Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies,9780071370486

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

by
Edition: 3rd
ISBN13: 9780071370486
ISBN10: 007137048X
Format: Hardcover
Pub. Date: 2002-06-21
Publisher(s): McGraw-Hill
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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.

Author Biography

Jeremy J. Siegel, Ph.D., is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. An advisor to the Federal Reserve, Siegel is an acclaimed consultant and lecturer for financial firms and money managers around the globe and is a frequent guest on CNBC, CNN, PBS, "Wall Street Week," and NPR.

Table of Contents

Foreword xv
Preface xix
Acknowledgments xxiii
PART 1 THE VERDICT OF HISTORY
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(2)
Total Real Returns
11(1)
Interpretation of Returns
12(2)
Long-Period Returns
12(2)
Short-Period Returns
14(1)
Real Returns on Fixed-Income Assets
14(1)
The Fall in Fixed-Income Returns
15(1)
Equity Premium
16(2)
International Returns
18(4)
Germany
20(1)
United Kingdom
20(1)
Japan
21(1)
Foreign Bonds
21(1)
Conclusion
22(1)
Appendix 1: Stocks from 1802 to 1871
23(1)
Appendix 2: Arithmetic and Geometric Returns
24(1)
Risk, Return, and Portfolio Allocation
25(18)
Measuring Risk and Return
25(1)
Risk and Holding Period
26(3)
Investor Holding Periods
29(1)
Investor Returns from Market Peaks
30(2)
Standard Measures of Risk
32(2)
Correlation Between Stock and Bond Returns
34(2)
Efficient Frontiers
36(1)
Recommended Portfolio Allocations
37(2)
Inflation-Indexed Bonds
39(2)
Conclusion
41(2)
Stock Indexes
43(14)
Market Averages
43(1)
The Dow Jones Averages
44(1)
Computation of the Dow Index
45(3)
Long-Term Trends in the Dow
46(2)
Use of Trend Lines to Predict Future Returns
48(1)
Value-Weighted Indexes
48(4)
Nasdaq Index
49(2)
Wilshire 5000 and Russell Indexes
51(1)
Worldwide Rank of Individual Firms
52(1)
Transformation of S&P 500 Index
52(2)
Return Biases in Stock Indexes
54(1)
Appendix: What Happened to the Original 12 Dow Jones Industrials?
55(2)
The Impact of Taxes on Asset Returns
57(14)
Historical Taxes on Income and Capital Gains
58(1)
A Total After-Tax Returns Index
58(3)
The Benefits of Deferring Capital Gains Taxes
61(1)
Inflation and the Capital Gains Tax
62(2)
Increasingly Favorable Tax Factors for Equities
64(2)
Stocks or Bonds in Tax-Deferred Accounts?
66(1)
Conclusion
67(1)
Appendix: History of the Tax Code
68(3)
Perspectives on Stocks as Investments
71(16)
Early Views of Stock Investing
73(1)
Influence of Smith's Work
74(2)
Common Stock Theory of Investment
76(1)
A Radical Shift in Sentiment
76(1)
Postcrash View of Stock Returns
77(2)
The Cult of Equities
79(3)
The Technology Boom
82(1)
Legacy of the Bull Market
83(4)
PART 2 VALUATION, FUTURE STOCK RETURNS, AND STYLE INVESTING
Sources and Measures of Stock Market Value
87(24)
An Evil Omen Returns
87(2)
Valuation of Cash Flows From Stocks
89(1)
Sources of Shareholder Value
90(2)
Does the Value of Stocks Depend on Dividends or Earnings?
92(1)
Long-Term Earnings Growth and Economic Growth
93(2)
Historical Yardsticks for Valuing the Market
95(3)
The Price-to-Earnings Ratio
95(2)
The P-E Ratio and Future Stock Returns
97(1)
Earnings Definitions and Controversy
98(2)
Reported and Operating Earnings
98(1)
Aggregate Earnings Estimates
99(1)
Earnings Quality and Returns
100(1)
Book Value, Market Value, and Tobin's Q
100(3)
Market Value Relative to GDP
103(1)
The Fed Model of Market Valuation
104(3)
What Do These Valuation Measures Show?
107(4)
The Great Bull Market, the New Economy, the Age Wave, and Future Stock Returns
111(20)
The New Economy and Earnings Growth
112(1)
Corporate Profits and National Income
112(3)
Profits in the New Economy
115(1)
Factors Raising the Valuation Ratios
115(6)
More Stable Economy
116(1)
Transactions Costs
117(1)
Taxes
118(1)
New Justified P-E Ratios
119(2)
The Equity Premium
121(1)
Future Equity Returns
122(2)
Terrorism
124(1)
The Age Wave
125(3)
Solutions to the Age Wave Crisis
128(1)
Conclusion
129(2)
Large Stocks, Small Stocks, Value Stocks, Growth Stocks
131(16)
Outperforming the Market
131(1)
Risks and Returns in Small Stocks
132(1)
Trends in Small Stock-Returns
133(3)
Value-Based Criteria
136(1)
Price-to-Earnings (P-E) Ratios
136(1)
Price-to-Book Ratios
136(1)
Value and Growth Stocks
137(4)
Nature of Growth and Value Stocks
141(1)
Dividend Yields
141(1)
Distressed Firms
142(1)
Initial Public Offerings
143(1)
Investment Strategy
144(3)
Valuation of Growth and Technology Stocks
147(16)
The Nifty Fifty of the 1970s
150(3)
Evaluation of Data
153(1)
What Was the Right P-E Ratio to Pay for the Nifty Fifty?
153(1)
Earnings Growth and Valuation
154(1)
Returns of High and Low P-E Nifty Fifty Stocks
155(1)
Justified P-E Ratios for Individual Stocks
156(4)
Conclusion
160(1)
Appendix: Corporate Changes in the Nifty Fifty Stocks
161(2)
Global Investing
163(20)
Cycles in Foreign Markets
164(4)
Diversification in World Markets
168(6)
Principles of Diversification
168(1)
Efficient Portfolios
168(1)
Increase in Correlation between World Returns
169(4)
Sector Diversification
173(1)
Hedging Foreign Exchange Risks
174(1)
Hedging in the Short Run
175(1)
The Emerging Market Crisis of 1998
176(2)
Aftermath of Crisis
178(1)
Conclusion
179(4)
PART 3 ECONOMIC ENVIRONMENT OF INVESTING
Gold, the Federal Reserve, and Inflation
183(20)
Money and Prices
184(2)
The Gold Standard
186(1)
Establishment of the Federal Reserve
187(1)
Fall of the Gold Standard
187(1)
Postdevaluation Policy
188(2)
Postgold Monetary Policy
190(1)
The Federal Reserve and Money Creation
191(1)
How the Fed Affects Interest Rates
191(1)
Fed Policy Actions and Interest Rates
192(2)
Stocks as Inflationary Hedges
194(1)
Why Stocks Fail as a Short-Term Inflation Hedge
195(3)
Higher Interest Rates
195(2)
Supply-Induced Inflation
197(1)
Fed Policy, the Business Cycle, and Government Spending
198(1)
Inflation and the U.S. Tax Code
198(3)
Inflation Distortions to Corporate Earnings
198(2)
Inflation Biases in Interest Costs
200(1)
Inflation and the Capital Gains Tax
200(1)
Conclusion
201(2)
Stocks and the Business Cycle
203(12)
Who Calls the Business Cycle?
204(3)
Stock Returns Around Business Cycle Turning Points
207(3)
Gains Through Timing the Business Cycle
210(1)
How Hard Is It to Predict the Business Cycle?
211(3)
Conclusion
214(1)
World Events That Impact Financial Markets
215(14)
September 11, 2001
215(2)
What Moves the Market?
217(3)
Uncertainty and the Market
220(1)
Democrats and Republicans
221(3)
Stocks and War
224(4)
The World Wars
225(2)
Post-1945 Conflicts
227(1)
Conclusion
228(1)
Reactions of Financial Markets to Economic Data
229(14)
Economic Data and the Market
231(1)
Principles of Market Reaction
231(1)
Information Content of Data Releases
232(1)
Economic Growth and Stock Prices
233(1)
The Employment Report
234(1)
The Cycle of Announcements
235(2)
Inflation Reports
237(1)
Core inflation
237(1)
Employment Costs
238(1)
Impact on Financial Markets
238(1)
Central Bank Policy
239(1)
Conclusion
239(4)
PART 4 STOCK FLUCTUATIONS IN THE SHORT RUN
Spiders, Cubes, Futures, and Options
243(20)
Exchange-Traded Funds
244(1)
Stock Index Futures
245(2)
The Impact of Index Futures
247(1)
Basics of Futures Markets
248(3)
Index Arbitrage
251(2)
Predicting the New York Open with Globex Trading
253(1)
Double and Triple Witching
254(1)
Margin and Leverage
255(1)
Using ETFs or Futures
256(1)
Comparing ETFs, Futures, and Index Mutual Funds
256(2)
Index Options
258(2)
Buying Index Options
260(1)
Selling Index Options
261(1)
Long-Term Trends and Stock Index Futures
261(2)
Market Volatility
263(20)
The Stock Market Crash of October 1987
265(2)
Causes of the Stock Market Crash
267(1)
Exchange-Rate Policies
267(2)
The Stock Market Crash and The Futures Market
269(1)
Circuit Breakers
270(1)
The Nature of Market Volatility
271(1)
Historical Trends of Stock Volatility
272(3)
VIX: The Volatility Index
275(2)
Distribution of Large Daily Changes
277(2)
The Economics of Market Volatility
279(1)
Epilogue to the Crash
280(3)
Technical Analysis and Investing with the Trend
283(16)
The Nature of Technical Analysis
283(1)
Charles Dow, Technical Analyst
284(1)
Randomness of Stock Prices
285(1)
Simulations of Random Stock Prices
286(2)
Trending Markets and Price Reversals
288(1)
Moving Averages
289(1)
Testing The Dow Jones Moving-Average Strategy
290(4)
The Nasdaq Moving-Average Strategy
294(1)
Distribution of Gains and Losses
295(1)
Conclusion
295(4)
Calendar Anomalies
299(16)
The January Effect
300(3)
Causes of the January Effect
303(2)
The January Effect in Value Stocks
305(1)
Monthly Returns
306(2)
The September Effect
308(2)
Intramonth Returns
310(1)
Day-of-the-Week Effects
311(2)
What's an Investor to Do?
313(2)
Behavioral Finance and the Psychology of Investing
315(26)
Technology Boom, 1999-2001
316(2)
Behavioral Finance
318(23)
Fads, Social Dynamics, and Stock Bubbles
319(2)
Excessive Trading, Overconfidence, and the Representative Bias
321(3)
Prosperity Theory, Loss Aversion, and Holding onto Losing Trades
324(3)
Rules to Avoid Behavioral Traps
327(1)
Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium
328(2)
Contrarian Investing and Investor Sentiment: Two Strategies to Enhance Portfolio Returns
330(3)
Out-of-Favor Stocks and the Dow 10 Strategy
333(8)
PART 5 BUILDING WEALTH THROUGH STOCKS
Fund Performance, Indexing, and Beating the Market
341(18)
Performance of Equity Mutual Funds
342(5)
Finding Skilled Money Managers
347(2)
Reasons for Underperformance of Managed Money
349(1)
A Little Learning Is a Dangerous Thing
349(1)
Profiting from Informed Trading
350(1)
How Costs Affect Returns
350(1)
Development of Indexing and Passive Investing
351(1)
Potential Pitfalls of Indexing
352(1)
Effect of Overpricing on Returns
353(2)
Effects of Overpricing on Portfolio Allocation
355(2)
Conclusion
357(2)
Structuring a Portfolio for Long-Term Growth
359(12)
Principles of Long-Term Investing
360(6)
Return-Enhancing Strategies
366(2)
Implement the Plan and the Role of an Investment Advisor
368(2)
Conclusion
370(1)
Index 371

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