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

(Greg DeLong) #1

  • Chapter

  • Why Stocks Are Less Risky Than Bonds in the Long Run

  • Measuring Risk and Return

  • Risk and Holding Period

  • Investor Returns from Market Peaks

  • Standard Measures of Risk

  • Varying Correlation between Stock and Bond Returns

  • Efficient Frontiers

  • Recommended Portfolio Allocations

  • Inflation-Indexed Bonds

  • Conclusion

  • Chapter

  • Stock Indexes: Proxies for the Market

  • Market Averages

  • The Dow Jones Averages

    • Computation of the Dow Index

    • Long-Term Trends in the Dow Jones



  • Beware the Use of Trend Lines to Predict Future Returns

  • Value-Weighted Indexes

    • Standard & Poor’s Index

    • Nasdaq Index

    • Other Stock Indexes: The Center for Research in Security Prices (CRSP)



  • Return Biases in Stock Indexes

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

  • Chapter

  • The S&P 500 Index: A Half Century of U.S. Corporate History

  • Sector Rotation in the S&P 500 Index

  • Top-Performing Firms

  • How Bad News for the Firm Becomes Good News for Investors

  • Top-Performing Survivor Firms

  • Other Firms That Turned Golden

  • Outperformance of Original S&P 500 Firms

  • Conclusion

  • Chapter

  • Stocks Have the Edge The Impact of Taxes on Stock and Bond Returns:

  • Historical Taxes on Income and Capital Gains

  • A Total After-Tax Returns Index

  • The Benefits of Deferring Capital Gains Taxes

  • Inflation and the Capital Gains Tax

  • Increasingly Favorable Tax Factors for Equities

  • Stocks or Bonds in Tax-Deferred Accounts?

  • Conclusion

  • Appendix: History of the Tax Code

  • Chapter

  • How Fickle Markets Overwhelm Historical Facts The Investment View of Stocks:

  • Early Views of Stock Investing

    • The Influence of Smith’s Work

    • Common Stock Theory of Investment



  • A Radical Shift in Sentiment

  • The Postcrash View of Stock Returns

  • The Beginning of the Great Bull Market

  • Warnings of Overspeculation

  • The Top of the Bubble

  • The Bear Market and Its Aftermath

  • PA RT

  • Chapter VALUATION, STYLE INVESTING, AND GLOBAL MARKETS

  • Stocks: Sources and Measures of Market Value

  • An Evil Omen Returns

  • Valuation of Cash Flows from Stocks

    • Sources of Shareholder Value

    • The Value of Stock as Related to Dividend Policy



  • Earnings Concepts

    • Earnings Reporting Methods

    • The Employee Stock Option Controversy

    • Controversies in Accounting for Pension Costs

    • Standard & Poor’s Core Earnings



  • Earnings Quality

  • Downward Biases in Earnings

  • Historical Yardsticks for Valuing the Market

    • Price-Earnings Ratios

    • The Fed Model, Earnings Yields, and Bond Yields

    • Corporate Profits and National Income

    • Book Value, Market Value, and Tobin’s Q

    • Market Value Relative to the GDP and Other Ratios



  • Conclusion

  • Chapter

  • Market Valuation and the Coming Age Wave The Impact of Economic Growth on

  • GDP Growth and Stock Returns

    • The Gordon Dividend Growth Model



  • Economic Growth and Stock Returns

  • Factors That Raise Valuation Ratios

    • Factors That Impact Expected Returns

    • The Equity Risk Premium

    • More Stable Economy

    • New Justified P-E Ratios



  • The Age Wage

    • Demography Is Destiny

    • The Bankruptcy of Government and Private Pension Systems

    • Reversal of a Century-Long Trend

    • The Global Solution: An Opportunity to Make a Trade

    • Attraction of U.S. Capital



  • Conclusion

  • Chapter

  • Size, Dividend Yields, and Price-to-Earnings Ratios Outperforming the Market: The Importance of

  • Stocks That Outperform the Market

  • Small- and Large-Cap Stocks

    • Trends in Small-Cap Stock Returns



  • Valuation

    • Value Stocks Offer Higher Returns Than Growth Stocks



  • Dividend Yields

    • Other Dividend Yield Strategies



  • Price-to-Earnings (P-E) Ratios

  • Price-to-Book Ratios

  • Combining Size and Valuation Criteria

    • Returns on New Small-Cap Growth Companies Initial Public Offerings: The Disappointing Overall



  • The Nature of Growth and Value Stocks

  • Explanations of Size and Valuation Effects

    • The Noisy Market Hypothesis



  • Conclusion

  • Chapter

  • and the Emerging Markets Global Investing and the Rise of China, India,

  • The World’s Population, Production, and Equity Capital

  • Cycles in Foreign Markets

    • The Japanese Market Bubble

    • The Emerging Market Bubble

    • The New Millennium and the Technology Bubble



  • Diversification in World Markets

    • Principles of Diversification

    • “Efficient” Portfolios: Formal Analysis

    • Should You Hedge Foreign Exchange Risk?

    • Sector Diversification

    • Private and Public Capital



  • The World in

  • Conclusion

  • Appendix: The Largest Non-U.S.-Based Companies

  • PA RT

  • Chapter HOW THE ECONOMIC ENVIRONMENT IMPACTS STOCKS

  • Gold, Monetary Policy, and Inflation

  • Money and Prices

  • The Gold Standard

  • The Establishment of the Federal Reserve

  • The Fall of the Gold Standard

  • Postdevaluation Monetary Policy

  • Postgold Monetary Policy

  • The Federal Reserve and Money Creation

  • How the Fed’s Actions Affect Interest Rates

  • Stocks as Hedges against Inflation

  • Why Stocks Fail as a Short-Term Inflation Hedge

    • Higher Interest Rates

    • Nonneutral Inflation: Supply-Side Effects

    • Taxes on Corporate Earnings

    • Inflationary Biases in Interest Costs

    • Capital Gains Taxes



  • Conclusion

  • Chapter

  • Stocks and the Business Cycle

  • Who Calls the Business Cycle?

  • Stock Returns around Business Cycle Turning Points

  • Gains through Timing the Business Cycle

  • How Hard Is It to Predict the Business Cycle?

  • Conclusion

  • Chapter

  • When World Events Impact Financial Markets

  • What Moves the Market?

  • Uncertainty and the Market

  • Democrats and Republicans

  • Stocks and War

    • The World Wars

    • Post-1945 Conflicts



  • Conclusion

  • Chapter

  • Stocks, Bonds, and the Flow of Economic Data

  • Economic Data and the Market

  • Principles of Market Reaction

  • Information Content of Data Releases

  • Economic Growth and Stock Prices

  • The Employment Report

  • The Cycle of Announcements

  • Inflation Reports

    • Core Inflation

    • Employment Costs



  • Impact on Financial Markets

  • Central Bank Policy

  • Conclusion

  • PA RT

  • Chapter STOCK FLUCTUATIONS IN THE SHORT RUN

  • Stock Index Futures, and Options The Rise of Exchange-Traded Funds,

  • Exchange-Traded Funds

  • Stock Index Futures

  • Basics of the Futures Markets

  • Index Arbitrage

  • Predicting the New York Open with Globex Trading

  • Double and Triple Witching

  • Margin and Leverage

  • Using ETFs or Futures

    • ETFs, Futures, or Index Mutual Funds? Where to Put Your Indexed Investments:



  • Index Options

    • Buying Index Options

    • Selling Index Options



  • The Importance of Indexed Products

  • Chapter

  • Market Volatility

  • The Stock Market Crash of October

  • The Causes of the October 1987 Crash

    • Exchange-Rate Policies

    • The Futures Market



  • Circuit Breakers

  • The Nature of Market Volatility

  • Historical Trends of Stock Volatility

  • The Volatility Index (VIX)

  • Recent Low Volatility

  • The Distribution of Large Daily Changes

  • The Economics of Market Volatility

  • The Significance of Market Volatility

  • Chapter

  • Technical Analysis and Investing with the Trend

  • The Nature of Technical Analysis

  • Charles Dow, Technical Analyst

  • The Randomness of Stock Prices

  • Simulations of Random Stock Prices

  • Trending Markets and Price Reversals

  • Moving Averages

    • Testing the Dow Jones Moving-Average Strategy

    • Back-Testing the 200-Day Moving Average

    • The Nasdaq Moving-Average Strategy

    • Distribution of Gains and Losses



  • Momentum Investing

  • Conclusion

  • Chapter

  • Calendar Anomalies

  • Seasonal Anomalies

  • The January Effect

    • Causes of the January Effect

    • The January Effect Weakened in Recent Years



  • Large Monthly Returns

  • The September Effect

  • Other Seasonal Returns

  • Day-of-the-Week Effects

  • What’s an Investor to Do?

  • Chapter

  • Behavioral Finance and the Psychology of Investing

  • The Technology Bubble, 1999 to

  • Behavioral Finance

    • Fads, Social Dynamics, and Stock Bubbles

    • Excessive Trading, Overconfidence, and the Representative Bias

    • Prospect Theory, Loss Aversion, and Holding On to Losing Trades

    • Rules for Avoiding Behavioral Traps

    • Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium

      • Portfolio Returns Contrarian Investing and Investor Sentiment: Strategies to Enhance



    • Out-of-Favor Stocks and the Dow 10 Strategy



  • PA RT

  • Chapter BUILDING WEALTH THROUGH STOCKS

  • Fund Performance, Indexing, and Beating the Market

  • The Performance of Equity Mutual Funds

  • Finding Skilled Money Managers

    • Persistence of Superior Returns



  • Reasons for Underperformance of Managed Money

  • A Little Learning Is a Dangerous Thing

  • Profiting from Informed Trading

  • How Costs Affect Returns

  • The Increased Popularity of Passive Investing

  • The Pitfalls of Capitalization-Weighted Indexing

  • Fundamentally Weighted versus Capitalization-Weighted Indexation

  • The History of Fundamentally Weighted Indexation

  • Conclusion

  • Chapter

  • Structuring a Portfolio for Long-Term Growth

  • Practical Aspects of Investing

  • Guides to Successful Investing

  • Implementing the Plan and the Role of an Investment Advisor

  • Concluding Comment

  • Index

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