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"stocks for the Long Run" by Jeremy Siegel Case

Essay by   •  November 5, 2012  •  Research Paper  •  1,951 Words (8 Pages)  •  1,556 Views

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​The book focuses on the financial aspects of investing in stocks. The author's main contentions are that long term investment in the stocks is cheap to the investor and yields higher income than short term investments. The author backs these sentiments with an in depth research and analysis that shows the strategies and steps that can be used to accumulate portfolio with high returns at low risk. These contentions are in tandem with the historical information, which the author has also presented. The historical records show how the long term stocks have turned out to be low risk and highly productive as well. The bond and stock record information stretch back to 1802. The main contention is that stocks are more profitable than bonds in the long run. The author further contents that after taxation on both stocks and bonds; the stocks are more beneficial to the investor. On the investment perspective of stocks, the author demonstrates how historical facts overwhelm fickle markets.

​In the second part of the book, the focus is on global markets, valuation of stocks and investment styles. The author contents about the best measures and sources of market value. The best ways of valuing financial assets such as bonds and stocks are emphasized. There is also the aspect of how economic growth impacts on valuation of financial securities. The other contention is that in future, the developing world will grow faster and outperform the developed world in financial markets. In this case, the author considers the importance of dividend yields, size and earnings to price ratios. There is emphasis of China and India as the rising markets for global investments that investors can diversify their portfolio to reduce risk. The third main contention is about economic conditions and its impact on stocks.

​The author gives a lot of focus on global investment. This is because of the need for investors to invest abroad as a way of diversifying and reducing risk. The American stock market today holds only slightly over a third of the equity capital of the world. The book gives investors the right avenues to follow when trying to make a portfolio that has a good balance of financial assets between the foreign and domestic markets. The book covers the allocation of the sector across the world. Investors will be best informed where they can find safe financial investments and where to find the financial assets with high returns.

​The Stock for the Long Run also analyses the things that change or move the financial market and explains a lot more about the origins of big market changes. The author comprehensively explains what causes change in financial markets both at domestic and international level. He identifies investor strategies as one of the biggest causes. Investors can adopt strategies that can be used to take advantage of gaps and opportunities that arise in the world market.

​The book contains fundamentally weighted indexes as well. Fundamentally weighted indexes are known historically to give higher rates of return and at lower risk compared to the capitalization weighted indexes. The investment analyst explains how the two kinds of indexes work and how they can be used to acquire high returns for the investor. There is historical evidence on how the fundamentally weighted indexes can yield higher returns than the capitalization indexes. There are numerical figures presented for easier understanding by the reader.

​The book also focuses on the psychological and behavioral finance factors that influence some long term investors to make erratic and irrational investment decisions. The author discusses the various activities and behavior that investors indulge in that may lead them to make wrong investment decisions. Wrong investment decisions lead to financial losses and mismanagement of portfolio. The markets are described explicitly and the likely decisions by investors discussed. The author gives the possible solutions to wrong decision making when dealing with long term investments. The psychological factors are mentioned. There are several scenarios of psychological factors that mislead investors into making wrong investment decisions.

​The author focuses on how the investment industry works. He cites technology, industrial expansion and fast growing economies that investors look for as factors leading to poor returns on investments. Investors can also be lured into investing in over-priced equities and very competitive firms leading to heavy losses. The author gives investors advice on how the investment market should be handled. How they can make rational decisions that will help them make profits. The author gives tips on which markets are ideal for investments in the current state of the economy.

​The book also focuses into the future investment world. The author gives a true picture of how the global investment market will be. He uses the theory that the developing economies will possibly overtake the developed economies as safe investment destinations. There will be a shift, where investors will now prefer investing in the developing nations, because the developing nations are safer places to invest than the developed countries. Stock for the Long Run is a vital book for all investors to read. This is because it helps them to understand market behavior, past market trends and possible future impacts comprehensively. This knowledge will help investors in their quest to create long term portfolio, which will be secure, safe and profitable. The book touches on every aspect of long term investment. This includes stock returns, past verdicts on long term investments and wealth creation using long run stocks. Other aspects covered include; changes in stock valuation in the short term period and favorable investing environments for stock investment in the economy.

​ The book has many strong points. It is actually a very comprehensive and informative guide to all investors. First, the book refers to historical analysis of financial data such as stock and return information to decide

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