This Chart About Wall Street Says It All: But Will It Last?

“Those investors who have persisted in the stock market have always been rewarded.” — Jeremy Siegel, “The Wizard of Wharton”

Jeremy Siegel deserves the Nobel Prize in Economics for his work, much more so than Ben Bernanke.

The sixth edition of his classic book, “Stocks for the Long Run,” has just been released. I’ve been reading it and underlining his insights on every page. I highly recommended it for those who are worried about the future of your investment portfolio.

You can buy it here.

In it, he makes the case that investing in successful, American, publicly-traded companies is the best source of wealth creation you can imagine … better than bonds, oil, gold, silver or foreign currencies.

But aren’t stocks inherently risky?  The market is down 30% this year, and at times has fallen even more (50% in 2007-09, 92% in 1929-33).

The following chart gives the impression that stocks are indeed volatile and gyrate like a yo-yo.

But graphs can give the wrong impression. The above chart shows CHANGES in the annual stock price index. But if you look at total return over time, you get a very different picture:

This incredible chart summarizes Siegel’s findings:

1. Stocks outperform all other investment assets, including bonds, gold and foreign markets.

2. Bear markets are relatively short in duration.

What’s amazing about Siegel’s chart is the fact that bear markets look like blips over the long term, including the time stocks fell by 92% from 1929-33. As Siegel states, “Major bear markets frighten so many investors and keep them out of the market. Yet these blips fade into insignificance when compared to the broad upward thrust of stock returns.”

Siegel even goes so far to state that in the long run, U.S. stocks offer a safer and better return than U.S. Treasury bonds!  According to Siegel, “Once the holding period increases to between 15 and 20 years, stocks become less risky than bonds.”

3. Stocks are a good inflation hedge because businesses represent real assets and adjust to the new inflation patterns.

But we must emphasize the fact that “in the long run,” they are safer than bonds and a good inflation hedge. In the short run, stocks are volatile.

Dividends Save the Day

Siegel debunks the traditional 60/40 portfolio, where institutions and investors keep 60% of their respective portfolio in stocks and 40% in bonds. Better to go all out in stocks, he says, especially dividend-paying stocks. “Dividends are the critical factor giving the edge to most winning stocks in the long run.” (“Maxims of Wall Street,” p. 184)

He also warns about the prophets of doom and Cassandras who are constantly bearish on America and Wall Street. According to Siegel, Robert Shiller’s CAPE index and Jim Tobin’s Q Ratio have kept investors out of the market too long, largely missing the “mother of all bull markets” from 2010 until 2021.

Why Have Stocks Done So Well on Wall Street: American Exceptionalism!

Siegel does issue this caveat: “One must be aware of the political, institutional and legal framework in which these returns were generated.”

The success on Wall Street has largely been due to the fact that America has encouraged free markets and entrepreneurship, perhaps more so than any other country. We still lead the world in patents and trademarks.  Look at the world’s largest corporations such as Amazon, Apple, Alphabet, Tesla, Meta, Nvidia, Visa, MasterCard and Chase Manhattan Bank — they are all headquartered in the United States.

As long as the United States continues to be a beacon for entrepreneurs, Wall Street and Silicon Valley will be the places to be.

But What If…

However, a bull market cannot last if the nation does not provide a stable political and legal environment for free-market capitalism to flourish. Many foreign markets have vastly underperformed Wall Street, especially countries that have adopted socialism and closed down their stock markets for lengthy periods of time (Russia, Argentina, Venezuela and others — the list is rather long).

American exceptionalism is never guaranteed. Wall Street has outperformed largely because we have a constitutional government that limits stupidity in Washington. As long as we encourage immigration and entrepreneurship, — the Adam Smith model — the American dream is still alive.

Even then, our government can get out of hand from time to time, causing the market to stagnate (such as from 1966-1982 and from 2000-2009) and even collapse (1929-33).  Fortunately, the financial ship has always righted itself and the bull market has resumed. We can only pray that this laissez-faire policy will continue.

Ronald Reagan warned us, “Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children’s children what it was once like in the United States where men were free.”

Advice from Jeremy Siegel

I’ve been an admirer of Jeremy Siegel, the long-time professor of finance at the Wharton School at the University of Pennsylvania.  He has now retired. We’ve met on many occasions, such as this occasion at the Union League in Philadelphia in 2014.

We took our wives out to dinner on Valentine’s Day 2009. Before leaving, he showed me his 200-year stock market chart. Bear in mind that in early 2009, the United States was in the middle of the financial crisis and the Great Recession, and the stock market had fallen by 50%. But Jeremy was upbeat. His graph showed that every time the stock market had fallen by 50%, it hit a long-term bottom. The only exception was 1930-32, the Great Depression, and neither one of us thought that would happen again.

Siegel said that it was likely we would see the bottom within weeks. In the March issue of my newsletter, Forecasts & Strategies, I told the story about Siegel’s graph and said that the market was a “screaming buy.”

It was one of my best calls ever, thanks to my meeting with Professor Siegel.

Professor Siegel Quoted in ‘The Maxims of Wall Street’

Like myself, Siegel is an optimist. He would no doubt agree with these “Maxims of Wall Street” during this current bear market:

“The country is very elastic: like a rubber ball hit, it will spring up again.” — William Vanderbilt

“The next 100% in the market will be up, not down.” — Scott Matthews

“If you are a long-term investor, you will view a bear market as an opportunity to make money.” — Sir John Templeton

“Businessmen can profit handsomely if they will disregard the pessimistic auguries of self-appointed prophets of doom.” — J. Paul Getty

In fact, Jeremy Siegel wrote his latest edition in part to “fortify those who waver when pessimism once again grips investors.”  It’s timely advice. He concludes by saying that, “No one has made money in the long run betting against stocks.”

Best Holiday Gift

Are you thinking of what to get your friends, family and clients for the holidays? There’s no better gift than “The Maxims of Wall Street.”

Rodolfo Milani, the Senior Managing Director of B. Riley Wealth Management, says, “I find them to be ideal gifts for my best clients.”

Kim Githler, president of the MoneyShow, just ordered 25 copies for Christmas gifts. “It’s my favorite financial book. Every quote is a lesson in finance.”

Mike Antonovich, former commissioner and mayor of Los Angeles County, bought two boxes to give out to friends and relatives.

The Maxims has sold nearly 50,000 copies, and has been endorsed by Warren Buffett, Jack Bogle, Richard Band, Dennis Gartman and Alex Green, who calls the Maxims a “classic” and the “#1 financial bible.”

He adds, “Maxims is a crash course in financial freedom. Mark Skousen has collected a treasure trove of proverbs, slogans, stories and juicy quotes.  He provides plenty of stories and commentary to go with these gems. I found myself chuckling (and occasionally sighing) when I first read this book.  And I still refer to it regularly.”

To encourage multiple sales, I sell the first copy for $20, and all additional copies are $10 each.  If you order a box (32 copies), the price is only $300.  I autograph and number each copy, as well as mail them at no additional charge (within the United States only). To order, go to www.skousenbooks.com.

P.S. I will also be hosting a subscribers-only teleconference on Nov. 9 at 2 p.m. Eastern called “Post-Election Fast Money Opportunities to Profit From.” The event is free, but you must register here to be able to participate. Don’t miss out!

Good investing, AEIOU,

Mark Skousen

You Blew It!

Electric Vehicles Cause Pollution!

“This [executive order banning new gas-fueled cars by 2035] is the most impactful step our state can take to fight climate change. For too many decades, we have allowed cars to pollute the air that our children and families breathe. Californians shouldn’t have to worry if our cars are giving our kids asthma. Our cars shouldn’t make wildfires worse — and create more days filled with smoky air. Cars shouldn’t melt glaciers or raise sea levels threatening our cherished beaches and coastlines.”  — Governor Gavin Newsom

Never mind that air pollution has declined more than 95% in major cities in California over the past 50 years, Governor Nuisance wants to do more, and so, with the stroke of a pen, he banned all new gas-powered cars in California after 2035.

He did not go through the legislature. Democracy be damned!

What happens in California often causes other states to follow suit, especially when it comes to automobile manufacturing.

Electric vehicles are all the rage, even though they represent only 1% of the 250 million cars, SUVs and light-duty trucks on American roads. Every major car manufacturer is now competing with Tesla.

Most EV enthusiasts think they are doing their part by traveling without polluting the air.

In fact, batteries can’t be made without using fossil fuels, including oil, gas and coal. And the electricity used to power the batteries often requires non-renewable energy sources. Many manufacturers in foreign countries use child labor to mine the minerals that are used to produce batteries. And when windmills and solar panels are used to generate electricity, they become a plight to the environment, killing millions of birds each year.

There’s no free lunch when it comes to green energy.

And what about old batteries that end up in a landfill?  Recycling is costly, often involving extreme temperatures or acid. Both processes generate emissions and waste, hurting the environment.

John Stossel has just completed a video you must see. You can watch it here.

He interviews energy expert Mark Mills, a faculty fellow at Northwestern University’s McCormick School of Engineering and Applied Science. Professor Mills is an author and was named “Energy Writer of the Year” (2016).

Mills states, “If you’re worried about carbon dioxide, the electric vehicle has emitted 10 to 20 tons of carbon dioxide [from the mining, manufacturing, and shipping] before it even gets to your driveway.”