
        1. What Determines a Stock’s Return?
      2. Small- and Large-Cap Stocks
        1. Trends in Small-Cap Stock Returns
      3. Valuation: “Value” Stocks Offer Higher Returns Than “Growth” Stocks
      4. Dividend Yields
        1. Other Dividend-Yield Strategies
      5. Earnings Ratios
      6. Price/Book Ratios
      7. Combining Size and Valuation Criteria
      8. Initial Public Offerings: The Disappointing Overall Returns on New Small-Cap Growth Companies
      9. The Nature of Growth and Value Stocks
      10. Explanations of Size and Valuation Effects
        1. The Noisy Market Hypothesis
        2. Liquidity Investing
      11. Conclusion
    9. Chapter 13 Global Investing
      1. Foreign Investing and Economic Growth
      2. Diversification in World Markets
        1. International Stock Returns
        2. The Japanese Market Bubble
      3. Stock Risks
        1. Should You Hedge Foreign Exchange Risk?
        2. Diversification: Sector or Country?
        3. Sector Allocation Around the World
        4. Private and Public Capital
      4. Conclusion
    1. Chapter 14 Gold, Monetary Policy, and Inflation
      1. Money and Prices
      2. The Gold Standard
      3. The Establishment of the Federal Reserve
      4. The Fall of the Gold Standard
      5. Postdevaluation Monetary Policy
      6. Postgold Monetary Policy
      7. The Federal Reserve and Money Creation
      8. How the Fed’s Actions Affect Interest Rates
      9. Stock Prices and Central Bank Policy
      10. Stocks as Hedges Against Inflation
      11. Why Stocks Fail as a Short-Term Inflation Hedge
        1. Higher Interest Rates
        2. Nonneutral Inflation: Supply-Side Effects
        3. Taxes on Corporate Earnings
        4. Inflationary Biases in Interest Costs
        5. Capital Gains Taxes
      12. Conclusion
    2. Chapter 15 Stocks and the Business Cycle
      1. Who Calls the Business Cycle?
      2. Stock Returns Around Business Cycle Turning Points
      3. Gains Through Timing the Business Cycle
      4. How Hard Is It to Predict the Business Cycle?
      5. Conclusion
    3. Chapter 16 When World Events Impact Financial Markets
      1. What Moves the Market?
      2. Uncertainty and the Market
      3. Democrats and Republicans
      4. Stocks and War
        1. Markets During the World Wars
        2. Post-1945 Conflicts
      5. Conclusion
    4. Chapter 17 Stocks, Bonds, and the Flow of Economic Data
      1. Economic Data and the Market
      2. Principles of Market Reaction
      3. Information Content of Data Releases
      4. Economic Growth and Stock Prices
      5. The Employment Report
      6. The Cycle of Announcements
      7. Inflation Reports
        1. Core Inflation
        2. Employment Costs
      8. Impact on Financial Markets
      9. Central Bank Policy
      10. Conclusion
    1. Chapter 18 Exchange-Traded Funds, Stock Index Futures, and Options
      1. Exchange-Traded Funds
      2. Stock Index Futures
      3. Basics of the Futures Markets
      4. Index Arbitrage
      5. Predicting the New York Open with Globex Trading
      6. Double and Triple Witching
      7. Margin and Leverage
      8. Tax Advantages of ETFS and Futures
      9. Where to Put Your Indexed Investments: ETFS, Futures, or Index Mutual Funds?
      10. Index Options
        1. Buying Index Options
        2. Selling Index Options
      11. Importance of Indexed Products
    2. Chapter 19 Market Volatility
      1. The Stock Market Crash of October 1987
      2. The Causes of the October 1987 Crash
        1. Exchange Rate Policies
        2. The Futures Market
      3. Circuit Breakers
      4. Flash Crash—May 6, 2010
      5. The Nature of Market Volatility
      6. Historical Trends of Stock Volatility
      7. The Volatility Index
      8. The Distribution of Large Daily Changes
      9. The Economics of Market Volatility
      10. The Significance of Market Volatility
    3. Chapter 20 Technical Analysis and Investing with the Trend
      1. The Nature of Technical Analysis
      2. Charles Dow, Technical Analyst
      3. The Randomness of Stock Prices
      4. Simulations of Random Stock Prices
      5. Trending Markets and Price Reversals
      6. Moving Averages
        1. Testing the Dow Jones Moving-Average Strategy
        2. Back-Testing the 200-Day Moving Average
        3. Avoiding Major Bear Markets
        4. Distribution of Gains and Losses
      7. Momentum Investing
      8. Conclusion
    4. Chapter 21 Calendar Anomalies
      1. Seasonal Anomalies
      2. The January Effect
        1. Causes of the January Effect
        2. The January Effect Weakened in Recent Years
      3. Large Stock Monthly Returns
      4. The September Effect
      5. Other Seasonal Returns
      6. Day-of-the-Week Effects
      7. What’s an Investor to Do?
    5. Chapter 22 Behavioral Finance and the Psychology of Investing
      1. The Technology Bubble, 1999 to 2001
      2. Behavioral Finance
        1. Fads, Social Dynamics, and Stock Bubbles
        2. Excessive Trading, Overconfidence, and the Representative Bias
        3. Prospect Theory, Loss Aversion, and the Decision to Hold on to Losing Trades
        4. Rules for Avoiding Behavioral Traps
        5. Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium
        6. Contrarian Investing and Investor Sentiment: Strategies to Enhance Portfolio Returns
        7. Out-of-Favor Stocks and the Dow 10 Strategy
    1. Chapter 23 Fund Performance, Indexing, and Beating the Market
      1. The Performance of Equity Mutual Funds
      2. Finding Skilled Money Managers
        1. Persistence of Superior Returns
      3. Reasons for Underperformance of Managed Money
      4. A Little Learning Is a Dangerous Thing
      5. Profiting from Informed Trading
      6. How Costs Affect Returns
      7. The Increased Popularity of Passive Investing
      8. The Pitfalls of Capitalization-Weighted Indexing
      9. Fundamentally Weighted Versus Capitalization-Weighted Indexation
      10. The History of Fundamentally Weighted Indexation
      11. Conclusion
    2. Chapter 24 Structuring a Portfolio for Long-Term Growth
      1. Practical Aspects of Investing
      2. Guides to Successful Investing
      3. Implementing the Plan and the Role of an Investment Advisor
      4. Concluding Comment
  13. Notes
  14. Index