| Foreword |
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xv | |
| Preface to the Sixth Edition |
|
xvii | |
| Acknowledgments |
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xxi | |
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PART I VERDICT OF HISTORY |
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Chapter 1 The Case for Equity: Historical Facts and Media Fiction |
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3 | (18) |
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"Everybody Ought to Be Rich" |
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3 | (2) |
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5 | (2) |
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Historical Perspectives on Stocks as Investments |
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7 | (5) |
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The Influence of Smith's Work |
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8 | (1) |
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Irving Fisher's "Permanently High Plateau" |
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9 | (1) |
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A Radical Shift in Sentiment |
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10 | (1) |
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The Postcrash View of Stock Returns |
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11 | (1) |
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The Great Bull Market of 1982--2000 |
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12 | (4) |
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Warnings of Overvaluation |
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13 | (1) |
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Late Stage of Great Bull Market 1997--2000 |
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14 | (1) |
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To the Top of the Technology Bubble |
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15 | (1) |
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15 | (1) |
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From Tech Bust to Financial Crisis |
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16 | (2) |
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Optimism, Pessimism, and Psychology |
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18 | (3) |
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Chapter 2 Asset Returns Since 1802 |
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21 | (1) |
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Financial Market Data from 1802 to the Present |
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21 | (1) |
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Very Early Stock Market Data |
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22 | (1) |
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23 | (1) |
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The Long-Term Returns of Bonds |
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24 | (2) |
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Gold, the Dollar, and Inflation |
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26 | (1) |
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27 | (3) |
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Real Returns on Fixed-Income Assets |
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30 | (1) |
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The Continuing Decline in Fixed-Income Returns |
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31 | (1) |
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31 | (2) |
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Worldwide Equity and Bond Returns |
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33 | (2) |
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35 | (3) |
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Market-Determined Returns |
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36 | (1) |
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Volatility of Real Estate Returns |
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37 | (1) |
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Summary of Real Estate Returns |
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38 | (1) |
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Conclusion: Stocks for the Long Run |
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38 | (3) |
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Chapter 3 Risk, Return, and Portfolio Allocation: Why Stocks Are Less Risky Than Bonds in the Long Run |
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41 | (1) |
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Measuring Risk and Return |
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41 | (1) |
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42 | (3) |
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Standard Measures of Risk |
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45 | (3) |
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45 | (3) |
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Volatility Measured from Historical Data |
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48 | (1) |
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Correlation Between Stock and Bond Returns |
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49 | (2) |
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51 | (1) |
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52 | (4) |
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Fundamental Considerations |
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52 | (1) |
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The 60/40 Retirement Portfolio |
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53 | (3) |
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56 | (3) |
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Chapter 4 Global Investing: Disappointment and Promise |
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59 | (16) |
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The Japanese Market Bubble |
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60 | (1) |
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61 | (1) |
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The World of Equities 2021 |
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62 | (2) |
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International Stock Returns |
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64 | (1) |
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Diversification in World Markets |
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65 | (6) |
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Should You Hedge Foreign Exchange Risk? |
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67 | (2) |
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Sector Allocation Around the World |
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69 | (2) |
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71 | (4) |
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PART II STOCK RETURNS: MEASUREMENT AND VALUATION |
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Chapter 5 Stock Indexes: Proxies for the Market |
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75 | (14) |
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75 | (1) |
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76 | (4) |
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Computation of the Dow Index |
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77 | (1) |
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Long-Term Trends in the Dow Jones Industrial Average |
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78 | (1) |
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When Are Times Really Different? |
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79 | (1) |
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80 | (4) |
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80 | (1) |
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81 | (1) |
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Other Stock Indexes: The Center for Research in Security Prices (CRSP) |
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82 | (2) |
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Return Biases in Stock Indexes |
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84 | (1) |
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Why the Average Stock Is a Loser While the Stock Market Is a Winner |
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84 | (2) |
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Appendix: What Happened to the 1896 Original 12 Dow Industrials? |
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86 | (3) |
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Chapter 6 The S&P 500 Index: More Than One-Half Century of US Corporate History |
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89 | (12) |
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Sector Rotation in the S&P 500 Index |
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90 | (4) |
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The Performance of the S&P 500 Index Versus the Original Stocks |
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94 | (1) |
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94 | (2) |
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Top-Performing Survivor Firms |
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96 | (1) |
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What Happened to "Top Dogs" of the Market? |
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96 | (2) |
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98 | (3) |
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Chapter 7 Sources of Shareholder Value: Earnings and Dividends |
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101 | (14) |
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101 | (1) |
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Sources of Shareholder Value |
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102 | (1) |
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Historical Trends in Earnings and Dividends |
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103 | (5) |
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The Gordon Dividend Growth Model of Stock Valuation |
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104 | (3) |
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Discount Future Dividends, Not Earnings |
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107 | (1) |
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108 | (5) |
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Earnings Reporting Methods |
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109 | (1) |
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Historical Earnings Trends: A Comparison |
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110 | (3) |
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113 | (2) |
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Chapter 8 Interest Rates and Stock Prices |
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115 | (12) |
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Real Interest Rates and Stocks |
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115 | (1) |
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Determinants of Real Interest Rates |
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116 | (9) |
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117 | (1) |
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117 | (1) |
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118 | (1) |
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119 | (1) |
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Decline in Growth of Per Capita GDP |
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120 | (1) |
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Other Impacts of Slower Economic Growth |
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121 | (1) |
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121 | (1) |
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121 | (1) |
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122 | (1) |
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123 | (2) |
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The Role of the Monetary Authority |
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125 | (1) |
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Interest Rates and Stock Prices |
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125 | (1) |
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126 | (1) |
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Chapter 9 Inflation and Stock Prices |
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127 | (10) |
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127 | (3) |
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128 | (2) |
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Stocks as Hedges Against Inflation |
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130 | (2) |
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Why Stocks Fail as a Short-Term Inflation Hedge |
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130 | (2) |
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132 | (1) |
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132 | (1) |
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133 | (3) |
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133 | (1) |
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Corporate Tax Distortions |
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134 | (2) |
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136 | (1) |
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Chapter 10 Yardsticks to Value the Stock Market |
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137 | (20) |
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137 | (3) |
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Dividend Yield and Buybacks |
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139 | (1) |
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Yardsticks for Valuing the Market |
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140 | (10) |
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140 | (2) |
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142 | (1) |
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143 | (2) |
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The Fed Model, Earnings Yields, and Bond Yields |
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145 | (2) |
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Stock Market Value, GDP, and Profit Margins |
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147 | (1) |
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Book Value, Market Value, and Tobin's 0 |
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148 | (1) |
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149 | (1) |
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What Is the Right Valuation of the Market? |
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150 | (3) |
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A Fall in Transaction Costs |
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151 | (1) |
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Other Factors Raising Valuation Ratios |
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151 | (1) |
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152 | (1) |
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153 | (4) |
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PART III MARKET EFFICIENCY AND VALUE VERSUS GROWTH |
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Chapter 11 Which Stocks for the Long Run? |
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157 | (10) |
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157 | (3) |
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158 | (2) |
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160 | (2) |
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GOAT: Greatest of All Time |
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162 | (2) |
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Source of Philip Morris Outperformance |
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163 | (1) |
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Other "Near-Death Experiences" That Turned to Gold |
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164 | (1) |
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It's What You Know for Sure That Ain't So |
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165 | (1) |
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165 | (2) |
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Chapter 12 Is Value Investing Dead? |
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167 | (16) |
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167 | (8) |
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Earnings, Dividends, and Book Value |
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168 | (4) |
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172 | (3) |
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Underperformance of Value Stocks |
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175 | (6) |
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Explanations for the Post-2006 Value Downturn |
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176 | (1) |
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Has the Premium Been Arbitraged? |
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176 | (2) |
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178 | (1) |
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179 | (1) |
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179 | (2) |
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The Future of Value Versus Growth |
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181 | (1) |
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181 | (2) |
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Chapter 13 Market Efficiency or Noisy Markets? |
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183 | (10) |
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The Efficient Market Hypothesis |
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183 | (2) |
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The Noisy Market Hypothesis |
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185 | (1) |
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Deviations from Market Efficiency |
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186 | (1) |
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Irrationality Versus Liquidity |
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186 | (2) |
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Restrictions on Short-Selling |
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188 | (1) |
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189 | (1) |
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189 | (1) |
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Skewed Response to Gains and Losses |
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190 | (1) |
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191 | (2) |
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Chapter 14 The "Factor Zoo": Size, Value, Momentum, and More |
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193 | (18) |
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193 | (1) |
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Longer-Run View of Size, Valuation, and Momentum Factors |
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194 | (2) |
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196 | (4) |
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Unusual Features of Small Stock Premium |
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196 | (2) |
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Small Stocks and Value Stocks |
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198 | (1) |
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International Size and Value Investing |
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199 | (1) |
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200 | (2) |
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Investment and Share Issuance |
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202 | (1) |
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203 | (1) |
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Other Quality of Earnings Factors |
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203 | (1) |
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204 | (1) |
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204 | (2) |
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International Factor Investing |
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206 | (1) |
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207 | (4) |
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PART IV STYLES, TRENDS, AND THE CALENDAR |
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211 | (10) |
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211 | (1) |
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212 | (1) |
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Corporate Earnings and ESG Rating |
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213 | (1) |
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Valuation Enhancement and ESG Status |
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213 | (1) |
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Future Returns for ESG Stocks |
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214 | (1) |
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ESG and Portfolio Selection |
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215 | (1) |
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Past Is Not Always Prologue |
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215 | (2) |
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ESG as Climate Risk Hedges |
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217 | (1) |
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Reflections on the Friedman Doctrine |
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218 | (1) |
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218 | (3) |
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Chapter 16 Technical Analysis and Investing with the Trend |
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221 | (14) |
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The Nature of Technical Analysis |
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221 | (1) |
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Fundamentals of Technical Analysis |
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222 | (1) |
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Charles Dow, Technical Analyst |
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222 | (1) |
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The Randomness of Stock Prices |
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223 | (1) |
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Simulations of Random Stock Prices |
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224 | (2) |
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Trending Markets and Price Reversals |
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226 | (1) |
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227 | (1) |
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Testing the Dow Jones Moving-Average Strategy |
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227 | (1) |
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The Dow Industrials and the 200-Day Moving Average |
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228 | (3) |
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Avoiding Major Bear Markets |
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231 | (1) |
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Distribution of Annual Returns |
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232 | (1) |
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233 | (2) |
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Chapter 17 Calendar Anomalies |
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235 | (14) |
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235 | (1) |
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236 | (3) |
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Causes of the January Effect |
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237 | (1) |
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The January Effect Has Disappeared |
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238 | (1) |
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Predictive Power of January |
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238 | (1) |
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239 | (2) |
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241 | (2) |
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Reasons for the September Effect |
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243 | (1) |
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243 | (2) |
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245 | (1) |
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Conclusion: What's an Investor to Do? |
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246 | (3) |
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PART V THE ECONOMIC ENVIRONMENT FOR STOCKS |
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Chapter 18 Money, Gold, Bitcoin, and the Fed |
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249 | (16) |
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History of the Gold Standard |
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250 | (2) |
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The Establishment of the Federal Reserve |
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251 | (1) |
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The Fall of the Gold Standard |
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251 | (1) |
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Postdevaluation Monetary Policy |
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252 | (2) |
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Post-Gold Monetary Policy |
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254 | (1) |
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The Federal Reserve and Money Creation |
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255 | (1) |
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How the Fed's Actions Affect Interest Rates |
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255 | (1) |
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Stock Prices and Central Bank Policy |
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256 | (2) |
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258 | (1) |
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258 | (6) |
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Assessing the Qualities of Monetary Assets |
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260 | (3) |
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Macroeconomics of Cryptocurrencies |
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263 | (1) |
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264 | (1) |
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Chapter 19 Stocks and the Business Cycle |
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265 | (12) |
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Stock Retuns and the Business Cycle |
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266 | (1) |
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Who Calls the Business Cycle? |
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266 | (3) |
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Dating the Business Cycle |
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268 | (1) |
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Stock Returns Around Business Cycle Turning Points |
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269 | (2) |
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Gains Through Timing the Business Cycle |
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271 | (1) |
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How Hard Is It to Predict the Business Cycle? |
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272 | (1) |
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History of the Ability to Predict Recessions |
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272 | (1) |
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Has the Business Cycle Been Conquered? |
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273 | (2) |
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275 | (2) |
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Chapter 20 When World Events Impact Financial Markets |
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277 | (16) |
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279 | (1) |
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Big Moves and News Events |
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280 | (2) |
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What Causes the Market to Move? |
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282 | (1) |
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Uncertainty and the Market |
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282 | (1) |
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Democrats and Republicans |
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283 | (3) |
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Correlation Does Not Imply Causality |
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283 | (1) |
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Politics and Stock Returns |
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284 | (2) |
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286 | (2) |
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Markets During the World Wars |
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288 | (1) |
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289 | (2) |
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289 | (1) |
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290 | (1) |
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Gulf War II and Afghanistan |
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291 | (1) |
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291 | (2) |
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Chapter 21 Stocks, Bonds, and the Flow of Economic Data |
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293 | (14) |
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Economic Data and the Market |
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294 | (1) |
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Principles of Market Reaction |
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294 | (1) |
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Information Content of Data Releases |
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295 | (1) |
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Economic Growth and Stock Prices |
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296 | (1) |
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297 | (2) |
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The Cycle of Announcements |
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299 | (1) |
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300 | (2) |
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301 | (1) |
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302 | (1) |
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Impact on Financial Markets |
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302 | (1) |
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303 | (1) |
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304 | (3) |
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PART VI MARKET CRISES AND STOCK VOLATILITY |
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Chapter 22 Market Volatility |
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307 | (20) |
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The Stock Market Crash of October 1987 |
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309 | (2) |
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The Causes of the October 1987 Crash |
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311 | (2) |
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311 | (1) |
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312 | (1) |
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313 | (1) |
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314 | (3) |
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The Nature of Market Volatility |
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317 | (1) |
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Historical Trends of Stock Volatility |
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318 | (1) |
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319 | (3) |
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The Distribution of Large Daily Changes |
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322 | (2) |
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The Economics of Market Volatility |
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324 | (1) |
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325 | (2) |
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Chapter 23 The Great Financial Crisis of 2008--2009 |
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327 | (22) |
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The Week That Rocked World Markets |
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327 | (1) |
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Could the Great Depression Happen Again? |
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328 | (1) |
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Rumblings of Financial Crisis |
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329 | (2) |
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331 | (1) |
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332 | (1) |
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The Crucial Rating Mistake |
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333 | (3) |
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336 | (2) |
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Overleverage by Financial Institutions in Risky Assets |
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338 | (1) |
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The Role of the Federal Reserve in Mitigating the Crisis |
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339 | (1) |
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The Lender of Last Resort Springs to Action |
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339 | (2) |
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Should Lehman Brothers Have Been Saved? |
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341 | (2) |
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Economic and Financial Impact of Great Financial Crisis |
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343 | (5) |
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343 | (1) |
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344 | (2) |
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346 | (1) |
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The Short-Term Bond Market and LIBOR |
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346 | (2) |
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Conclusion: Reflections on the Crisis |
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348 | (1) |
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Chapter 24 Covid-19 Pandemic |
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349 | (18) |
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Perception Versus Reality |
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351 | (1) |
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Central Bank Monetary Expansion |
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352 | (3) |
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Alternative Financing of the Fiscal Stimulus |
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355 | (1) |
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Missed Forecasts and Understated Inflation |
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356 | (2) |
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Effect of Inflation on Stocks and Bonds |
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358 | (1) |
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Stock Valuations During and After the Pandemic |
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359 | (1) |
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359 | (1) |
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360 | (1) |
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Permanent Changes in the Economy |
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361 | (2) |
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363 | (4) |
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PART VII BUILDING WEALTH THROUGH STOCKS |
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Chapter 25 How Psychology Can Thwart Investment Goals |
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367 | (16) |
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The Technology Bubble, 1999--2001 |
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368 | (2) |
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368 | (1) |
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368 | (1) |
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368 | (1) |
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369 | (1) |
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369 | (1) |
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370 | (13) |
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Fads, Social Dynamics, and Stock Bubbles |
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371 | (2) |
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Excessive Trading, Overconfidence, and the Representative Bias |
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373 | (2) |
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Prospect Theory, Loss Aversion, and the Decision to Hold on to Losing Trades |
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375 | (3) |
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Rules for Avoiding Behavioral Traps |
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378 | (1) |
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Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium |
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379 | (1) |
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Contrarian Investing and Investor Sentiment: Strategies to Enhance Portfolio Returns |
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380 | (3) |
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Chapter 26 Exchange-Traded Funds, Stock Index Futures, and Options |
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383 | (20) |
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383 | (2) |
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385 | (1) |
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Early Dominance of Futures Markets |
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385 | (3) |
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387 | (1) |
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Basics of the Futures Markets |
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388 | (2) |
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390 | (1) |
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Predicting the New York Open with Futures Trading |
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391 | (1) |
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Double and Triple Witching |
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392 | (1) |
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393 | (1) |
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Tax Advantages of ETFs and Futures |
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394 | (1) |
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Comparison of ETFs, Futures, and Indexed Mutual Funds |
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394 | (4) |
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396 | (2) |
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398 | (1) |
|
|
|
399 | (1) |
|
|
|
400 | (1) |
|
Conclusion: The Importance of Indexed Products |
|
|
400 | (3) |
|
Chapter 27 Fund Performance, Indexing, and Investor Returns |
|
|
403 | (16) |
|
The Performance of Equity Mutual Funds |
|
|
404 | (5) |
|
|
|
407 | (1) |
|
History of Fund Underperformance |
|
|
408 | (1) |
|
Finding Skilled Money Managers |
|
|
409 | (1) |
|
Reasons for Underperformance of Managed Money |
|
|
410 | (1) |
|
A Little Learning Is a Dangerous Thing |
|
|
411 | (1) |
|
Profiting from Informed Trading |
|
|
412 | (1) |
|
|
|
412 | (1) |
|
The Increased Popularity of Passive Investing |
|
|
413 | (1) |
|
Downsides of the S&P 500 Index |
|
|
413 | (1) |
|
Fundamentally Weighted Versus Capitalization-Weighted Indexation |
|
|
414 | (2) |
|
The History of Fundamentally Weighted Indexation |
|
|
416 | (1) |
|
|
|
417 | (2) |
|
Chapter 28 Structuring a Portfolio for Long-Term Growth |
|
|
419 | (6) |
|
Practical Aspects of Investing |
|
|
419 | (1) |
|
Guides to Successful Investing |
|
|
420 | (2) |
|
Implementing the Plan and the Role of an Investment Advisor |
|
|
422 | (2) |
|
|
|
424 | (1) |
| Notes |
|
425 | (36) |
| Index |
|
461 | |
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