J. V. Bruni and Company
1528 North Tejon Street
Colorado Springs, Colorado 80907
(719) 575-9880 or (800) 748-3409
J. V. Bruni and Company1528 North Tejon Street Colorado Springs, Colorado 80907 (719) 575-9880 or (800) 748-3409
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The Future for Investors,
by Jeremy Siegel. 
According to
Siegel, someone who invested in a portfolio that mirrored the S&P 500
starting in 1957 (when the index was expanded to 500 companies) and
never changed his portfolio, achieved over the next 40+ years a greater
return than an investor who also mirrored the S&P 500 in 1957 but kept
pace with all of Standard & Poor's numerous changes to the index since
that time. Put differently, Standard & Poor's updates, taken as a
whole, have lowered investors' returns. How can this be? Although
Siegel's book has its unique slant, it basically comes down to the fact
that capitalization-weighted indexes (including the S&P 500) inherently
overweight overvalued stocks and underweight undervalued stocks. Over
the years, as smaller-cap stocks were frequently replaced with
larger-cap stocks--which disproportionally included overvalued
companies--the index became burdened with high P/E stocks. As a result,
the performance of the index suffered. The moral of this book is that
stock valuation has a very important impact on stock returns. |
"Jeremy Siegel's lively new book is much more than a typical Siegelian guide to asset allocation." Peter L. Bernstein |