The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New

by Jeremy J. Siegel

Book Overview

The new paradigm for investing and building wealth in the twenty-first century. The Future for Investors reveals new strategies that take advantage of the dramatic changes and opportunities that will... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 140008198X
• Release Date: March 2005
• Publisher: Crown Currency
• Length: 336 Pages
• Weight: 1.32 lbs.
• Dimensions: 9.5" x 1.0" x 6.4"

Customer Reviews

Fascinating, thought-provoking

This book discussed two fascinating issues. The first part contained recommendations for the stock portion of a portfolio. (The book addresses only stocks. It does not specifically address asset allocation, i.e., how to divide your total portfolio among stocks, bonds, and cash.) In a nutshell, Siegel recommends high dividend, low P/E stocks; and backs up his recommendation with data on the historical performance of every company in the original S & P 500, data on the historical performance of more recent additions to the S & P index, similar data from a dozen foreign countries, and an industry-by-industry analysis. In virtually every case, high dividend stocks performed far better than low dividend "growth" stocks. Some reviewers disagreed with Siegel. I believe those reviewers are mistaken. One reviewer said it was silly to chase the puny 1% or 2% advantage that high dividend stocks have over growth stocks. Well, first of all, the advantage was not 1% or 2%, but 2 or 3 times that. Second, little things mean a lot, if compounded over time. From 1957 through 2003, $1000 invested in high dividend stocks would have grown to between $493,000 and $816,000, depending on which high-dividend strategy you followed (S & P Top Ten, Dow Ten, or S & P Core 10). That same $1,000 in the Dow 30 or S & P 500 would have grown to only $183,000 or $130,000, respectively. The potential difference of $686,000 is not what I call "puny." Another reviewer said high-dividend stocks would be "wiped out" in bear markets. Again, $1000 invested in 1957 could have grown to as much as $816,000 in 2003, which includes the most recent bear market. If that's "wiped out," sign me up! Actually, on pages 140-141, Siegel specifically examines the 1973-74 and 2001-02 bear markets. In both cases, it was growth stocks that crashed and burned, not high dividend stocks. (Remember "dot bomb"???) Another complaint was that Siegel failed to account for taxes. The complaint alleges that yearly taxes on dividends eliminates the advantage of dividend-paying stocks over growth stocks, which presumably are taxed only once, at time of sale. Granted, it would have been nice for Siegel to have addressed taxes in a bit more detail, instead of dismissing them summarily, but I think his overall conclusion is correct -- whatever effect taxes have, it is relatively minor. First of all, annual dividends are not always subject to annual taxes. Dividends in 401(k) and traditional IRA accounts are taxed only at withdrawal, just like growth stocks. Dividends in a Roth IRA are never taxed, giving them a tax advantage, not a disadvantage, relative to growth stocks held outside a Roth IRA. There are several other situations where dividends have now or had in the past a tax advantage, not a disadvantage, over capital gains. In short, there are so many variables, and tax laws have changed so many times, it would have been difficult, if not impossible, to give a single estimate

Valuable Information for Tax-Deferred Investment Accounts

Anyone who enjoyed Stocks for the Long Run will find this book to be a very valuable addition to his or her knowledge about stock investing for tax-deferred investment accounts. Professor Siegel has checked history again. This time he has looked for ways to do stock investing that have performed better than indexed mutual funds for tax-deferred accounts. Much of what he finds is counter to the conventional wisdom, but makes sense when examined objectively. Here are some key findings: 1. High dividend yields, when reinvested in the same stock, provide superior returns. That's only true in a tax-deferred account, of course. 2. Buying stocks with low multiples that grow faster than expected is much easier and more profitable to do than simply choosing companies in fast growing industries. 3. Exciting new companies make lots of money for founders, employees and venture capitalists . . . but not enough for investors. 4. Avoid capital intensive businesses. 5. The most productive companies are those who develop new business models (something I discuss in The Ultimate Competitive Advantage) regardless of how bad the industry is. 6. Beware of excessive valuations . . . no matter how good the future looks. 7. If a company has neither a high dividend nor any cash, assume something's wrong with the accounting. 8. Indexed stocks in slower-growing emerging markets have high potential to deliver huge gains in the future due to demographic influences. From these findings, Professor Siegel suggests a model portfolio for equities that will intrigue you (see page 254) with high-dividend ideas, global firms, attractive sectors and interesting value plays. In addition, Professor Siegel addresses the question of what to do about paying for the retirements of all those Baby Boomers around the world. His proposal is to encourage young emerging market workers to purchase the assets of older workers in the developed world. You'll find the argument to be intriguing and compelling. I cannot remember reading a more stimulating and original book about investing. I was particularly impressed by his historical research that shows the superiority of sticking with companies that have been around a long time rather than searching out newer companies to buy. I think the exception to the latter comes in those cases where the management has proven to be adept at improving upon their business models to provide more value to customers. Almost every investor would benefit from reading and thinking about this book.

The importance of dividends and the dangers of growth

Jeremy Siegel has rediscovered the importance of dividends. When Charles Dow did his seminal research nearly a century ago he relied on dividends and ignored reported earnings because he knew that companies were lying on their balance sheets. Dividends, on the other hand, don't lie. Dividends let you compound. Very old fashioned. The other important point this book makes is that investors almost always overpay for growth. He calls this the growth trap. It is critical for investors to distinguish between those companies whose innovations power the economy and those that provide superior returns to investors. They are usually two different things. Many people seem to have learned nothing from the recent bursting of the NASDAQ bubble. Siegel has the research that shows what went so wrong several years ago and how to keep your head if it happens again. The old is new again.

It's Still "Stocks for the Long Run"

The Future for Investors is Jeremy Siegel's sequel to his popular Stocks for the Long Run. Overall, he makes the same point in his new book as he did in the last one: Over long periods of time, stocks have outperformed other liquid forms of investment such as bonds, bills, cash, and gold. While reaching this same conclusion, The Future for Investors does offer some new or revised insights that make it well worth reading. Some highlights include the following: 1. Since its inception in 1957, the S & P500 index has underperformed the price movements of those of its original 500 firms that still exist as independent companies. The price movements of the new firms added to the index have underperformed those of the originals even though the new firms have often had higher earnings growth rates. 2. Selecting stocks for growth alone often results in paying too much for a stock. While Siegel doesn't spell it out, he seems to be advocating something akin to a PE-to-Growth (PEG) or similar ratio. (Comment: I personally go one step beyond PEG and use PE-to-Growth-to-Uncertainty-in-Growth by dividing the conventional PEG ratio by the standard deviation of the earnings per share growth rate.) He does advocate several strategies based on the selection of low priced/high yield stocks, similar to and including the popular Dogs of the Dow strategy. 3. Dividends count in many ways. Most of the recent cases of managers cooking the books to overstate earnings occurred in firms that did not pay cash dividends, since dividends are much harder to fake than earnings. The payment of a steady or increasing cash dividend offers another measure of safety in buying a stock. The recent reduction in the double taxation of dividends makes them much more attractive. Finally, reinvesting dividends is analogous to dollar cost averaging, causing the investor to buy more shares when the price is lower had fewer shares when the price is higher. Over time, this reinvestment will pay off handsomely. 4. Much has been written about the aging of the baby boomers and what will happen when they retire. The worst case scenarios describe their departure from the workforce as resulting in (1) no one to produce the goods and services they want to buy in retirement and (2) no one to buy the stocks and bonds that they need to sell to finance buying those goods and services. Siegel is an optimist; I share his optimism and hope we are correct. Looking at the developing world, he sees an inverse demographic pattern: Lots of young people and fewer old people. If the developing world develops rapidly and broadly enough, those young people will be able to (1) produce the goods and services sought by the boomers and (2) invest in their own retirements by buying the investment the boomers must sell. 5. To participate in (and to support) this optimistic outcome, Siegel advises investing as much as 40% of one's portfolio in non-US securities. Selecting and buying foreign stocks is even harder than

Insightful analysis without sensationalism

In his earlier book, Siegel had proven that stocks are the best investment vehicle for the long term. In a fitting "sequel" to his previous bestseller, Siegel answers the question "which stocks to buy for the long term". The book is divided into 5 parts - the first two parts focus on analysis of historic data using very unique perspective, mostly with respect to changing membership of SP500 index over the years. In the third part, he discusses the different measures to consider while analysing a company's performance from the shareholders' points of view. The fifth part is perhaps the most useful for readers seeking investment advice. He provides a sample portfolio based on the priciples he explains in the third and fourth parts of the book. In addition to percentage allocation for US and non-US markets, he provides allocation targets for some of the specific investment strategies he discusses in the book (these strategies are well discussed and their rationale is convincingly presented; most of them are centered around the dividend paid by the company). The author also provides a sector analysis of the market over the years and provides his "prediction" on which three sectors will likely perform the best over the long term. A real treasure for any long term investor! it should be pointed out that the analysis dont really address tax implications, but the conclusions derived from the analysis would still likely hold since the strategies focus on long term investing. The book is thorough and comprehensive, but explained in an easy manner. Each chapter ends with a summary which provides a succinct representation of the chapter. A detailed list of references/citations used by the author and a set of appendices with more data analysis is also included, and is certainly a resource for any serious investor. Day traders and speculators may be disappointed with the book, but any long term investor will find this to be a cornerstone of any investment plan. A must have!