One of the most-read finance books of all time is Jeremy Siegel’s ‘Stocks for the Long Run’. However, in my view, this is also one of the most misunderstood books of all time because it promotes an unrealistically positive view of equities as this perfect long-term investment that can never fail if you only hold on to them long enough. Don’t get me wrong, I am a big fan of equities and think long-term investors should hold a lot more equities in their portfolio than most do (
and man, does this data look even worse if you go back 100 years. Germany, and I suppose Japan and Italy all went to zero.
One is reminded of what Tom McClellan's dad said, ""Everyone times the market. Some people buy when they have money, and sell when they need money, while others use methods that are more sophisticated."
And indeed, I do think it is a matter of buy-and-hold vs getting the hell out of Dodge while you can. It has been calculated that one made decent money (CAGR >7%) in post-bubble Japan if one sold the Nikkei whenever it went below its 200-day moving average, then using that cash to buy Japanese treasuries. (Wash and repeat).
One the other hand, this approach would have been completely useless for an investor in Germany 1944...
Yup, Germany, Italy, France, and indeed most equity markets went to zero either in the Second World War or at some other point in their history. If I remember correctly, the only stock markets that never defaulted were the US, UK, Australia, New Zealand and Switzerland.
You are right. He expands the universe compared to Siegel. That's the problem. Our job is to shrink the universe for ourselves an our clients. Why in the world would you invest all over the world just because that's what "they say." Doesn't this show that the last place you want your portfolio is in a variety of losing countries just for the sake of trying to catch the best one each year? If you buy an Italy fund or a Germany fund index you will not be happy for the long run. This is where active management comes in. Pick the few companies that are investable from each region if you think it adds to the portfolio. I only own 3 international stocks in portfolio of 35 positions. They are both great companies. China and Israel are missing here and both have better choices than some of the countries listed. You go international only for the sake of buying a truly outstanding company that is not in the US, not to get some nebulous, unproven benefit from owning stocks all over the world.
His report leaves out several of the best countries to invest in. Singapore, China, South Korea and Israel. And bonds? Why would they be part of this conversations? What purpose do they serve in growing wealth or maintaining value against inflation?
One can conclude several things from that observations A) there is a huge component of luck in long term wealth management B) US economy is an unnatural outliner that is C) ripe for a "regression to the mean" .
I've written this piece about exponential growth of technical progress and its natural limits, but that is highly interwoven with economic growth, especially with US economy of the last decades:
I think you are right in many respects. And yes, the US is a major international outlier, but who is to say when or if it will mean-revert or if it will remain an outlier internationally. It's really impossible to forecast these things, in my view.
I would never try to predict the timing of the correction, but expecting US exceptionalism to last forever is a little bit overly optimistic. Especially if you add exponential growth of dept to the equation. If I would need to predict something, than I would predict another all-time high at US stock markets fueled by the new administration before the ultimate regression to the mean.
very interesting - thank you very much, Joachim!
What do you think of the study by Hendrik Bessembinder "Do Stocks Outperform Treasury bills?" from 2018?
best regards, Rainer
Written about it here: https://klementoninvesting.substack.com/p/let-your-winners-run
and man, does this data look even worse if you go back 100 years. Germany, and I suppose Japan and Italy all went to zero.
One is reminded of what Tom McClellan's dad said, ""Everyone times the market. Some people buy when they have money, and sell when they need money, while others use methods that are more sophisticated."
And indeed, I do think it is a matter of buy-and-hold vs getting the hell out of Dodge while you can. It has been calculated that one made decent money (CAGR >7%) in post-bubble Japan if one sold the Nikkei whenever it went below its 200-day moving average, then using that cash to buy Japanese treasuries. (Wash and repeat).
One the other hand, this approach would have been completely useless for an investor in Germany 1944...
Yup, Germany, Italy, France, and indeed most equity markets went to zero either in the Second World War or at some other point in their history. If I remember correctly, the only stock markets that never defaulted were the US, UK, Australia, New Zealand and Switzerland.
You are right. He expands the universe compared to Siegel. That's the problem. Our job is to shrink the universe for ourselves an our clients. Why in the world would you invest all over the world just because that's what "they say." Doesn't this show that the last place you want your portfolio is in a variety of losing countries just for the sake of trying to catch the best one each year? If you buy an Italy fund or a Germany fund index you will not be happy for the long run. This is where active management comes in. Pick the few companies that are investable from each region if you think it adds to the portfolio. I only own 3 international stocks in portfolio of 35 positions. They are both great companies. China and Israel are missing here and both have better choices than some of the countries listed. You go international only for the sake of buying a truly outstanding company that is not in the US, not to get some nebulous, unproven benefit from owning stocks all over the world.
His report leaves out several of the best countries to invest in. Singapore, China, South Korea and Israel. And bonds? Why would they be part of this conversations? What purpose do they serve in growing wealth or maintaining value against inflation?
My point of view on the topic:
https://themarketjourney.substack.com/p/why-the-market-has-an-upward-bias
One can conclude several things from that observations A) there is a huge component of luck in long term wealth management B) US economy is an unnatural outliner that is C) ripe for a "regression to the mean" .
I've written this piece about exponential growth of technical progress and its natural limits, but that is highly interwoven with economic growth, especially with US economy of the last decades:
https://theafh.substack.com/p/the-last-day-on-the-lake
I think you are right in many respects. And yes, the US is a major international outlier, but who is to say when or if it will mean-revert or if it will remain an outlier internationally. It's really impossible to forecast these things, in my view.
I would never try to predict the timing of the correction, but expecting US exceptionalism to last forever is a little bit overly optimistic. Especially if you add exponential growth of dept to the equation. If I would need to predict something, than I would predict another all-time high at US stock markets fueled by the new administration before the ultimate regression to the mean.