Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies

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ISBN: 9780070580435 | 007058043X
Cover: Hardcover
Copyright: 1/1/1998

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This book combines a compelling and timely portrait of today's turbulent stock market with the strategies, tools, and techniques investors need to maintain their focus and achieve meaningful stock returns over time.

Acknowledgments

(2)

Foreword

xiii

(3)

Preface

xvi

PART 1 THE VERDICT OF HISTORY

(52)

Chapter 1 Stock and Bond Returns Since 1802

(22)

"Everybody Ought to be Rich"

(2)

Financial Market Returns from 1802

(2)

Historical Series on Bonds

(2)

The Price Level and Gold

(1)

Total Real Returns

(2)

Interpretation of Returns

(2)

Long Period Returns

(1)

Short Period Returns

(1)

Real Returns on Fixed-Income Assets

(1)

Explanations for the Fall in Fixed-Income Returns

(1)

Equity Premium

(2)

International Returns

(4)

Germany

(1)

United Kingdom

(1)

Japan

(1)

Foreign Bonds

(1)

Conclusion

(1)

Appendix 1: Stocks from 1802 to 1871

(1)

Appendix 2: Arithmetic and Geometric Returns

(2)

Chapter 2 Risk, Return and the Coming Age Wave

(18)

Measuring Risk and Return

(1)

Risk and Holding Period

(2)

Investor Holding Periods

(1)

Investor Returns from Market Peaks

(2)

Standard Measures of Risk

(2)

Correlation Between Stock and Bond Returns

(2)

Efficient Frontiers

(1)

Recommended Portfolio Allocations

(2)

Inflation-Indexed Bonds

(1)

The Coming Age Wave

(3)

Solution to the "Age Wave Crisis"

(2)

Chapter 3 Perspectives on Stocks as Investments

(12)

Early Views of Stock Investing

(1)

Influence of Smith's Work

(2)

Common Stock Theory of Investment

(1)

A Radical Shift in Sentiment

(1)

Post-Crash View of Stock Returns

(2)

Investment Philosophy and the Valuation of Equity

(4)

PART 2 STOCK RETURNS

(88)

Chapter 4 Stocks, Stock Averages, and the Dow Strategy

(16)

Market Averages

(5)

The Dow-Jones

(2)

Computation of the Dow Index

(1)

Long-Term Trends in the Dow-Jones

(1)

Use of Trend Lines to Predict Trends

(1)

Value-Weighted Indexes

(5)

The Cowles Index

(1)

Standard & Poor's Index

(1)

Indexes of Large and Small U.S. Stocks

(1)

Market Capitalization of Individual Stocks

(1)

Return Biases in Stock Indexes

(2)

Dow 10 Strategy

(4)

How to Play the Dow 10 Strategy

(1)

Appendix A: What Happened to the Original 12 Dow Industrials?

(2)

Chapter 5 Dividends, Earnings, and Investor Sentiment

(20)

An Evil Omen Returns

(10)

Valuation of Cash Flows from Stocks

(1)

Short and Long-Term Returns from Stocks

(2)

Sources of Shareholder Value

(2)

Does the Value of Stocks Depend on Dividends or Earnings?

(1)

Total Returns to Stocks

(1)

Economic Growth, Earnings Growth, and P-E Ratios

(1)

Historical Yardsticks for Valuing the Market

(5)

Price-Earnings Ratios and the Rule of 19

(1)

Book Value, Market Value, and "Tobin's Q"

(3)

Corporate Profits and Market Value to GDP

(1)

Valuation: Fundamentals or Sentiment?

(5)

Contrarian Indicators

(2)

Current Trends and Conclusions

(2)

Chapter 6 Large Stocks, Small Stocks, Value Stocks, Growth Stocks

(14)

Outperforming the Market

(5)

Risks and Returns in Small Stocks

(2)

Trends in Small Stock Returns

(2)

Value Criteria

(7)

Price-Earnings Ratios

(1)

Price-to-Book Ratios

(1)

Value and Growth Stocks

(2)

Dividend Yields

100

(1)

Distressed Firms

101

(1)

Initial Public Offerings

102

(1)

Are Small Stocks Growth Stocks?

103

(1)

Investment Strategy

103

(2)

Chapter 7 The Nifty Fifty Revisited

105

(10)

The Nifty Fifty

106

(1)

Returns of the Nifty Fifty

106

(4)

Evaluation of Data

108

(2)

What is the Right P/E Ratio to Pay for a Growth Stock?

110

(2)

Earnings Growth and Valuation

111

(1)

Conclusion

112

(1)

Appendix: Corporate Changes in the Nifty Fifty Stocks

113

(2)

Chapter 8 Taxes and Stock Returns

115

(9)

Historical Taxes on Income and Capital Gains

115

(2)

A Total After-Tax Returns Index

117

(2)

The Benefits of Deferring Capital Gains Taxes

119

(3)

Stocks or Bonds in Tax-Deferred Accounts?

121

(1)

Summary

122

(1)

Appendix: History of the Tax Code

122

(2)

Chapter 9 Global Investing

124

(19)

Foreign Stock Returns

124

(2)

Summary Data on Global Markets

126

(3)

Economic Growth and Stock Returns

129

(2)

Sources of Dollar Risk in International Stocks

131

(1)

Exchange-Rate Risk

131

(1)

Diversification to Foreign Stocks

132

(3)

Optimal Allocation for Foreign Equities

132

(2)

Cross-Country Correlations of Stock Returns

134

(1)

Hedging Foreign Exchange Risks

135

(1)

Stocks and the Breakdown of the European Exchange-Rate Mechanism

136

(3)

Summary

139

(4)

PART 3 ECONOMIC ENVIRONMENT OF INVESTING

143

(64)

Chapter 10 Money, Gold, and Central Banks

143

(14)

Money and Prices

144

(1)

The Gold Standard

145

(2)

The Establishment of the Federal Reserve

147

(1)

Fall of the Gold Standard

148

(3)

Postdevaluation Policy

148

(2)

Postgold Monetary Policy

150

(1)

The Federal Reserve and Money Creation

151

(4)

How the Fed Affects Interest Rates

151

(1)

Who Makes the Decisions about Monetary Creation and Interest Rates?

152

(1)

Fed Policy Actions and Interest Rates

153

(2)

Conclusion

155

(2)

Chapter 11 Inflation and Stocks

157

(11)

Stocks as Inflationary Hedges

158

(1)

Why Stocks Fail as a Short-Term Inflation Hedge

159

(3)

Higher Interest Rates

159

(2)

Supply-Induced Inflation

161

(1)

Fed Policy, the Business Cycle, and Government Spending

162

(1)

Inflation and the U.S. Tax Code

162

(1)

Inflationary Distortions to Corporate Earnings

163

(4)

Inflation Biases in Interest Costs

164

(1)

Inflation and the Capital Gains Tax

164

(3)

Conclusion

167

(1)

Chapter 12 Stocks and the Business Cycle

168

(13)

Who Calls the Business Cycle?

169

(3)

Stock Returns Around Business-Cycle Turning Points

172

(3)

Gains Through Timing the Business Cycle

175

(1)

How Hard is it to Predict the Business Cycle?

176

(3)

Concluding Comments

179

(2)

Chapter 13 World Events Which Impact Financial Markets

181

(12)

What Moves the Market?

182

(2)

Uncertainty and the Market

184

(1)

Democrats and Republicans

185

(3)

Stocks and War

188

(4)

The World Wars

190

(1)

Post-1945 Conflicts

191

(1)

Summary

192

(1)

Chapter 14 Stocks, Bonds and the Flow of Economic Data

193

(14)

Principles of Market Reaction

195

(1)

Information Content of Data Releases

196

(1)

Economic Growth and Stock Prices

197

(1)

The Employment Report

197

(2)

The Cycle of Announcements

199

(3)

Inflation Reports

200

(1)

Core Inflation

201

(1)

Employment Costs

202

(1)

Impact on Financial Markets

202

(1)

Fed Policy

202

(1)

Summary

203

(4)

PART 4 STOCK FLUCTUATIONS IN THE SHORT RUN

207

(64)

Chapter 15 Stock Index Futures, Options and Spiders

207

(17)

Stock Index Futures

207

(2)

The Impact of Index Futures

209

(1)

Basics of Futures Markets

210

(3)

Index Arbitrage

213

(2)

Predicting the New York Open with Globex Trading

215

(1)

Double and Triple Witching

216

(1)

Margin and Leverage

216

(1)

Advantage to Trading Futures

217

(1)

Spiders

218

(1)

Using Spiders or Futures

218

(1)

Index Options

219

(2)

Buying Index Options

221

(1)

Selling Index Options

222

(1)

Long-Term Trends and Stock Index Futures

223

(1)

Chapter 16 Market Volatility and the Stock Crash of October 1987

224

(16)

The Stock Crash of October 1987

226

(2)

Causes of the Stock Crash

228

(4)

Exchange Rate Policies

228

(1)

The Stock Crash and the Futures Market

229

(2)

Circuit Breakers

231

(1)

The Nature of Market Volatility

232

(1)

Historical Trends of Stock Volatility

232

(3)

Distribution of Large Daily Changes

235

(2)

The Economics of Market Volatility

237

(2)

Epilogue to the Crash

239

(1)

Chapter 17 Technical Analysis and Investing with the Trend

240

(13)

The Nature of Technical Analysis

240

(1)

Charles Dow, Technical Analyst

241

(1)

Randomness of Stock Prices

241

(2)

Simulations of Random Stock Prices

243

(1)

Trending Markets and Price Reversals

243

(2)

Moving Averages

245

(6)

Testing the Moving Average Strategy

246

(1)

Backtesting the 200-day Moving Average

247

(4)

Conclusion

251

(2)

Chapter 18 Calendar Anomalies

253

(18)

The January Effect

254

(6)

Causes of the January Effect

256

(2)

The January Effect in Value Stocks

258

(2)

Monthly Returns

260

(3)

The September Effect

262

(1)

Intramonth Returns

263

(1)

Day-of-the-Week Effects

264

(2)

What's an Investor To Do?

266

(5)

PART 5 BUILDING WEALTH THROUGH STOCKS

271

(20)

Chapter 19 Funds, Managers, and "Beating the Market"

271

(11)

Performance of Equity Mutual Funds

272

(5)

Finding Skilled Money Managers

277

(1)

Reasons for Underperformance of Managed Money

278

(1)

A Little Learning is a Dangerous Thing

279

(1)

Profiting from Informed Trading

279

(1)

How Costs Affect Returns

280

(1)

What's an Investor to Do?

280

(2)

Chapter 20 Structuring a Portfolio for Long-Term Growth

282

(9)

Practical Aspects of Investing

283

(7)

Return-Enhancing Strategies

287

(2)

Implementing the Plan and the Role of an Investment Advisor

289

(1)

Conclusion

290

(1)

Index

291

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Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies

Summary

Table of Contents

Supplemental Materials