When I enter Dr. Jeremy Siegel's
office in Steinberg Hall-Dietrich Hall on a Friday morning in late August,
he glances over at his laptop computer, which is spewing out columns of
financial market data by the second, and condenses the past week's losses
into one brief exclamation.
You know the stock market is on a precarious ride when
Siegel, the award-winning and immensely accessible Wharton School finance
professor -- who is listed in every business reporter's Rolodex and was
one of a handful of economists to address Federal Reserve Chairman Alan
Greenspan, Hon'98, this summer -- issues such a summary.
The day before our interview, the Dow Jones Industrial
Average had plunged 357 points -- its third-largest point-drop ever at
that time -- putting it nearly 1,200 points below its July 17 peak of
9,338. Siegel, who recently published the second edition of his popular
investing guide, Stocks for the Long Run, and who had remained
optimistic throughout the year when others were calling, prematurely,
for the end of the 16-year-long bull market, had started to shed his horns
over the previous few weeks, while continuing to advocate long-term stock
Other than the White House sex scandal, the turbulence on Wall Street
has been the news story of the summer and early fall, made more
dramatic by the increasingly widespread investment in stocks. And so intertwined
have the world's economies become that financial crises in Russia and
Asia have put serious dents in the investment portfolios of people a hemisphere
away. All of this turmoil has kept Siegel busy lately doing what he loves
best -- explaining, offering perspective, and forecasting in op-ed columns,
financial news shows, and lectures at Wharton and across the country.
To say that the stock market dominates Siegel's life
might be an exaggeration, though only a slight one. He collects intricately
hand-blown glass; he's risen to the level of a senior master at bridge;
and he loves to eat out and travel. But Siegel is never far from news
about the financial markets on any given day, nor out of reach of the
reporters who cover them. Each August, he and his wife Ellen Schwartz,
a speech pathologist, and their two sons rent a cottage in Ocean City,
N.J., for a couple of weeks. "I don't bring that," he
says, pointing to the Bloomberg terminal that runs constantly in his office,
poised a few feet away from him on a work table. "But I have CNBC
on all the time. People say, 'Don't you want to escape from it?' I say
no. I take long walks on the beach with my wife or I go to the boardwalk
with the kids. When I'm back at home, CNBC is on in the background."
As a result, he says, he's constantly forming and fine-tuning his positions
about where the market is heading. "I feel when you're away from
the market for awhile," Siegel explains, "you begin to lose
the thread of the arguments and the talk and the psychology of the investors.
You can't stay too close. You have to have an objectivity. So I
try to strike a balance."
Siegel suddenly lowers his voice to a whisper. "Ohhh,
look. The Dow is down 24 points right now. This is sort of fascinating.
I've just been watching it crumble from the time you came in here. It
was up 80, now it's down 26. That's about a 100-point swing in about 10
Siegel's intensity and careful observations have paid
off, notes Dr. Krishna Ramaswamy, professor of finance at Wharton, who
calls him "one of the clearest-thinking economists," and adds,
"I must say there isn't a colleague who has as clear and as intuitive
an understanding of markets -- not just financial markets but all aspects
of markets and their functioning. He has a very wonderful memory for price
movements and recent events, and for historical events, as well. It is
like a scalpel, how his mind works on these things."
Stock-market history informs Siegel's book, Stocks
for the Long Run (McGraw-Hill), which put him on the media's contact
list when it was first published in 1994. In his book Siegel uses data
dating back to 1802 (10 years after the opening of the New York Stock
Exchange) to lay out his case for the consistent superiority of long-term
investment in stocks over other financial assets.
He found, for instance, that the "real," annual
return of stocks averaged seven percent over the 195-year period -- twice
the return of long-term government bonds. Indeed, one must go back to
1831-1861 for the most recent 30-year period when bond returns exceeded
those of stocks. And stocks held for 20 years or more have never returned
less than inflation; the same cannot be said of fixed-income assets, although
they have traditionally been viewed as safer investments. Based on total
return indexes, a single dollar invested in stocks since 1802 (and adjusted
for inflation) would have grown to more than half a million dollars by
1997. In contrast, the same dollar invested in bonds would have grown
to only $803.
November/December Contents | Gazette
Copyright 1998 The
Pennsylvania Gazette Last modified 10/28/98