Does Siegel ever define "long run?"

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nisiprius
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Does Siegel ever define "long run?"

Post by nisiprius » Wed Dec 24, 2008 10:32 am

I don't have his book (Stocks for the Long Run) at hand. I've been trying with Google Books to find whether there is any place where he defines the term "long run," without much success. I notice that he in reference to investing strategy he always uses the phrase "long run," never "long-term."

He sometimes talks about periods as long as seventy years, and often talks about periods of thirty years as well as twenty years.

Peter Bernstein's introduction to the book says
we must keep in mind that Professor Siegel did not lightly choose Stocks for the Long Run as the title of his book. The operative number is 20. Volatility of returns is high in periods of less than 20 years.
So, to Bernstein, "long run" means "twenty years or more."

But does Siegel himself ever commit to a number of years—or a rough number of years—or a range of number of years that constitute what he means by "long run?" On page 28, he says:
Never in the past 150 years has the buyer of a newly-issued 30-year government bond who held it to maturity achieved greater gains than an investor who held a diversified portfolio of common stocks over the same period.
This to me suggests that he means "the long run" to be thirty years, not twenty.

I'm thinking of the possibility of a vicious circle. "Stocks always do well in the long run" could be an unfalsiable tautology if, given any period over which stocks didn't do well, then by definition that wasn't a long enough period to count as "the long run."
Last edited by nisiprius on Wed Dec 24, 2008 10:51 am, edited 1 time in total.
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Post by Roverdog » Wed Dec 24, 2008 10:36 am

Nisiprius,

Here's a link to the introduction, where the 20-year figure is mentioned:


http://books.google.com/books?id=RmPQGS ... t#PPR16,M1

Bob

(Edited to agree with nisiprius. I was typing faster than I was thinking. :oops: )
Last edited by Roverdog on Wed Dec 24, 2008 10:49 am, edited 1 time in total.

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Blue
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Post by Blue » Wed Dec 24, 2008 10:51 am

I seem to recall him providing data that ~95% of 20 year periods stocks outpeformed bonds, and ~98-99% of 30 year periods since the early 1800's.

I do not recall him defining "long run" otherwise.

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Post by nisiprius » Wed Dec 24, 2008 10:52 am

Roverdog wrote:Nisiprius,

Here's a link to the introduction, where the 20-year figure is mentioned:


http://books.google.com/books?id=RmPQGS ... t#PPR16,M1

Bob

(Edited to agree with nisiprius. I was typing faster than I was thinking. :oops: )
Right, but that's Peter Bernstein speaking, not Jeremy Siegel.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Post by Roverdog » Wed Dec 24, 2008 11:00 am

Not from his book, but here's a Yahoo! column from Jeremy Siegel where he actually states the 20 year figure:

Although stocks are indeed much riskier than bonds in the short run, in the long run they are safer. In fact my studies have shown that over periods 20 years or longer, a portfolio of diversified stocks has been more stable in purchasing power than a portfolio of long-term government bonds.
And the link:


http://au.pfinance.yahoo.com/b/futurein ... e-long-run

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Post by Rodc » Wed Dec 24, 2008 11:25 am

Roverdog wrote:Not from his book, but here's a Yahoo! column from Jeremy Siegel where he actually states the 20 year figure:

Although stocks are indeed much riskier than bonds in the short run, in the long run they are safer. In fact my studies have shown that over periods 20 years or longer, a portfolio of diversified stocks has been more stable in purchasing power than a portfolio of long-term government bonds.
And the link:


http://au.pfinance.yahoo.com/b/futurein ... e-long-run
Not sure why he would use long-term bonds as opposed to intermediate term or something else. Now that we have TIPS that is a worthy contender. We don't have data back very far, but surely one can buy imagine a synthetic situation were you assume buy and hold to maturity of TIPS yielding some low number like CPI+1% as a proxy.

I have not read his book. Does anyone know if he makes the common mistake of using a lump sum investment? For people ramping up pay check by pay check the 20-year results are rather less rosy.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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