Taming the Beast: Wall Street's Imperfect Answers to Making Money

Summary

• Professor Jeremy Siegel’s book, Stocks for the Long Run, is hugely influential. It has helped justify U.S. investors’ preference for equities. While the 2007–2009 bear market dimmed stocks’ appeal to a degree, they remain the asset class of choice for 401(k) retirement plans and the investment community at large.
• According to Siegel’s research, since 1802, stocks have been the single best returning investment, rising around 7 percent on average after inflation—and this trend will continue into the future. While stocks may soar above it or plunge beneath it, they always are pulled back to that 7 percent level, he says. He calls this phenomenon reverting to the mean.
• Statistics show that stocks do indeed outpace other investment types, as they are linked to the U.S. economy, which over the past two centuries in Siegel’s study has grown exponentially—advancing much more than it has declined. Adjusted for inflation, Siegel finds, stocks beat bonds on an annual basis by 3.2 percentage points.
• But the horrible market results of the 21st century’s first decade has cast Siegel’s sunny thesis into question. During this so-called Lost Decade (2000–2009), stocks actually lost money, while bonds did better. Critics say that Siegel misled investors who followed his stock-centered advice, and they suffered for it. One critic, Robert Arnott, calls the “naughts” the worst decade ever for investors. Some critics, such as the Wall Street Journal’s Jason Zweig, question Siegel’s data from the ...