Investment Lessons from "Stocks for the Long Run" by Wharton Professor, Jeremy Siegel
AI's response in regular print | Beverly Hills, CFP®, Joe O'Boyle's in italics
OpenAI’s ChatGPT tool responds to an investor question and Certified Financial Planner™ professional, Joe O’Boyle, fine tunes the AI response (in italics). This should be fun!
Investment Lessons from “Stocks for the Long Run” by Wharton Professor, Jeremy Siegel
Note: The 6th Edition of Siegel’s “Stocks for the Long Run” was published in 2023
Jeremy Siegel is an American economist and finance professor (Emeritus) at the Wharton School of the University of Pennsylvania. He received his undergraduate degree from Columbia University and went on to earn a PhD in economics from the Massachusetts Institute of Technology. He is highly respected in the investment community and is often referred to as one of the leading experts on the stock market and long-term investing. Siegel has famously shared that “there is overwhelming reason to believe stocks will remain the best investment for those seeking steady, long-term gains.”
"Stocks for the Long Run" by Jeremy Siegel is a classic investment book that provides a comprehensive overview of the stock market's performance over the past two centuries. The author argues that stocks have outperformed all other asset classes over the long term and that investing in a diversified portfolio of equities [equities = stocks] is the best way to grow wealth. “Investing over time in stocks has been a winning strategy whether one starts such an investment plan at a market top or not.”
Siegel uses a wealth of data and historical examples to support his thesis, including detailed analysis of the stock market's returns, interest rates, and inflation. He also discusses the importance of diversification and the impact of taxes [and inflation] on investment returns.
Asset Returns Since 1802
“Figure 1.1 is the most important chart in this book. It traces year by year how real wealth [after-inflation] has accumulated for a hypothetical investor who put a dollar in (1) stocks, (2) long-term government bonds, (3) U.S. Treasury bills, (4) gold, (5) U.S. currency.
Over the 220 years we have examined asset returns, the average compound annual real return [after inflation] on a broadly diversified portfolio of stocks has averaged 6.9 percent per year… The real return on fixed-income investments [bonds] has averaged far less; on long-term government bonds the average real return has been 3.6 percent per year, on short-term fixed-income assets, such as Treasury bills, 2.5 percent per year… The average annual real return on gold has been only 0.6 percent per year. In the long run gold prices have risen just ahead of the inflation rate, but little more. The dollar has lost on average 1.4 percent per year of purchasing power since 1802, with most of the depreciation coming after World War II.”
One of the key insights from the book is that while the stock market can be volatile in the short term, over the long term it has consistently provided positive returns [and meaningfully outperformed other asset classes]. Siegel argues that this is due to the growth of the global economy and the increasing productivity of companies, which leads to higher earnings and dividends.
“In the short run, stock returns are very volatile and are driven by changes in earnings, interest rates, risk, and uncertainty as well as psychological factors, such as optimism and pessimism. The downward blips of the stock return line …represent major bear markets, which frighten so many investors and keep them out of the market. Yet these blips fade into insignificance when compared to the broad upward thrust of stock returns.”
Another important insight is the importance of patience and discipline when it comes to investing. Siegel argues that investors should have a long-term perspective and not be swayed by short-term market fluctuations. He also emphasizes the importance of diversification and avoiding the temptation to try and time the market.
“Bull markets and bear markets lead to sensational stories of incredible gains and devastating losses. Yet patient stock investors who can see past the scary headlines have always outperformed those who flee to bonds or other assets. Even such calamitous events as the Great 1929 Stock Crash, the financial crisis of 2008, or the Covid-19 pandemic have not negated the superiority of stocks as long term investments.” …
"But those who have persisted with equities [stocks] have always been rewarded. No one has made money in the long run betting against stocks. It is the hope that the latest edition (of the book) will fortify those who will inevitably waver when pessimism once again grips investors. History demonstrates that stocks have been and will remain the best investment for all those seeking long-term growth.”
Overall, "Stocks for the Long Run" is an excellent book for both beginner and experienced investors. Its clear and concise writing style, combined with its extensive data and historical analysis, make it a valuable resource for anyone looking to understand the stock market and make informed investment decisions.
What did you think? How did AI do?
About OpenAI’s ChatGPT tool:
GPT (short for "Generative Pre-training Transformer") is a type of language model developed by OpenAI that is trained to generate human-like text. ChatGPT is specifically designed for generating text in a conversational style. It is a machine learning model and has been trained on large datasets of real-world conversations in order to learn the patterns and styles of human communication.
Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.