My Review of Jeremy Siegel’s classic “Stocks for the Long Run”

Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, by Jeremy J. Siegel.

Reviewed by Mark Skousen

150808 BarronsIn mid-February 2009, Wharton School finance professor Jeremy Siegel showed me his 200-year chart of the US stock market, and noted that every time the market fell 50% from its high, the market bottomed.  The only exception: the 1929-33 Great Depression, when stocks plunged over 80%.  Siegel thought that, due to Federal Reserve intervention, we would not see another Great Depression. He therefore concluded that we were close to the bottom of the bear market, and that stocks were a “screaming buy.”

Since that encounter, I have joined with those who call Jeremy Siegel the “Wizard of Wharton.” His forecast came within weeks of the bottom, all based on historical work that is clearly set forth in Stocks for the Long Run, now in its fifth edition. If there is indeed a “definitive” book on the stock market, then look no further than this one.

This magnum opus is replete with chapters on the history of Wall Street since 1802; the pros and cons of mutual funds, ETFs, futures, and options; the causes of bull and bear markets; the influence of monetary and fiscal policy on equity prices; the outlook for stocks, bonds and commodities in the face of inflation and an entitlement crisis; analysis of stock indexes, dividend yields, and price-earnings ratios; global equity markets, technical analysis, and potential ways to beat the market.

This fifth edition adds chapters on what we’ve learned from the 2008 financial crisis and behavioral finance, including insights into the stock market crash on October 19, 1987, and the “flash crash” on May 6, 2010.  The overriding theme is that history matters, not only for policy makers in Washington, but for investors making the right kind of investment choices.

While there is much that echoes what we think we all know, it does not hurt get these things confirmed by a scholar of Siegel’s reputation. Most mutual fund managers fail to beat the market; dividend-reinvestment is good; compounded interest and dollar-cost averaging are winning strategies for individuals; and for most people, long-term investing beats short-term speculating.

Siegel’s research also leads to conclusions that often go contrary to conventional wisdom.  For example, he shows that value stocks tend to outperform growth stocks.  Investing in the latest hot technology stock is what Siegel calls the “growth trap.”  His classic example is Big Oil vs Big Blue: Standard Oil, now ExxonMobil (ticker: XOM) vs, IBM (ticker: IBM).

Based on Siegel’s study of the two stocks from 1950 to 2012, IBM outdistanced Exxon in every growth category–sales, earnings, dividends, and cash flow.  Big Blue’s earnings exceeded Big Oil’s by more than 3 percentage points per year.  IBM was the classic growth stock, Exxon the classic value play.

Yet the oil giant proved to be the better stock to buy.  “When your lockbox was opened 62 years later,” reports Siegel, “the $1000 you invested in the oil giant would be worth $1,620,000, more than twice as much as IBM.”

How come?  “Valuation,” the author explains. “The price investors paid for IBM was just too high.” The lower price of the oil stock helped harness the power of dividend reinvestment. “Because Standard Oil’s price was low and its dividend yield much higher than that of IBM,” Siegel carefully notes, “those who bought its stock and reinvested the oil company’s dividends accumulated 12.7 times the number of shares they started out with, while investors in IBM accumulated only 3.3 times their original shares.” While taxes on dividends would have put a serious crimp in this record, it would have worked in the era of tax-sheltered IRA’s and 401-k’s.

The growth trap is also in evident in the selection process of the S&P 500. After tracking down the performance of the original 500 companies in the S&P index, the author finds that the original S&P 500 firms outperformed the dynamic updated index.  Why?  Because the new “growth” firms had already risen sharply before they were added, and the old firms had fallen sharply before they were dropped.

Siegel has this same theory to the global markets, and discovered that stock performance and economic growth often move in opposite directions.  “The fastest-growing country by far, China, has had the worst returns,” he writes.  “Mexico, Brazil and Argentina are among the slowest-growing countries but have generated excellent returns for investors.”  Although I’m not sure about Argentina–its bolsa was either in crisis or illiquidity during large parts of the 20th century—the general point is well-taken.

The author challenges the efficient market proponents with anomalies in the marketplace, such as the January and September effects, the small stock effect, and momentum investing. He devotes a chapter to the challenges of beating the indexes, concluding that a few strategies seem to work, such as fundamental-weighted indexes and rising dividend stocks.

Siegel offers a mixed review of technical analysis.  For example, he notes that investors and money managers who used the much- touted 200-day moving average technique avoided most of the 2007-09 bear market, but paid the price when they were whipsawed in and out of the market 20 times in 2010-12

One complaint: In the chapter on derivatives, the author does not take Warren Buffett and Peter Lynch to task for calling for the outlawing of stock futures and options.  Studies show that the futures and options markets have actually reduced volatility and increased liquidity on Wall Street, and serve as a useful tool to hedge positions in the marketplace.

Stocks for the Long Run challenges the dooms-sayers who predict another stock market crash and collapse in the economy.  “No one,” Jeremy Siegel declares, “has made money in the long run from betting against stocks or the future growth of our economy.”


Mark Skousen is editor of Forecasts & Strategies, a Presidential Fellow at Chapman University, and author and compiler of The Maxims of Wall Street:  A Compendium of Financial Adages, Ancient Proverbs, and World Wisdom.

Recession Ahead? First Quarter Gross Output and Business to Business Data for 2015


Washington, DC (Thursday, July 23, 2015):  Gross Output, a broader measure of U. S. economic activity published by the Bureau of Economic Analysis, continued to slow into the 1st quarter of 2015, confirming tepid growth in the economy and a potential recession. According to today’s BEA release, real GO advanced at an annualized rate of only 0.7% to $31.0 trillion by the first quarter of 2015, compared to 5.2% in the 3rd quarter and 2.6% in the fourth quarter of 2014. The downward trend in the economy continues. In nominal terms, GO actually fell 1.1% but price deflation was so strong that GO increased in real terms.
Gross Output (GO) is a measure of sales or receipts of all industries throughout the production process, including business to business transactions (B2B). Most B2B activity is left out of GDP statistics.
Since the financial crisis of 2008-09, GO has risen faster than GDP, and that continued to be the case in the 1st quarter 2015. Real GO rose slightly compared to a small loss in real GDP in the 1st quarter. Gross Domestic Product (GDP), which measures the value of final goods and services only, fell 0.2% in real terms to $17.7 trillion in the fourth quarter. The fact that GO is still growing faster than GDP suggests that the economic recovery is still in place, but only marginally.
Business Spending (B2B) Slows 
B2B activity actually declined significantly in the first quarter. According to the new Skousen B2B Index, business spending fell 2.8% to $22.7 billion in nominal terms compared to the 4th quarter. (No B2B price deflator is available at this time, but real B2B is likely to be down slightly for the 1st quarter.) Meanwhile, consumer spending remained stable. See the chart below.

150723 GO1stQtr2015-A
“The GO data and my own B2B Index demonstrate that total US economic activity has slowed significantly, and dangerously close to going into another recession,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates continued weakness.”
Skousen champions Gross Output as a more comprehensive measure of economic activity.  “GDP leaves out a big part of the economy, business to business transactions in the production of intermediate inputs,” he notes.
“GO includes most B2B activity that is vital to the production process.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990, new third edition forthcoming in August, 2015). Now the BEA publishes GO on a quarterly basis in its “GDP by Industry” data, the first aggregate statistic to be published on a quarterly basis since GDP was introduced in the 1940s.
“Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and demonstrates that business spending is more significant than consumer spending,” he says.
“By using GO data, we see that consumer spending is actually less than 40% of economic activity, not the 70% figure that is reported by the media.”
According to the Skousen B2B (business to business) Index, total business spending throughout the production process fell slightly to $22.7 trillion in the 1st  quarter 2015, compared to personal consumption expenditures of $12.1 trillion (no change from the previous quarter).  “Thus, we see that business spending is almost twice the size of consumer spending in the US economy,” concludes Skousen.
Note:  Ned Piplovic assisted in providing technical data for this release.
For More Information 
The GO data released by the BEA can be found at under
“Quarterly GDP by Industry.”  Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.”  Or go to this link directly:
For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:
Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014:
Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”:
Mark Skousen, Forbes Magazine (December 16, 2013):  “Beyond GDP: Get Ready For A New Way To Measure The Economy”:
Steve Hanke, Globe Asia (July 2014):  “GO: J. M. Keynes Versus J.-B. Say,”
For more information on Dr. Mark Skousen, visit:
To interview Dr. Mark Skousen on this press release, contact him at, or Valerie Durham, Media Relations, 410-570-0535, or email her at

Valerie Durham
Media Relations
Skousen Publishing, Inc.

Maxims of Wall Street

Maxims of Wall Street: A Compilation of Financial Adages, Ancient Proverbs, and Worldly Wisdom is a classic reference to read with delight for years to come, and an ideal gift to investors, stockbrokers and money managers. More than 800 pithy and insightful adages, inspirational short stories, famous quotes, and sage advice from Wall Street gurus, money managers, financial advisers, writers, philosophers and many others.

Buy the first copy for $20 and all additional copies for only $10, and I pay the U.S. postage. Also: If you order an entire box (32), you pay only $300 postpaid.  (For orders sent outside the United States, add $5 per book for S&H)

To order, call Eagle Publishing at 1-800/211-7661 or email Mention priority code MAXIMS to buy individual books and MARKR to buy a box of 32 books.

Note: I autograph all copies if you order through Eagle Publishing. Click here to read more about Maxims of Wall Street.

Derek Jeter’s Big Finale…and I Was There!

Last Thursday, at the invitation of Steve Forbes, I was able to attend Derek Jeter’s last game at Yankee stadium. Mr. Forbes has season tickets and occasionally invites me to join him. Tickets were selling for $850 and more, and those were bleacher seats, so I felt lucky. The Yankees were ahead 5-2 in the 9th inning when I told Mr. Forbes that I expected the Orioles to score three runs and tie the score, forcing Jeter to bat one more time to win it all in his final time at bat at Yankee Stadium. My prediction came true. Mr. Forbes can verify it. What a night!

I can relate to Derek Jeter. He never won the Most Valuable Player award, but he was a steady, reliable performer during his 20 years with the Yankees and ended up getting five World Series rings. By the same token, I consider my 35 years writing Forecasts & Strategies as a steady performer, never personally ranking #1 in any one year. But over the long run, I delivered a winning formula for financial success.

Mark Skousen and Steve Forbes enjoy Derek Jeter’s final home game at Yankees Stadium.

Missing Link in Economics Revealed!

by Mark Skousen
Presidential Fellow, Chapman University

For centuries economists have been searching for the missing link that would tie microeconomics (theory of the firm and individual behavior) with macroeconomics (theory of the economy as a whole).

I believe my four-stage model of the economy does just that.  Based on Austrian macroeconomics (known as Hayek’s triangles), I created a four-stage model of the macro economy in my book, The Structure of Production (NYU Press, 1990).  A few years later, John Taylor of Stanford University (famous for his Taylor Rule) independently produced a 4-stage micro model involving four stages in the production of Caribou Coffee.

A eureka moment!

I’ve incorporated both 4-stage micro and macro models in my textbook, Economic Logic (Capital Press, 2014), now in its 4th edition.  See especially chapter 14:  < It’s available in book print and Kindle.  If you want to buy it at a discount for only $34.95 plus S&H, call Eagle Publishing at 1-800-211-7661, and use code ECONL6.


Figure 1.  Universal 4-stage Macro Model of the Economy

Source:  Mark Skousen, The Structure of Production (New York University Press, 1990); Economic Logic (Capital Press, 2014).






Figure 2.  4-stage micro model (production process of Caribou Coffee) 

Source:  John B. Taylor, Economics, 5th edition (Boston:  Houghton Mifflin, 2006)

Steve Forbes Endorses My Gross Output Statistic

“Mark Skousen’s Gross Output statistic…will have a profound and manifestly positive impact on economic policy and politics.”  — Steve Forbes, Forbes magazine, April 14, 2014

The Bureau of Economic Analysis will start releasing Gross Output (GO) along with GDP every quarter starting on Friday, April 25.  I consider it a triumph in supply side “Austrian” economics.

I think Steve Forbes captures the importance of this new national statistic in his column in the April 14 edition of Forbes.

Most of the textbook writers are going to include GO in their next edition.  Sean Flynn, now the primary writer of the McConnell/Bruce textbook, is going to highlight it.

Here’s Steve’s commentary — New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal: by Steve Forbes

Here’s my original article in Forbes — Beyond GDP Get Ready for a New Way to Measure the Economy: by Mark Skousen

Here’s my op ed in the Wednesday, April 23 edition of the Wall Street JournalAt Last, A Better Economic Measure: by Mark Skousen


Chapman Students Are Surprised by the Answer to My Environmental Question

In January, my wife and I had the opportunity to teach at Chapman University, where I am a Presidential Fellow for 2014.  She taught a class in poetry, and I taught “Modern Political Economy:  Who is Winning the Battle of Ideas?”  I used my textbook, “The Making of Modern Economics,” now in its 2nd edition.

One of today’s controversies is about pollution and the environment.  We talked about a recent address by U. S. Secretary of State John Kerry, who warned students in Indonesia that “global warming” is “the greatest challenge of our generation,” more than disease outbreaks, poverty, terrorism and the proliferation of weapons of mass destruction.

Then he demonized anyone who disagrees with him, calling critics of global warming “shoddy scientists and extreme ideologues.” You could say the same about Al Gore.  Kerry added, “We should not allow a tiny minority of shoddy scientists and science and extreme ideologues to compete with scientific fact.”

Kerry is typical of the hysteria surrounding the issue of ecology and the environment. Students are being brainwashed into thinking the problem is getting worse and worse. Kerry and the extreme environmentalists blame any weather disaster, the cold snow in the Northeast or the drought in the West, to global warming.  You can’t argue with these fanatics.

I asked my students at Chapman University, “Has pollution declined or risen in the past 50 years in LA county?”  Over half thought pollution was worse.  The cold, hard fact is that pollution has been reduced sharply in LA county even as gasoline use has risen.  See this chart:,d.aWc&psig=AFQjCNGsuMz1HbLz7IT1IMCVqhIlch9HSA&ust=1392914426522327

The fact is that the average world temperature has been flat or declining for 17 straight years.  If you want to know the facts about global warming and pollution, read this column by Larry Bell in

During the class, a journalist visited my class and gave this nice write up:

I will be returning to Chapman University on Wednesday, April 16, to give a public lecture as part of my Presidential Fellowship.

Students (each holding an American eagle silver dollar) join me in front of the Adam Smith statue at Chapman University.

A Personal Triumph 25 Years in the Making with Launch of New Macro Statistic

For the first time since World War II, the Federal government (Bureau of Economic Analysis) will begin publishing a new macro statistic Gross Output [GO] starting in spring 2014 at the same time it releases its quarterly GDP data. article has just published my article on this new statistic “Beyond GDP“:

A shortened version will appear in the Dec. 16 issue of Forbes magazine (circulation over 1 million).

I’ve been advocating this new national statistic since writing The Structure of Production (NYU Press) in 1990. Now it’s finally happening. Steve Forbes calls it a “real breakthrough.”

Steve Moore of the Wall Street Journal and Gene Epstein of Barron’s are looking into writing articles on GO.  So is The Economist.

Bill Nordhaus, professor at Yale University, writes, “Congratulations on the article and the work.  It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld [Director, BEA] has been a superstar in this respect…This will open up the potential for new insights into the behavior of the economy.”

GO goes a long way in providing the right balance in the production-consumption process that is missing in GDP data. As BEA Director Steve Landefeld and co-editors Dale Jorgenson and Bill Nordhaus state: “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

I think you’ll find the chart comparing GO and GDP of interest, how GO is consistently more volatile than GDP, and a better measure of the business cycle. (Click on the chart below to go directly to the article)

I’m excited — this is a personal triumph nearly 25 years in the making.

Most of the economics textbook writers are planning to include a section on GO in their next editions (McConnell, Parkin, Gwartney, Hubbard), and economic analysts are now starting to look at it.  In an email, Roger Leroy Miller, professor at University of Texas at Arlington, says that he has added a section on Gross Output for his 18th edition of Economics Today.  It is already part of my own Economic Logic textbook.

I hope you’ll check out the Forbes article, as well as Economic Logic and The Structure of Production for a more in-depth look at this important development.

JFK Assassination: I Remember the Day

What were you doing 50 years ago on the day President Kennedy was assassinated?

I remember it well. I was a junior at Sunset High School in Portland, Oregon, and was sitting with my girl friend Mary Craner in the library when the monitor came on with Walter Cronkite announcing that the President had been shot in Dallas Texas and then later announcing with emotion, “President Kennedy died at 1 pm today.” Many students were in tears during the day (Friday), and even though I was a conservative Republican, I felt bad for the Kennedys and the country.

I was a Goldwater conservative at the time, and involved in the anti-communist movement along with my father Roy Skousen and his brother Cleon.

Today I see many conservatives are trying to make the case that JFK was a conservative, and there’s a book out now of that title (“JFK, Conservative”). I think they are trying to rewrite history. Everyone I knew back then thought that Kennedy was a social Democrat who was a big-spender and wanted more government involvement in the economy. We were opposed to his election. However, almost everyone I knew were saddened by the death of the President.

Looking back now, I see the JFK assassination as a tremendous tragedy. His successor, Lyndon Johnson, took advantage of the sympathy everyone felt about JFK’s death and pushed through “The Great Society” programs such as Medicare, Medicaid, food stamps, expanded Social Security (“The War on Poverty”), which has created a lot of the social problems, unfunded liabilities, and out of control spending that we face today.

LBJ also got us involved in the Vietnam War, although the evidence is pretty clear that JFK supported the war against Communist aggression.

The one good thing that came out at this time was the civil rights legislation, although all my conservative friends and most of the Republican leadership opposed it at the time. I think this was the Republican’s biggest error. Many Republicans such as Warren Buffett switched to the Democrats after Goldwater and other Republican leaders led their watershed opposition to equal rights for blacks. I have read since then that the more rank-and-file Republicans in Congress voted for the Civil Rights Act of 1965 than the Democrats. But the leaders were opposed.

In liberty, AEIOU,


Mark Skousen
Producer, FreedomFest
July 9-12, 2014, Las Vegas
Theme: “Is Big Brother Here?”

Record 2,500 Gather at “Best FreedomFest Ever”

By Mark Skousen

“FreedomFest was a gigantic conference.  It drew many academics, journalists, activists of all ages, vendors, investors, and a huge variety of professionals in all fields. And of course, Laissez Faire Books was there in full force. The level of fun was totally over the top. But the content of every session I attended was just spectacular.” – Jeffrey Tucker, president, Laissez Faire Books

Everyone seems to agree:  Our 7th FreedomFest was the “best ever” according to the many emails I’ve received – from Alex Green, Floyd Brown, Susana Etcheverry, Bert Dohmen, Brian June, and Gene Epstein, economics editor at Barron’sDinesh D’Souza said that FreedomFest has rapidly become “the premier libertarian gathering.”

We broke all kinds of records this year – number of attendees, sales of books at our official bookstore (Laissez Faire Books), and CDs/MP3s.  Numerous sessions, panels and debates at Planet Hollywood were standing room only.  And for the first time we had a major TV network, Fox Business at FreedomFest, along with C-SPAN.  (Plus a nice mention by Bill O’Reilly on Fox News in his interview with John Stossel.) [Read more…]