Edgar Lawrence Smith
|Edgar Lawrence Smith|
May 6, 1882|
June 19, 1971|
Drexel Hill, PA
|Alma mater||Harvard University|
|Notable work||Common Stocks as Long Term Investments|
Edgar Lawrence Smith (born May 6,1882; died June 19, 1971 at age 89) was an economist and author of the influential 1925 book Common Stocks as Long Term Investments, which promoted the then-surprising idea that stocks excel bonds in long-term yield. As The New York Times put it, the book "has laid down a principle which so reverses the accepted estimate of the relative investment value of bonds and common stocks as to have aroused the keen interest of Wall Street and investment bankers in general." In Smith's own summary for the Times, he wrote:
I have been unable to find any twenty-year period within which diversification of common stocks has not, in the end, shown better results, both as to income return and safety of principal, than a similar investment in bonds. It was a surprise to me, for my studies were undertaken with the intention of proving the probably future advantage to be gained from bonds over stocks.
— Edgar Lawrence Smith, New Tests Show Stocks Excel Bonds in Yield, The New York Times
Smith said that the "bond tradition" was supported "up to 1897, when the purchasing power of the dollar reached its highest point," but failed to take into account the fact that the dollar "is a fluctuating measure of value."
John Maynard Keynes reviewed the book positively in 1925 in An American Study of Shares versus Bonds as Permanent Investments. Keynes particularly noted one novel factor affecting compound stock market returns: Smith's proposition that reinvested earnings helped increase a company's value, with retained earnings estimated at approximately 2.5% per year. The book was cited in a 1956 Financial Analysts Journal article, College and University Endowment Funds: How Much Common?, in which the gradual increased allocation to stock investment by college endowment funds between 1926 - 1943 is seen as recognition that "Conclusions by Smith are review-worthy for the one very good reason that they have been fully substantiated in the intervening years, now a little more than thirty."
His 1940 book Tides in the Affairs of Men. An Approach to the Appraisal of Economic Change sought to establish a connection between the pattern of economic booms and collapse and meteorological factors.
- Common Stocks As Long Term Investments, originally published 1924, reprinted (2003) by Kessinger Publishing, ISBN 0-7661-6073-4
- Tides in the Affairs of Men. An Approach to the Appraisal of Economic Change, originally published 1940, reprinted (1989) by Fraser Publishing, ISBN 0-87034-090-5
- Search for this book with Google.
- Smith, Edgar Lawrence (1925) "New Tests Show Stocks Excel Bonds in Yield" The New York Times, February 22, 1925, p. XX8
- Google search: Keynes' Review of Common Stocks As Long Term Investments, from An American Study of Shares versus Bonds as Permanent Investments, Nation and Athenæum, 2 May 1925 reprinted in Economic Articles and Correspondence: Investment and Editorials, (1983) J.M. Keynes,edited by Donald E Moggridge, Palgrave-McMillan, pp.247 - 253. Retrieved May 14, 2016.
- Anna E. Carpenter(1956) College and University Endowment Funds: How Much Common?, The Analysts Journal, 12(2), 63–65. Retrieved May 15, 2016.
- Edgar Lawrence Smith (January 1930). "The Break in the Credit Chain". The Atlantic. http://www.theatlantic.com/magazine/archive/1930/01/the-break-in-the-credit-chain/307109/. Retrieved May 14, 2016.