Stocks for the Long Run, written by Jeremy Siegel, is considered one of the best books on investing. First published in 1994, the book has seen multiple editions and updates, reflecting Siegel’s ongoing research and insights into the stock market. The fifth edition was released in January 2024.
Siegel is a professor of finance at the University of Pennsylvania, Wharton School, and a contributor to major financial publications like the Wall Street Journal and Financial Times. In his book Stocks for the Long Run, Siegel provides an in-depth analysis of the long-term performance of stocks and argues that equities are the best investment for long-term growth.
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The Buy and Hold Philosophy
Similar to the philosophy of other financial gurus like Warren Buffet and Burton G. Malkiel, Siegel believes that investments need to be held long-term to achieve significant returns. In Stocks for the Long Run, Siegel provides comprehensive data showing that, over the long run, stocks have outperformed bonds, gold, and other investments. He analyzes data going back over two centuries, demonstrating that despite periods of volatility and downturns, the stock market has consistently provided higher returns than other investments.
According to Siegel, while stocks can be volatile in the short run, they are less risky over the long term due to their superior growth potential.
The Power of Compounding
Siegel explains how reinvesting dividends and allowing gains to accumulate over time can significantly increase an investor’s wealth. Siegel advises investors to start investing early and to remain patient, allowing the power of compounding to work in their favor. He also discusses the “Rule of 72,” which teaches investors how to estimate how long it can take for their investments to double based on the average annual return.
Diversification and Risk Management
In Stocks for the Long Run, Siegel discusses the importance of diversification and risk management. He argues that a well-diversified portfolio can mitigate the risks associated with individual stocks and sectors. Siegel recommends spreading investments across different industries and geographical regions to reduce exposure to risk.
Like Burton G. Murkeil, Siegel emphasizes the need for a diversified portfolio and advocates for index funds as a low-cost, effective way to achieve diversification.
Stocks For the Long Run Offers Some Practical Advice
The following are some key recommendations in the book from Siegel:
1. Start Early and Stay Invested
The earlier you start, the more time your investments have to grow and benefit from the power of compounding. Siegel advises against trying to time the market and insists that staying invested through market volatility is crucial for maximizing returns.
2. Diversification
By spreading investments across different asset classes, sectors, and geographical regions, investors can reduce risk.
3. Understand Inflation
Siegel says that inflation erodes the purchasing power of money over time. However, He argues that stocks have historically provided returns that outpace inflation, making them a better long-term investment than bonds or cash.
4. Use Dollar-Cost Averaging
Dollar-cost averaging involves investing a fixed amount of money at regular intervals. Siegel advocates for dollar-cost averaging as a strategy that reduces the impact of market volatility and can lead to long-term gains.
5. Reinvest Dividends
By reinvesting dividends, investors can purchase additional shares, which in turn generate more dividends, creating a compounding effect that boosts overall returns.
6. Focus on Low-Cost Investments
Siegel advocates keeping investment costs low by choosing low-cost index funds and ETFs. High fees and expenses can eat into returns, so minimizing costs is essential for maximizing net gains.
7. Be Wary of Overvalued Markets
While Siegel believes in the long-term potential of stocks, he also cautions against investing heavily in overvalued markets. He advises paying attention to valuation metrics such as the price-to-earnings (P/E) ratio to gauge whether the market or specific stocks are overpriced.
Criticisms of Stocks For The Long Run
Although referred to as “One of the 10 best investment books of all time” in the Washington Post, Siegel does have some critics. Some argue that Siegel’s reliance on historical performance data may not fully account for future market conditions, which factors such as geopolitical issues and natural disasters could influence. While Siegel’s long-term perspective about the stock market is supported by extensive data, many caution that past performance is not always indicative of future results.
Also, some financial professionals believe that Siegel’s approach may be an oversimplification that wouldn’t work for more complex individual financial situations. They argue that while long-term investing and diversification principles are sound, personalized financial planning should consider an individual’s specific goals, risk tolerance, and financial circumstances.
Reviews of Stocks For the Long Run
Book reviewers on goodreads gave Stocks For The Long Run a rating of 4.13 out of 5 stars and garnered over 1500 five star reviews. Many readers and investors of different levels of experience found value in reading the book.
“In a genre where a lot of nonsense has been written, this is the most insightful and valuable book I have read. For the most part it is easily accessible to non-finance types, yet for finance types it still provides a wealth of information and insight. With the insights available from this book, I believe the average person who starts young and saves a few thousand a year can easily retire a millionaire. It’s a fascinating read – and better than that, it can start you on your way to building significant personal wealth.”
However, another reader felt the book used examples that weren’t realistic in today’s economy.
“This book is similar to an educational textbook that teaches the fundamentals of investing. The book was cut and dry with very old examples. I have a hard time accepting that patterns relevant in the early 1900s still hold true to theory today. Siegel has a brilliant mindset and I look forward to his weekly commentary. I do think his writing is overly bullish and a beginner investor should read with caution.”
Is Stocks For The Long Run Worth Reading?
Stocks for the Long Run by Jeremy Siegel remains a practical guide for investors thanks to its comprehensive analysis of historical stock market performance and practical investment advice. Siegel’s emphasis on long-term investing, the power of compounding, and diversification provides a solid foundation for building a successful investment strategy.
Siegel’s work encourages a disciplined, patient approach to investing, arguing that consistency and commitment to investment goals is the best way to achieve long-term financial success.
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Nadia Tahir is a freelance writer and content creator. She mostly writes in the areas of lifestyle and personal finance. She also enjoys writing on her blog about motherhood at This Mom is On Fire.
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