In my business school days, one of the most popular professors on campus was Jeremy Siegel, famous for his commentaries on the economy. He has since become famous for a seminal book he published in 1994, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies (updated in 2002). It made a compelling case for investing in stocks, drawing on data he dug up going all the way back to 1802. (You read that right -- 200 years of data.)
Siegel has a new book coming out next year, called The Future of Investing, focusing on how to identify those stocks that have a good chance of being long-term winners. Here's a peek at comments he recently made about the state and future of the stock market, drawn from information found at knowledge.wharton.upenn.edu.
- "I think the great bull market in bonds is over," he said, noting that falling interest rates helped send bond prices upward in recent years, but the current environment is one of rising rates.
- In researching which stocks do best over long periods, he found that some of the best performers over the past 50-plus years include Kraft Foods
(NYSE:KFT), ExxonMobil (NYSE:XOM)(formerly Standard Oil of New Jersey), AltriaGroup (NYSE:MO)(formerly Philip Morris) and Coca-Cola (NYSE:KO). Noticing that since at least 1950, these firms haven't really changed what they do all that much, he said, "If you've got a winner, you stay with it."
- Helping put firms such as Altria in the top group was their hefty dividend payout. (For suggestions of promising companies that pay significant dividends, check out a free trial of our Motley Fool Income Investor.)
- Another interesting finding was that firms new to the S&P 500 tended to not perform as well as old stalwarts -- probably because investor enthusiasm and high expectations propped up newbie prices prematurely. A conclusion: "Long-term investors would thus be wise to build a core holding of proven, dividend-paying companies with established products."
- One fly in the ointment is retirement. As more investors retire, there may be more sellers than buyers in the market, which would send stock prices southward. (Get valuable retirement advice in our new retirement planning service -- a free trial is available.) Still, things might end up working out as we sell more products, services, and stocks to the growing populations of developing countries.
Knowledge@Wharton added, "Though the price-to-earnings ratio of the S&P 500 is now in the low-20s, compared to a long-term average of about 15, Siegel does not believe stocks are overpriced today. Factors such as greater securities liquidity, tax-law changes, and the taming of the business cycle have made stocks less risky, and [he said] a P/E of 20 or so should be considered the norm."
Until Siegel's new book comes out, get some investing insights in these highly recommended books.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.