Stocks For The Long Run, written by Jeremy J. Siegel, is a great book that as the name suggests, promotes the superior return of stocks over an extended period of time. The very first chart in the book shows the nominal returns of stocks, bonds, bills and gold from 1802 to 2006. While obviously we can’t count on a 200 year investment horizon, the graph is very convincing. Stocks outperform all other indexes by a wide margin, even The Great Depression is only a slight dip on a upward trend.
When I got to the second chapter on risk, return and portfolio allocation, I realized that this book is very similar to another great title that I’ve reviewed previously, The Four Pillars of Investing. While these books do have a similar take on the same subject, both are worth the read if you’re investing on your own.
Chapter 9 was one of my favorites, where Siegel points out the importance of certain criteria when selecting stocks, including the first two things I look at; price-to-earnings (P-E) ratio and dividend yield. While he cautions that no strategy will always outperform the market, these are great metrics on which to judge the value of a stock.
There are two chapters, that while important reads, I found were slightly contradictory to the theme of the book. The first discusses timing business cycles and another looks into calendar anomalies such as the January Effect.
If you’ve already read The Four Pillars of Investing, Stocks For the Long Run is a worthwhile read as it will reinforce the same historical lessons and the value of a diverse portfolio of index funds, held for the long term.
I’ll be giving away a copy of Stocks For The Long Run in the first half of November as one of the prizes for a few lucky readers! If you want to be the first to find out about the giveaway, sign up for the RSS feed or email subscription.
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Nice brief summary. I read Four Pillars as well, and agree with your observation.
In SFTLR, I especially enjoy that chart while looking at gold. Great investment, the yellow metal.
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