Tags: Morgan Housel | Jeremy Siegel | financial advisers | investors

Motley Fool's Housel: Siegel's Research Proves Wisdom of Sitting Tight

By    |   Tuesday, 24 February 2015 09:00 AM

Many financial advisers try to convince their clients that the way to make money investing is to constantly get in and out of the market.

But the research of stock market guru Jeremy Siegel, finance professor at University of Pennsylvania, proves otherwise, says Motley Fool columnist Morgan Housel.

"Siegel's 2005 book 'The Future for Investors' has an amazing statistic that stresses an important trait you need to be a great investor: the ability to sit on your hands and do literally nothing," Housel writes in USA Today.

That statistic involves the S&P 500 index. Since its inception in 1957, almost 1,000 companies left the index and the same amount were added.

Siegel calculated how investors would have performed if they just stuck with the original 500, reinvesting in the remaining companies when one went out of business.

"Those who bought the original 500 firms and never sold any of them outperformed not only the world's most famous benchmark stock index but also the performance of most money managers and actively managed equity funds," Siegel writes.

From 1957 to 2003, the original 500 companies generated an annual return of 11.3 percent, 100 basis points better than the changing S&P 500.

Meanwhile, the six-year bull market for stocks, which saw the S&P 500 index hit a record high Friday is alive and well, says Byron Wien, vice chairman of Blackstone Advisory Partners.

"I'm still out there, bullish for the rest of the year," he told CNBC.

"Earnings may be somewhat disappointing because of the strong dollar and oil, but I think there are going to be a number of companies that are going to produce good year-to-year earnings. And I think there are opportunities to make money in the market."

The 443 S&P 500 companies that reported fourth-quarter earnings through last week registered blended profit growth of only 3.5 percent, FactSet reports.

"My view is that the people who are cautious make sense," Wien said. "But I think that too many people are moving to that side of the boat, and I think the market may surprise you favorably."

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Many financial advisers try to convince their clients that the way to make money investing is to constantly get in and out of the market.
Morgan Housel, Jeremy Siegel, financial advisers, investors
Tuesday, 24 February 2015 09:00 AM
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