Biography
Siegel was born into a Jewish family in Chicago,Illinois,and graduated from Highland Park High School. He majored in mathematics and economics as an undergraduate at Columbia University,graduating in 1967,and obtained a Ph.D. from MIT in 1971. [1] At MIT he studied under Paul Samuelson and Robert Solow,both Nobel Prize winners.
He taught at the University of Chicago for four years before moving to the Wharton School of the University of Pennsylvania. [1]
As of 2007,Siegel was advisor to WisdomTree Investments,a sponsor of exchange-traded funds;he owned about 2% of the company,which was then worth an estimated $700 million. [2]
Investing advice
In his books Stocks for the Long Run (1998) and The Future for Investors (2005),Siegel outlines his investing theories and advice.
He recommends against holding bonds,arguing their long-term performance tends to be negative after inflation. Siegel's position on bonds has been disputed,with critics proposing his data is flawed due to use of unreliable information from earlier sources. [3] [4]
For stocks,Siegel recommends relying primarily or exclusively on index funds when possible,as active management tends to underperform market averages over long periods. (When he wrote in the late 1990s and early 2000's,index funds were not necessarily available in 401k plans but have become more popular since then.) He is not opposed to holding a small portion of the portfolio in single stocks,provided their selection is prudent.
For all stocks or investment options,Siegel advise following a "D-I-V" mnemonic as a guideline:prioritizing dividends,international,and valuation. His research found dividend-paying stocks tend to offer superior long-term performance,as they are associated with profitable mature companies that hold up well during bear markets and recessions,and are also more likely to be reasonably valued. He has endorsed the Dogs of the Dow method,of holding the highest-dividend stocks in the Dow Jones Industrial Average. Siegel recommends substantial international stock holdings,up to 40-50%,to avoid home country bias and obtain a broader variety of options. For valuation,Siegel recommends stocks or indexes that are fairly valued or undervalued while avoiding sectors that are overvalued or trendy,as they tend to offer poor long-term results. He calls this phenomenon the "growth trap" and notes that fast-growing companies,industries or economies are not necessarily good investments.
Siegel's academic research showing dividend-paying companies tend to offer superior long-term performance with lower risk has influenced the construction of indexes used for WisdomTree Investments,a provider of exchange traded funds. [5] After the dot com bubble of the late 1990s and early 2000's Siegel became somewhat skeptical of the prevailing use of market capitalization for constructing index funds,and thus helped develop fundamental indexing. [6]
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