Factual Books

Stocks for the Long Run is Jeremy Siegel's analysis of the USA's stock market. His thesis is that the stock market is the best place to park your money if you are investing over the long term.

The book argues that the stock market is efficient, meaning it is not easy(or possible) for an investor to pick the right individual shares or to move in and out of the market. The normal investor is best simply buying and holding, or investing in low cost index funds.

The evidence is largely based on the US stock market. Adopting the Japanese, Russian, Chinese or German stock exchanges would have lead to a less rosy outcome for shares. Most of the data is based on the 20th century which was a happy time for the USA.

The author tackles some of the simple market strategies and shows that in general these things may work for a while(Sell in May and go away) the effects do not persist. He also looks at the workings of options markets. The key message hammered in and over is to buy some shares and hold them.

The key take away is that stocks have been the best investment for the past couple of centuries if you are investing over a 40-year timescale. The problem is this may not continue into the future and not everyone can invest over such a long timescale. Many people buy lower risk assets such as bonds because they have shorter investment horizons or are psychologically unable to cope with stock market fluctuations.

Overall this is a good book with an optimistic message. The data sample is a bit limited, and it could be read with other more pessimistic books(Moneywithapin for example). The messages are not exactly dissimiliar, but they look at it from a different perspective. Moneywithapin sees lower returns, but these are driven by mistake investors make(trade too much and paying fees that are too high). Siegel's data assumes no costs and that individuals are not trading too much. Both individuals recommend costs are held very low and recommend low cost trackers.

This is an enjoyable and well written book, but I can't help but feel the author has selected data to suit his hypothesis. And it has often been misinterrupted to suggest stocks must always go up or that stocks are less risky the longer they are held - both are false. Despite these reservations this book is a modern classic.