The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New

By Jeremy J. Siegel (Crown Business, 2005)

In his 1994 classic Stocks for the Long Run, finance professor Jeremy Siegel championed equities as the path to prosperity, and recommended indexing (buying the S&P Index, for one) as the best way to capitalize on stocks’ superior return over bonds.

It turns out that Siegel has more to say about equities — and he has changed his mind about indexing as the best way to accumulate wealth. His latest work, The Future for Investors, takes his research to the next level, focusing on which stocks hold the most potential for investors. The results of his analysis lead him to backtrack a bit from his earlier enthusiasm on indexing.

Quite simply, Siegel explains, when you buy an index, the S&P, for instance, you’re buying a lot of companies within the index that are overpriced. Some are overpriced because of their inclusion in the world’s most successful index.

Consider this example: Yahoo! was added to the S&P Index in December 1999, joining AOL as the only Internet company (at the time) to be included. The day after the announcement, investor enthusiasm pushed Yahoo! shares up $9 in one trading session. In five days the stock rose 64 percent above the price it traded at before the S&P announcement.

It turns out that excessive market valuation — particularly in the technology and telecommunications sector — has been a serious drag on S&P 500 Index returns over time, as Siegel’s data shows. This is counterintuitive. Price appreciation is good right? Well, yes, in the short-run. But, as Siegel points out, in the long-run, investors should avoid the “growth trap” and seek out companies with low P/Es and high dividend yields — frequently found in “old” economy stocks like railroads and consumer staples firms.

The reason? Dividends.

Dividends represent leverage because when they are reinvested into low or reasonably priced shares they have a multiplier effect on return. Siegel writes: “Shareholders who bought Standard Oil in 1950 and reinvested their dividends would have over fifteen times the number of shares they started with, while shareholders in IBM would only have three times the number of shares.”

Readers will appreciate Siegel’s trademark candor, and thoroughness, if at times he belabors his point. His charts are helpful, but sometimes confusing. He doesn’t explain, for instance, the “Years to Break Even After Price Declines” chart adequately. His data shows that it would take 20 years to break even with a 5 percent dividend yield and a 10 percent price drop versus just nine years to break even with a 5 percent dividend yield and 80 percent price drop. While we don’t question Professor Siegel’s math, and the logic makes sense (lower price, more shares purchased with dividend reinvestment), it would be helpful to see the calculations on this surprising result.

In discussing the future for investors, Siegel moves beyond data. He offers a welcome contrast to the doom and gloom that abounds in many discussions about Boomer retirement, reassuring readers that the developed world will handle its pending Age Wave crisis. Not to worry, Siegel says. India and China will supply the investors to buy our assets as we forge into retirement. By 2050, he believes China and India will gain majority ownership in most of the large global corporations. (And we shouldn’t worry about that, either).

Oh, and what to do with your portfolio? Siegel concludes his book by recommending 50 percent of your equity allocation go into a world index fund, with the rest devoted to high-dividend and low P/E strategies.

Apparently, a little indexing is alright, after all.

About Jeremy J. Siegel: The Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania, Dr. Siegel received his PhD in economics from M.I.T. and is the author of the classic and influential Stocks for the Long Run. Dr. Siegel writes and lectures about the economy and financial markets and has appeared on CNN, CNBC, NPR and other networks. He is a regular columnist for Kiplinger’s and has contributed op-eds and articles to The Wall Street Journal, Barron’s, The Financial Times and other national and international news media.

The Emotionally Intelligent Financial Advisor

By Dr. Hendrie Weisinger (Dearborn Trade Publishing, 2004)

What makes a financial advisor a top producer? The answer, research indicates, is emotional intelligence. In The Emotionally Intelligent Financial Advisor, Dr. Weisinger outlines critical emotional intelligence tasks that help financial advisors use their emotions, moods, and feelings — and those of their clients and employees — to enhance their results.

Successful financial advisors tackle their daily work with positive attitudes and leave work feeling energized and productive regardless of how the market has performed. Because they have cultivated awareness of their emotions, intentions, and actions, they are successful at increasing their bottom line, developing long-lasting relationships with clients, and communicating their ideas effectively.

As one of the financial services industry’s leading authority on the subject, Dr. Weisinger teaches readers how to:

Gain and keep the trust of prospects and clients

Stay focused and manage anxiety in turbulent times

Develop interpersonal expertise

Respond effectively to criticism

Enhance office relationships

Stay proactive by turning setbacks into comebacks

The book offers financial advisors the necessary tools to grow their own emotional intelligence portfolios by developing high self-awareness, becoming self-motivated, managing their emotions, and taking charge of their thoughts. With the aid of self-help activities and pointed questions, Dr. Weisinger takes readers through the steps necessary to create personal value in the marketplace, avoid losses of self-confidence, and position themselves to work out conflict, inspire others, energize themselves, and gain trust.

Once readers have learned to recognize their emotions and use them to their advantage, they are encouraged to diversify their emotional intelligence by investing it in every relationship that impacts their bottom line. Once they are in a better position to react positively to critical feedback themselves, they will have the skills necessary to befriend criticism and respond rationally to emotionally charged clients or employees.

An emotionally intelligent financial advisor also knows how to analyze a relationship to understand its goals and boundaries, relate well to others, and encourage good team communication in the office. To help readers integrate emotional intelligence into their daily functioning, Weisinger includes a blueprint to help them become more adept at using their emotional intelligence. The blueprint focuses on the next day’s necessary tasks and is completed the evening before. It includes such things as relaxation practices, a gathering of emotional information and anticipation of interpersonal encounters, phone calls, and meetings.

The Emotionally Intelligent Financial Advisor is concise, practical, and filled with examples from the industry. It also contains personal assessment tools to help financial advisors gain an important emotionally intelligent edge.

About Hendrie Weisinger, PhD: A psychologist and leading authority in the application of emotional intelligence, Dr. Weisinger has consulted for and spoken to major financial institutions such as Merrill Lynch and Morgan Stanley, has taught at many of the world’s top business schools, and is a frequent speaker for securities industry professional groups. His work has been cited in leading business publications nationwide, including The Wall Street Journal, Fortune magazine and the New York Times Sunday business section.

Who Shot Goldilocks? How Alan Greenspan did in our jobs, savings and retirement plans

By William D. Rutherford (Crown Point Press USA, 2004)

With Ben Bernanke replacing Alan Greenspan as chairman of the Federal Reserve Board, most financial analysts assess the former chairman’s tenure with praise. But not William D. Rutherford, president of Rutherford Investment Management LLC. He cheers Greenspan’s departure.

Rutherford believes Greenspan’s long tenure is a disaster. In his slim, entertaining, contrarian volume, Who Shot Goldilocks? How Alan Greenspan did in our jobs, savings and retirement plans, Rutherford argues Greenspan’s irrational fear of inflation during bullish times caused him to raise interest rates, resulting in the loss of trillions of dollars of investment capital, production, jobs, savings, and retirement nest eggs.

Rutherford paints a picture: Greenspan versus the economy. Rutherford sees the economy as a vibrant, resilient engine that takes bumps but bounces back if left alone. In Greenspan, he sees a meddler constantly consulting his obsolete “20,000 data points to reach his conclusions.” Greenspan is the ultimate conformist, afraid of going against tradition.

“Greenspan was taught never to commit to an idea unless it could be backed up by data,” writes Rutherford. As a result, he was unable to commit to the fast-changing economy of the past 18 years because its rationale isn’t always found in a report or data book, posits Rutherford.

The most costly of Greenspan’s mistakes were his haste to raise interest rates just before the 1987 crash and, more importantly, in 2000 during the dot-com boom. “Between the market’s high in March of 2000 and its low in October of 2002, $8.5 trillion in equity value disappeared,” Rutherford writes.

In fairness to the retiring Fed chairman, there are many who praise his tenure, saying he judiciously lowered rates to prevent the economy from overheating. Rutherford acknowledges the irony of calling Greenspan a menace to markets. After all, the Fed chairman is a disciple of Ayn Rand, the late hyper-capitalist enthusiast who wrote Atlas Shrugged and still commands a cult-like following today.

However, Rutherford sees today’s Greenspan as a bureaucratic figure since assuming the Fed chairmanship in 1987. He became more interested in staying as Fed chair than taking chances that deviated from his economic data books. At heart, writes Rutherford, “Greenspan’s strength had been in analyzing the economy, not forecasting.”

So how does Greenspan maintain his aura of excellence and adoration? Rutherford says two unique traits define him:

One, Greenspan’s ability to appear incomprehensible. Rutherford blames Congress, saying representatives need to stand up to the chairman and ask hard questions, rather than always deferring to his assumed brilliance.

Two, Greenspan has assumed celebrity. He enjoys the cult of adoration that surrounds him. His 1996 comment describing the economy as one of “irrational exuberance” kicked celebrity into high gear. Rutherford writes, “This comment cemented his move to a new realm, from Alan the Man to Greenspan the Myth.”

Get away from Greenspan’s theories, pleads Rutherford. Future leaders need to see the economy as representing people and savings, and not just statistics.

About William Rutherford: A graduate of Harvard Law School, William Rutherford has been on the board of numerous U.S. and international corporations and the CEO or president of two international investment companies with offices in New York City, London, Paris, Tokyo, and Frankfurt. Mr. Rutherford has been the Treasurer of the State of Oregon and chaired the Oregon Investment Council overseeing $14 billion in investment funds. He has appeared on CNBC and Bloomberg television, and has been quoted in The New York Times, The Wall Street Journal, Business Week, and other publications.

The One Thing… You Need to Do: as told by the Financial Advisory Industry’s Top Coaches, Consultants & Industry Insiders

By “D” Shannon and David Drucker

What’s “The One Thing” the advisory industry’s top coaches, consultants and visionaries say you must do to succeed in this business? Interviews with 14 advisory industry gurus reveals five basic themes that lead to success: 1) strengthening client relationships, 2) better communication skills, 3) understanding your value, 4) building a business not a practice, and 5) being passionate, purposeful, and consistent about what you do.

Tested in the Trenches: A 9-Step Plan for Building and Sustaining a Million-Dollar Financial Services Practice

By Ron Carson, CFP®, CFS, ChFC; and Steve Sanduski, MBA, CFP®

Contrary to popular belief, it is possible to have both a great financial services practice and a great life filled with passion, purpose, and enthusiasm. The key is three insider secrets that the authors teach in their professional coaching program: 1) on-going passion to achieve, 2) extraordinary client service, and 3) systemization. In this book, these three concepts are translated into practical, actionable steps.

The World of Money Management: America’s Leading Experts Share Their Views on Investment Management and the Value of Consulting

By Sydney LeBlanc and Lyn Fisher

The World of Money Management offers insight and perspective on important aspects of professional asset management, investment consulting, and separately managed accounts. A compendium of scholarly research, ideas, opinions, and information written in a clear and entertaining style, chapters are designed to enhance your education, advance client standards of care, inspire creative dialogue with colleagues, and give you an opportunity to confirm — or challenge — the tenets the authors present.

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If you are interested in having one of these authors speak at your company’s event, please call 435-750-0062 to arrange a talk.