Jeremy Siegel’s Stocks for the Long Run is a bit of an odd duck. The cover makes it look like one of those “GET RICH QUICK WITH OPTIONS” books (though the words “Long Run” in the title ameliorate that impression a bit), but it actually reads pretty dry — this feels more academic than Malkiel’s book did, certainly. Oddly, though, while you’d think that an academic dryness would make a book more credible, the effect it had on me was the opposite — I occasionally got the feeling that Siegel was struggling hard to make a point, and data-mining up evidence to support his contentions.
Oh, not his primary contention — it’s pretty clear that the title is correct and that stocks have historically been the asset o’ choice for long time horizons (though how useful this knowledge will be in the future is unknown — past performance really doesn’t guarantee future results, and even Siegel has a chapter about how we should reasonably expect stocks to underperform historical averages in the future). The dubious part is the elaborate sub-contentions he makes about what the ideal portfolio of stocks and bonds is over particular medium-term time horizons, how this changes in the presence of inflation-protected bonds, and so forth. When you run a few calculations, and end up with a result that says “buy stocks and TIPS and short bonds on margin,” well, maybe it’s right, but it sounds more like one of those “can’t fail” hedge-fund calculations that end up needing massive bailouts than a rigorously proven fact.
But at any rate, that’s not such a big deal, because only a chapter or two of the book are actually taken up by the ostensible central premise. In a very real sense, a more accurate title for the book would be How Financial Markets Operate, because Siegel goes into elaborate detail about the actual intricacies of the day-to-day workings of the stock market in a surprisingly interesting way. It’s one thing to know what program trading and futures markets are; it’s another thing to read about how the futures markets started out, how their influence grew, and how program trading is largely driven by futures arbitrage. (The take-away point for me is that our financial system is a series of hacks and kludges, and that it’s a bloody miracle anything works at all, but that might just be my software developer mindset, there.)
Overall, an interesting and informative book hampered by the occasional feeling that the author is trying to oversell his point and dazzle us with so many footnotes we won’t notice. If you read this booklog entry attentively, you should probably read the book.