Jeremy Siegels thoughts on investing…

When Jeremy Siegel speaks you listen! Author of the book “Stocks for the long Run” Jeremy is surely one of the investment gurus. He has said a few things in his latest comminque. This is worth listening to. I am producing it as it is, and (1) is not even relevant to you and me if you are also not in the US of A. So read on….

1. Investing abroad is essential. “Sticking only to U.S. equities is a risky strategy for investors.”

2. Don’t be too optimistic. With the increasing popularity of foreign investing, Siegel predicts that today’s globalized world will result in higher price-earning ratios, but as a result, average returns are going to be lower for foreign stocks. Hey that means us (!). You have to look at equity returns to be better than debt returns. So if your equity returns are about 12% p.a. thank your stars. Forget 30 and 40% returns that the market has pampered you with.

3. This technical system works! The only technical system that has really worked to beat the market over the long run is the “Dogs of the Dow” strategy, picking the top 10 highest-dividend-paying Dow stocks. No system works every year, but Siegel found that this Dow 10 technique has staying power. Please remember Siegel is talking about the past, I am not too optimistic about this theory. I am more convinced that the greater the success of such theories the greater the chance of failure. No comments.

4. Stay away from this popular stock category: tech and biotech (with few exceptions). “Most technology stocks have greatly under performed the market.” The few winners (such as Microsoft or Merck) can’t make up for the huge number of losers. Siegel calls this “The Growth Trap.” Cannot agree more. Look at Biotech, Mindtree, have a graveyard out there. Keep it simple – do an SIP in a index fund.

5. Avoid most, but not all, IPOs. According to a study by Siegel of IPOs between 1968 and 2001, nearly 80% of new stock issues under-performed the stock market index. Ha ha ha…Indian markets have not been researched but there are a few stocks available at 40% discount to the issue price.

6. Dividends are a better indicator of future stock performance than earnings. Earnings can be manipulated by depreciation schedules, sales of assets, and other hidden factors. But dividends don’t lie. According to Siegel’s studies, the best way to beat the market is to invest in high-dividend “value” stocks with low P/E ratios. “These high-dividend strategies have provided investors with higher returns and lower volatility over the past five decades.” Sorry I do not know how to find such stocks in the Indian market. Surely it is not a “value” market it is a “growth” market. Surely not a dividend yield market.

7. Use Exchange Traded Funds (ETFs) to increase and protect your profits. Siegel calls ETFs “the most innovative and successful new financial instruments” since stock options and commodity futures were created in the 1970s.

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