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 Š There
is also an intensity of feeling and commitment. Every subtle nuance has
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
"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
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
"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
November/December Contents | Gazette
Copyright 1998 The Pennsylvania
Gazette Last modified 10/28/98