In "Stocks for the Long Run," Siegel discovered that, in the long term, stock returns not only greatly exceed the returns of all other financial assets, but are also safer and more predictable than bonds. The conclusion drawn is that stocks are the best choice for investors seeking long-term returns. Although future returns may be lower than in the past, there is still strong evidence to believe that for all investors pursuing economic stability and long-term returns, stocks are the best investment method.

**The Absolute Advantage of Stock Investment**

An important theme in Wall Street's history, namely not to be blindly optimistic at market highs, is that the most important thing for a patient investor is to ensure that the cumulative returns of stock investments are greater than those of any other financial asset. Compared to the greatest stability of stock returns, the actual returns of fixed-income assets have shown a continuous downward trend over the long term. Since 1926, after deducting the inflation rate, fixed-income assets have yielded little.

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Siegel's empirical research shows that what every long-term investor should focus on is the increase in purchasing power, as wealth in the form of currency is affected by inflation. The growth in the purchasing power of stocks is not only far higher than that of other assets but also has better long-term stability. Despite significant changes in the economic, social, and political environment over the past 204 years, the real average annual return on stocks has remained between 6.6% and 7.0% in all major years. This also means that the purchasing power of money invested in the stock market can double on average every 10 years.

In all major phases, the actual returns on stocks have shown extraordinary stability: around 7% from 1802 to 1870; about 6.6% from 1871 to 1925; and an average return of 6.8% from 1926 to the present. Even after World War II, when the United States experienced inflation unprecedented in the past 200 years, the average real return on stocks remained stable at 6.9%. This significant stability is referred to by Siegel as the "mean reversion" of stock returns, meaning that while stock returns may fluctuate dramatically in the short term, they can remain stable in the long term. However, the great bull market from 1982 to 1999 brought investors an average return of 13.6% per year, which is twice the historical level and the largest bull market in U.S. history. The超高 stock returns during this period just compensated for the losses brought to investors by the low returns in the 15 years from 1966 to 1981, when the actual return was only -0.4%.

Although the long-term returns on stocks are very stable, it is not the case for fixed-income assets. The actual return on Treasury bills has fallen from 5.1% in the early 19th century to about 0.7% since 1926, just a little higher than the inflation rate. The actual return trend of long-term bonds is similar to that of Treasury bills. If future returns remain at the level of the previous 80 years, it would take 32 years for bonds to double the purchasing power of assets, 100 years for Treasury bills, and only 10 years for stocks. Moreover, in the long term, the returns on fixed-income assets are not only lower than those on stocks, but also, due to the uncertainty of inflation, the long-term risk of bonds may be greater than that of stocks. Therefore, for long-term investors, the absolute advantage of stocks over bonds is经得起时间检验.

**"Buy and Hold" Strategy**

If the holding period is only 1 or 2 years, there is no doubt that the risk of stocks is greater than that of bonds and Treasury bills. However, since 1802, if the holding period is increased to 5 years, the worst return on stocks is -11% per year, slightly worse than the worst return on bonds or Treasury bills. But when the holding period rises to 10 years, the worst return on stocks is already better than that of bonds or Treasury bills. For a 20-year holding period, the stock return has never been lower than inflation, while the return on 20-year bonds and Treasury bills has once been 3% lower than the inflation rate. If such returns continue for 20 years, the actual purchasing power of that bond portfolio will be halved. If the holding period is 30 years, then the worst return on stocks is almost always more than 2.6% higher than inflation, not much different from the average return on fixed-income assets.

It is very important that if the holding period for stocks exceeds 17 years, the actual return will not be negative. In the long term, although the risk of accumulating wealth in stocks seems greater than that of bonds, the reality is the opposite: the long-term investment that ensures the safety of purchasing power is a diversified portfolio of stocks. The biggest mistake that some investors often make is underestimating their holding period. The holding period mentioned here refers to the number of years of all stocks or bonds in the hands of investors, regardless of what changes have occurred in their asset portfolio during this period.

As the holding period increases, the proportion of stock returns higher than fixed-income asset returns is also accelerating. For a 10-year holding period, the probability that stock returns are higher than bond and Treasury bill returns is 80%; for a 20-year holding period, the data reaches 90%; and within a 30-year holding period, the stock return is 100% higher than the bond and Treasury bill returns.The proportion of stocks in a portfolio should significantly increase with the extension of holding years. Looking at the historical returns of stocks and bonds over the past 200 years, if the investment period exceeds 30 years, even extreme conservatives would be willing to hold 3/4 of their assets in stocks, because over a longer period, stocks measured by purchasing power are much safer than bonds. Over such a long term, even conservatives should hold 90% of their assets in stocks, while neutral risk investors and risk-taking investors can hold 100% in stocks. Historical evidence shows that the purchasing power of a diversified common stock portfolio held for 30 years is more stable than that of a government bond held 30 years ago.

Although Siegel strongly advocates the "buy and hold" strategy, he sees that almost no investors can achieve this. Because even if investors sell stocks at market highs, it cannot guarantee substantial profits. When stock prices are rising and everyone is confident about the future stock market, it is difficult for investors to make up their minds to sell stocks; and when the market is at a low point, pessimism spreads throughout the stock market, and people no longer have confidence in the stock market, investors are even more hesitant to buy stocks. Therefore, Siegel opposes the view that "one should not enter the stock market when stock prices are high." This point has attracted strong criticism from the famous value investor Jeremy Grantham, who believes that Siegel has misled investors. "In fact, for long-term investors, this view is unfounded."

Siegel points out that if the holding period reaches 30 years, then even if investors buy stocks at the highest point in the market, the wealth accumulated in stocks is more than 4 times that of bonds and more than 5 times that of Treasury bills; if the holding period is 20 years, the wealth accumulated in stocks can also reach twice that of bonds; even if the holding period is only 10 years, the stock return rate is still higher than the return rate of fixed-income assets. "History has proven that unless investors believe they are likely to need to use their savings in the next 5-10 years to maintain their current standard of living, otherwise, no matter how high the market is now, long-term investors giving up stock investment is not a wise choice."

■ Stock value is earnings and dividends

The basic source of stock value is the company's earnings and dividends. The value of stocks lies in the cash returns that investors can currently obtain or the appreciation that investors hope to obtain from current cash expenditures in the future. These cash flows may come from dividend distributions in earnings or cash distributions from the sale of company assets. For stockholders, the source of future cash flows is corporate earnings.

Before 1958, the average annual dividend yield of stocks was always higher than the long-term interest rate. However, in 1958, the dividend yield of stocks was lower than the bond yield. Business Week warned at that time that when the dividend yield is close to the bond yield, a market recession is coming. The stock market crash in 1929 was caused by the dividend yield being less than the bond yield. However, the situation in 1958 was not the case. Within 12 months at that time, the stock return rate still exceeded 30% and continued to rise in the early 1960s. Economics explained the reason for the failure of these value indicators: inflation led to the increase in bond yields to compensate for the rise in prices, and investors regarded buying stocks as a means to prevent currency devaluation. This event shows that only when the basic economic and financial environment remains unchanged can the benchmark for value evaluation always be effective. Those who stick to the assessment methods of stock value will never be able to profit in the largest bull market in history.

One of the most difficult things in economics is to predict when the economy has indeed undergone a structural change, and when it is just a feint. It must be admitted that such situations occur from time to time. For example, at the end of the 20th century, when speculators used the "new era" economy to defend those unreasonable ultra-high stock prices, the technology stock bubble burst. But sometimes the economic structure has indeed undergone significant changes, such as in the 1950s, when the dividend yield dropped below the long-term Treasury bond rate.

In fact, the impact of economic growth on stock returns is not as great as most investors imagine, but other development trends have an important positive impact on stock value, such as the stability of the entire economy, the reduction of transaction costs, changes in stock market income tax, etc. Siegel listed the long-term stock returns of 16 major markets in the world from 1900 to 2006, and the results were very surprising: the actual GDP growth rate was negatively correlated with the stock market return rate. That is to say, the faster the economic growth rate of various countries, the lower the returns that investors can obtain from stocks. This is very counterintuitive.

Since stock prices are equivalent to the present value of future dividend returns, we naturally assume that economic growth promotes future dividend returns, which will drive up stock prices. However, we have overlooked one issue, that is, the factors determining stock prices are capital gains and dividend returns. Although economic growth can promote the increase of capital gains and dividend returns in the entire market, it is not the case for individual stocks. Because economic growth requires an increase in capital expenditure, and this capital expenditure is not cost-free. Therefore, rapid economic growth cannot guarantee a high return rate.

In fact, we can learn from historical data that countries with slow economic growth have a more reasonable valuation of stocks, so their stock returns are higher than those of countries with fast economic growth. Higher stock returns are often accompanied by lower price-to-earnings ratios, and vice versa. Although the historical average price-to-earnings ratio is 15 times, we can still provide a reasonable explanation for the upward trend of future stock prices.No single strategy is the best.

In the 1990s, financial economists divided the stock field into two directions: size and valuation. From size (i.e., the market value of stocks), "large-cap and small-cap stocks" were distinguished. From valuation (i.e., the price relative to fundamentals such as earnings and dividends), "value stocks and growth stocks" were distinguished.

Although the historical returns of small-cap stocks have exceeded those of large-cap stocks since 1926, the superior performance of small-cap stocks has been uneven over the past 80 years. Small-cap stocks recovered quickly from the Great Depression, but their performance did not exceed that of large-cap stocks from the end of World War II to 1960. In fact, the cumulative total return of small-cap stocks never exceeded that of large-cap stocks between 1926 and 1959. By the end of 1974, the average annual compound return of small-cap stocks was only 0.5% higher than that of large-cap stocks.

However, from 1975 to the end of 1983, small-cap stocks began to stand out. During this period, the average annual compound return of small-cap stocks reached 35.3%, almost twice that of large-cap stocks at 15.7%. Over 9 years, the cumulative return of small-cap stocks exceeded 1,400%. After 1983, small-cap stocks experienced a long period of depression, during which their performance was inferior to that of large-cap stocks for 17 years. But after the burst of the technology stock bubble, the return on small-cap stocks quickly exceeded that of large-cap stocks. What we should be wary of is that the existence of a small-cap premium does not mean that its performance will exceed that of large-cap stocks every year or every decade.

Before the 1980s, value stocks were often referred to as cyclical stocks because stocks with low price-to-earnings ratios were usually industrial, and the profits of these industries were closely linked to the business cycle. Value stocks often appeared in industries such as oil, automobiles, finance, and public utilities, where investors had low expectations for future growth or believed that the profits of these industries were closely linked to the business cycle. Growth stocks were usually concentrated in high-tech industries, well-known consumer products, health care services, etc., where investors believed that the profits of these industries were not closely related to the business cycle and had a fast growth rate.

The performance of value stocks was indeed inferior to that of growth stocks during the Great Depression and the stock market crash from 1929 to 1932, but in the two bear markets and economic recessions that followed, the performance of value stocks was better than that of growth stocks. The theory that the performance of growth stocks is secondary to that of value stocks is behavioral theory: investors are too excited when facing stocks of companies with rapid earnings growth and try to push up their prices. "Legendary stocks" such as Intel or Microsoft's past astonishing performance has captured investors' psychology, and when these companies' growth rates slow down and earnings gradually stabilize, investors will lose interest in them.

The higher the dividend yield of an asset portfolio, the higher the return. Stocks selected based on some high dividend yield strategies may outperform the market, one of which is a famous strategy called the "Dogs of the Dow" or the "Dow 10" strategy, which mainly invests in high-yielding stocks in the Dow Jones Industrial Average. Over the past half-century, the average return of the "Dow 10" strategy has been 14.08%, while the "S&P 10" has reached 15.71%, which is 3% and 4.5% higher than the average annual return of the Dow Jones and S&P 500, respectively. The worst year for the Dow 10 and S&P 10 strategies was 1999, when the capitalization of the largest technology stocks reached its peak. But in the following bear market, these value-based strategies shone.

No single strategy can make investors outperform the market at all times. The cyclical prosperity shown by small-cap stocks can make its long-term performance better than that of large-cap stocks, but most of the time, their performance is not as good as that of large-cap stocks. Value stocks generally perform well in bear markets, but their performance is inferior to growth stocks in the following bull markets. This means that if investors decide to buy these stocks to increase returns, they must have enough patience.

"A Guide to Successful Investing"

Becoming a successful investor is theoretically very simple, but it is not so easy to practice. The theory of successful investing is simple because any investor, regardless of their intelligence, judgment, or financial situation, can buy and hold a stock portfolio without any inference ability. However, it is difficult to do this in practice because we are easily influenced by emotions and go astray. Those investment legends who quickly accumulate wealth in the stock market often tempt us to deviate from the track of long-term investment.To this end, Siegel has issued a "guide to successful investing." To achieve better returns on stock investments, one needs to pay long-term attention to the market and establish a strict investment strategy. Expectations for stock returns should be lowered to align with historical levels. Historically, the stock return rate over the past two centuries, excluding inflation, has been about 6.8%, with an average price-to-earnings ratio of 15 times. The annual return rate of 6.8%, including reinvested dividend income, will double the purchasing power of a stock portfolio every 10 years. If the inflation rate remains within 2% to 3%, the nominal annual stock return rate will reach 9% to 10%, which will double the monetary value of a stock portfolio every 7 to 8 years.

Long-term stock returns will be more stable than short-term returns. Unlike bonds, long-term stock investments allow investors to avoid losses from high inflation. Therefore, as an investor's investment vision strengthens, stocks should account for the vast majority of their portfolio. If an index investor holds an index fund that matches the market every year, then in the long run, their stock returns are likely to be the highest. Most of the funds in the portfolio should be invested in low-cost index funds. Historically, value stocks have higher returns and lower risks than growth stocks. Investors should focus their portfolios on value stocks, purchasing more index portfolios of value stocks or fundamentally weighted index funds. Historically, fundamentally weighted indices have higher returns and lower risks than capital-weighted indices.

As Peter Bernstein said in the foreword to "The Long-Term Secrets of the Stock Market," there are many pitfalls on the road to successful investing, preventing investors from reaching their predetermined goals. One of these pitfalls is that it is very difficult for any investor to stand outside the overall atmosphere of the stock market. Not only that, but independent thinking in the securities market is difficult, going against the crowd is even more difficult, and sticking to it without wavering is even more challenging. However, if stocks are considered the best choice for investors pursuing long-term returns, doing the right thing at the right time may not be so difficult.