Home Business 4 investing principles that Jeremy Siegel shares with his readers and students

4 investing principles that Jeremy Siegel shares with his readers and students


Jeremy Siegel, a distinguished finance professor at the Wharton School of the University of Pennsylvania, passionately advocates for the benefits of long-term equity investment. His impactful book, “Stocks for the Long Run”, serves as a cornerstone in investment literature, providing persuasive evidence that illustrates the superior performance of stocks over extended periods in comparison to other asset classes.

His investing principles can be best described as under:

Go long

Despite the potential for significant short-term fluctuations, stock prices consistently exhibit a positive trend in their long-term performance. Over decades, stocks have reliably outperformed inflation and other asset classes, yielding investors substantial real returns.

For portfolios with extended investment horizons, investors should increase their allocation to equities. As the time horizon lengthens, the influence of short-term volatility decreases, and the long-term benefits of stocks become more evident.

Low-cost index funds help

Engaging in low-cost stock index funds is a prudent strategy that has demonstrated effectiveness over time. Index funds, which mirror specific market indices, present numerous advantages compared to actively managed funds.

Index funds boast remarkably low expense ratios, allowing investors to retain a larger portion of their investment returns. Additionally, these funds offer exposure to a diverse array of stocks, effectively mitigating risk. Furthermore, given the ease of buying and selling such funds, there’s no need to be concerned about making individual stock selections.

Prefer value stocks over growth stocks

Certainly, value stocks have consistently surpassed growth stocks in long-term performance. The disparity in returns is especially noticeable over extended periods, such as 30 or 40 years. Numerous factors contribute to the consistent outperformance of value stocks compared to growth stocks. One factor is that value stocks are frequently underestimated by the market. This occurs because investors often concentrate excessively on a company’s growth potential, leading them to pay a premium for stocks expected to experience rapid future growth. Consequently, value stocks may be undervalued relative to their actual worth, presenting an opportunity for investors to acquire them at a discounted price.

While there is no assurance that value stocks will consistently outperform growth stocks, there are instances, particularly in periods of economic expansion, where growth stocks may exhibit better performance in the short term. Nevertheless, over the long term, value stocks have consistently demonstrated their ability to deliver superior returns.

Keep your emotions in check

Establish clear rules for your portfolio. While there may be temptations to buy during bullish periods and sell during bearish phases when emotions run high, it is crucial to resist these impulses. The temptation to monitor your investment portfolio daily can prompt emotional decision-making. Instead, consider checking your portfolio occasionally to ensure you are on course to achieve your long-term goals.

The optimal solution is to create an investment plan detailing your investment goals, time horizon, and risk tolerance. This approach will spare you from the distress and pitfalls of excessively churning your portfolio. Just avoid emotional investing and make rational decisions that align with your financial goals.



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Updated: 21 Nov 2023, 04:58 PM IST

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