Stocks for the Long Run Summary

A person oblivious to the world of business would stare at the CNN Money sector of news and would feel almost unaffected by the world’s financial movements. But you sit a businessman in front that television screen, he will watch and listen carefully to every word seeking for opportunities and to be informed on how his investments are doing. The life of a businessman or an investor for that matter, views the world differently. What the world perceives as the latest innovations, investors sees it as a life-long investment.

And the importance of finding these chances and allocating one’s money correctly could not be stressed any more in Jeremy J. Siegel’s novel Stocks For the Long Run. Siegel who marks his grounds within the lecture halls of the Wharton School of the University of Pennsylvania, wrote this book solely for one reason and one reason only – to guide eager investors that stocks specifically will outshine other types of investments in the long run. From the works of Siegel’s previous works such as The Future for Investors we can assume that his keen subject is based on investments.

But in Stocks for the Long Run he did not confine to successful investing and broadened towards subjects that pertained to historical events. Immediately from the first part titled “The Verdict of History,” Siegel’s publication illustrated the historical shifts that the financial markets have gone through. Beginning with the early 19th century to 1926 the author reminds us about the booming era that transformed America “from an agrarian to an industrialized economy” (4). But such dramatic proliferation invites an unstable economy that will plummet one day.

But until then, investors can enjoy the high returns that can literally turn rags into riches. How is this possible? Siegel believes that despite tribulations of the market, a stock in the long run – no matter what – will regain composure and possibly excel. The University of Pennsylvania (UPenn) finance professor exemplifies such recovery and expansion in the post-World War II markets of Japan and Germany. Both countries which endured a drop of at least 90 percent in equity value soared to levels that caught up and exceeded the US markets.

During these flourishing stages those who committed on holding onto German and Japanese have enjoyed growth rates of at least 30 percent a year. Just because Germany and Japan have manifested legendary growth does the author imply that an investor should invest in stocks outside of the United States of America? The answer to that question would be yes and no. Of course globalization has proven benefits the main being diversification of one’s portfolio. With the emerging markets of certain Asian countries, foreign investments offer higher returns with lower risk.

Indeed such scheme sounds too good to be true; a twist is prevalent when it comes to going international. Too much of foreign equity boasts a high return rate at a dangerously high risk. While a strictly US portfolio results into a medium risk at low return. But once an investor diffuses these two together, he can live happily off a rate of return that can be given at low risk. Depending on whether one’s acceptance of risk, they can select themselves an efficient portfolio suited for them in figure 9-3 (134).

Surely enough, Siegel has shown devotion towards well-paying investments, especially ones in the long-run but can he guarantee that these methods of investing are going to be successful? Unless one possesses a crystal ball of some sort, it is impossible for anybody to predict the future. Even the man who appears on the world’s largest denomination bill, Benjamin Franklin states that, “Nothing in this world is certain but death and taxes,” – a quote with a rather eerie that speaks the truth. Of course, the 6th president of the United States is indeed correct that nothing is for sure, which brings oppositions of Siegel’s insights.

For one, the novel was released before the second economic pandemic meltdown which affected the markets globally. In addition, the author tends to focus on situations that require ideal timing. For example, in the fall-rise story of Germany and Japan, the only reason why these two countries surpassed their plunge was due to resilience and valor of the country. South Korea too for example was buried into an economic crisis in 1997 and only earned its way back up from the blood and sweat of the nation. Who would have guessed that these countries would combat through harsh conditions?

One could debate that luck, is what placed these dedicated people into such economically run-down countries. And of course it is human nature to dispose of equity from a country that is most likely to fall into further economic meltdown. Altogether, investments after all, are a form of gambling. Therefore, parts that deemed surrealistic were inevitable for writer Jeremy J. Siegel. Certainly there is assurance that investments do reward more money. Thus allocating one’s money to the right places can make them a very rich man.

But the question remains, what should an investor place his money? Siegel for one strongly opposes the investment of bonds stating that, “long-term returns on stocks are so much more favourable than those on bonds” (123). Though he does not criticize the investment on them, his thoughts are that they are inferior compared to stocks in the long-run as stocks tend to move along with inflation while bonds do not. Then, he selects a list of companies that have shown outstanding performance and claims that these are the sorts of companies that when one invests in, will never have to sell.

These set of companies are known as the Nifty Fifty or “one-decision” (106) stocks as the only decision that would be needed to be made would be to buy. The reason why these selections of companies are engraved onto the list is that they have continuously shown growth since the 1970s. Another method he shuns is the investment of gold. First, the gold standard which is a monetary system that was widely used in the 19th century, but currently is no longer practised. It had also taken the blame for prolonging the Great Depression and was abandoned during that period in the United Kingdom and United States of America.

But the reason why the finance professor had negative thoughts on the gold standard is that it promotes inflation. What the professor has done with this novel is gotten the combination of history, facts, citations and formulated the bold conclusion – Stocks, and stocks specifically, will result in the largest returns. Siegel continuously emphasizes on the importance of what to invest in as he juxtaposes various stocks during various terms and believes that the proper allocation of investments will make one successful.

Of course, this book is no get rich quick scheme as shown throughout that perseverance is what will pour success. I would recommend this book to those that have some form of familiarity in finance as some parts may seem abstract to non-business people. Overall, a wonderful read that clearly illustrates almost everything that an introductory investor will need. This can serve as a handbook to students who wish to start early on their own personal investments.