Book Review: The Future for Investors

The Future for Investors (2005) by Jeremy Siegel

The first half of this book presents some interesting historical analyses of stock market returns for all the companies in the S&P 500 index since its inception. There are a few surprising and perhaps counterintuitive results. For example, if you invested in a new rapidly-growing company and in a mature slow-growing company, which one would give you the greater long-term return? You might think that the rapidly-growing company would be the better investment, but you might be wrong. The reason is that rapidly-growing companies tend to be overvalued (e.g., have high P/E ratios), which means you are paying a premium for that growth, which reduces the magnitude of your return compared with a slow-growing but undervalued company. This is especially the case for IPOs, with historical data showing that the majority of IPOs perform worse than the rest of the market, in part because they quickly become overvalued. This part of the book also addresses the tech bubble from a decade ago and discusses how dividend stocks can protect you in a down market. The second half of the book looks to the future and the looming issues associated with baby boomers retiring. I found this part of the book less interesting and more speculative. In a nutshell, the author thinks that problems arising from the North American "age wave" will be offset by the economic rise of younger developing countries in Asia and South America.

Note: I read this book in September 2011.