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The Stock Market Sage (continued)

   After teaching for four years at the University of Chicago, where he says economist Milton Friedman was a mentor, Siegel joined the faculty at Wharton in 1976. "He's deeply committed to understanding the macro-financial sector and its constant change. This makes him an outstanding teacher," says Dr. Anthony Santomero, the Richard K. Mellon Professor of Finance who serves as director of the Wharton Financial Institutions Center. "He's excited, he's up to date There is also an intensity of feeling and commitment. Every subtle nuance has been considered."
   Siegel's teaching skills -- and the range of audiences eager to hear him -- are on display in two lectures:
   The first takes place on a warm, late-summer day at an inn in Avalon, N.J. Some 60 men dressed in knit shirts and shorts -- branch managers in the investment firm of Janney Montgomery Scott -- are in town for a two-day seminar mixed in with fishing and golf. Siegel, his gray suit jacket folded on a chair in the dining room where they've gathered, is pacing energetically in front of a slide projection of one of the charts from his book. He speaks, among other things, about how the risk of stock ownership decreases as the length of the holding period increases.
   "Want me to be frank? Here is where I think our profession has led Wall Street wrong," he tells his audience. "When we measure risk, what holding period do we assume? Almost universally, annual returns. It's only appropriate for the investor who, one year from now, is going to liquidate all of their assets. I would dare say that probably no one in this room in 12 months has clients who are going to liquidate all of their financial assets."
   Siegel goes on to discuss the relative performance of bonds. "[If you've used] bonds for diversification, I'll bet your client has been really happy about that over the last month or two," he says. Then he drops this warning: "Over 30 years, a 100 percent stock portfolio has a higher rate of return and lower risk than a 100 percent bond portfolio. Tell me," Siegel asks, "what is the world going to look like in 2028?" It didn't take long to develop double-digit inflation in the 1970s, he reminds them. "Could it happen again? Most certainly it could happen again. No one knows."
   Siegel's overall message was a welcome one for broker Phil Kontul. "I think he makes a compelling argument for buying stocks for the long term," he says during a coffee break at the seminar. "As a stock broker it's comforting to see some of these statistics. We've had some high volatility recently, but we really have to keep this in perspective."
   A couple of turbulent weeks later, in late September, about 250 Wharton MBAs and undergraduate students have packed a lecture hall seeking explanations for this global financial upheaval from Siegel, who isn't teaching classes this semester. They fill every seat, leaning against the walls, with bookbags still strapped to their backs, and crouching in the aisles. They spill out into the hallway and peer in from an outside exit. "We figure he might have better answers than we do," explains Robb LeMasters, a Wharton senior who's worried about how the turmoil will affect the job market when he graduates.
   "Let me give you sort of an executive summary," Siegel teases the crowd in his introduction. "Things are bad. And they're going to get worse before they get better." Siegel quickly moves to his argument in favor of dramatically lowering interest rates -- for starters, a one percentage-point drop at the September 29 meeting of the Federal Reserve policy making committee (a position he'd also stated in Avalon) -- in order to stave off a recession. He then proceeds to dissect one of the leading financial news stories of the week -- the $3.5 billion bailout of Long-Term Capital Management, "the gold-plated hedge fund" which produced enormous profits through speculative investments before its near collapse and which, in Siegel's view, "is going to cause an agonizing reassessment of how we describe risk in correlation to returns in financial markets throughout the entire world."
   It is partly Siegel's ability to navigate between a narrow topic and the larger picture, to link textbook theory with current events, that has earned him a succession of teaching awards (which he proudly displays in his office) over the past seven years. In 1994, he was also named the top business school professor in the country in a student survey conducted by Business Week. "What he has is a gift for connecting it all up," says Robert Shiller. "There's a bias in academia to get very specialized and focus on some mathematical model, or the like. These models are more useful if they can be put in a broader context, which is what he does."
   When Siegel teaches, he seems to throw his whole upper body into the act, nodding his head, snapping his fingers, and sweeping the air with his arms to make a point. And with an oratorical pace that is alternately urgent and leisurely, he gives the impression of actively pondering and working things through while explaining them to others. "It is almost a kind of transformation of someone, much the way an actor who steps on the stage gets animated when taking on the role of their part in the play," observes Anthony Santomero. He "becomes extraordinarily active and excited when he walks into the classroom."
   
Such is Siegel's teaching reputation that 565 Penn undergraduates registered for 15 spots in a preceptorial on "The Stock Enigma" led by him this fall. Preceptorials are informal, non-credit courses organized by the Student Committee for Undergraduate Education, and they offer undergraduates a rare opportunity to interact with a professor like Siegel, who predominantly teaches MBA students. "The MBA is what makes us famous," Siegel says, "but the undergraduate has always been dear to my heart, even though I like teaching MBAs -- I love it."
   "He was really probably the best professor I had in business school," recalls Dr. Howard Forman, WG'96, vice chair of the diagnostic radiology department at Yale University School of Medicine. Forman, who also teaches health economics to undergraduates, says he tries to model his own teaching approach after Siegel's. "He had kind of an infectious enthusiasm for macroeconomics as well as finance, and he had a genuine interest in what he was teaching, as well as trying to make sure he was teaching in a way that got across the material" by linking it to current events.
   To Forman, Siegel's enthusiasm is apparent even outside of class. "I call him up every month or couple of months just to chat, and we're both sitting at the Bloomberg terminals so we can keep track of what is going on at that moment. What I appreciate is, despite the fact that his training is not only different from mine, but his years of experience are far greater than mine, he will say, 'What do you think about this or that?' He will respect the fact that everybody's opinion has some weight, even if [they're] not as learned as the others. He has a great respect for people."
   The following week, the Federal Reserve does lower interest rates, but -- to Siegel's disappointment -- only by a quarter of a percentage point. The Fed's policy-making committee wasn't scheduled to meet again until November 17. "Once you've waited too long," Siegel had warned in his Avalon lecture, "you've lost your leverage." That's what happened, he says, when the Fed failed to respond swiftly to the stock crash of October 1929, and the United States sank into the Great Depression.
  
Continued...
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