The former implies being less than brilliant, to say the least. This is the message that most intellectuals deliver to their audience. Their discourses often create a sense of awe for their genius while leaving a gaping understanding-void behind. They seem to thrive from dishing unbreakable magic.
On the other hand, the latter KISS, which is less common but the more adequate alternative, accentuates the need for simplicity. This is what Professor Jeremy Siegel does while also being master of the stock universe at prestigious Wharton School of Business. The confident, succinct, transparent, charismatic and perpetually optimistic professor has written a book that just leaves you feeling good, despite all the noise and fear roaming the nation right now. The Future for Investors demystifies the drivers for success behind the work of great money makers like Oracle of Omaha, Warren Buffett. No señor, not even a doctorate degree from no less than MIT gets in the way of professor Siegel's ability to clearly explain to average people.
Evidently, to think in terms of either growth or value investing is wrong. Based on Siegel's extensive research, one should evaluate market expectations through the lens of market pricing. Is the market expecting high asset value growth and has therefore pushed asset prices higher? A yes, suggests looking elsewhere.
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Something I found very interesting within the subject of cash flows is the suggestion that the investor and no one else should determine how to re-deploy corporate profits or dividends. Letting management "invest" the money leads to poor results in the aggregate due to low capital investment returns. Then there is the fact that letting government decide how to invest is even worse. Government often spends several times more to create a job than the job pays. Handing cash would be a much more effective way to use money. But who wants to hand out cash without resulting in value add.
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That's it. Low expectations and high reinvestable cash flows. As the Geico commercial would read, "So easy a caveman can do it".
Professor Siegel also proposed a great thesis for how the negative impact from the upcoming demography shift will be counterbalanced by global growth. Soon Baby-boomers will start selling their accumulated assets to pay for retirement. Siegel feels that the massive wealth and consumption expansion taking place across the developing world will help sustain present asset prices. But I am not so sure about it.
Deficiency, timing and risk profile could make his calculations unrealistic. First, all markets are deficient. Whether there is a 10% or a 90% deficiency in the transfer function needed to match boomer assets for sale with growing demand elsewhere is presently unknown. Have you ever needed to sell something yet failed fining the buyer who would pay your price? Yes, it happens all of the time. After you sell at less than you wished, you will inevitably find someone who would had paid more. Why was it so difficult to find the buyer when you needed it? Because all markets have a deficiency factor which could range from very low to very high. We don't know how efficient each relevant market will be over the next 30 years. What we know is that even a highly efficient market will offer enough friction to call for a review of the math used.
Second, timing means that citizens in developing economies could be willing to buy Boomer assets years after the sale took place. That would be disastrous for sellers even when buyers largely outnumber them.
Third and presently evident is risk profile. Equity prices have resiliently gone up because of market distortions created by the Fed. Risk-adverse buyers are having to shorten their time horizon to compensate for the higher risk associated with the assets they are now buying; assets like dividend paying stocks and residential properties for rent. Any change in economic risk will probably force assets out of their uncommitted hands.
Professor Siegel's book is fantastic. His delivery is as welcomed through his writing as when he talks to the CNBC cameras. Thank you professor for your hard work and commitment to a better future for investors.
Book Title: The Future for Investors
Book Subtitle: Why the Tried and the True Triumph Over the Bold and the New
Author: Jeremy J. Siegel
Publisher: Crown Publishing Group