Everybody Ought to Be Rich

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pages: 517 words: 139,477

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel

Asian financial crisis, asset allocation, backtesting, banking crisis, Black-Scholes formula, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen: Great Stagnation, Vanguard fund

To update Marx, it is the religion of the masses. —ROGER LOWENSTEIN, “A COMMON MARKET: THE PUBLIC’S ZEAL TO INVEST”2 Stocks for the Long Run by Siegel? Yeah, all it’s good for now is a doorstop. —INVESTOR CALLING INTO CNBC, MARCH, 20093 “EVERYBODY OUGHT TO BE RICH” In the summer of 1929, a journalist named Samuel Crowther interviewed John J. Raskob, a senior financial executive at General Motors, about how the typical individual could build wealth by investing in stocks. In August of that year, Crowther published Raskob’s ideas in a Ladies’ Home Journal article with the audacious title “Everybody Ought to Be Rich.” In the interview, Raskob claimed that America was on the verge of a tremendous industrial expansion. He maintained that by putting just $15 per month into good common stocks, investors could expect their wealth to grow steadily to $80,000 over the next 20 years.

Under no circumstances shall McGraw-Hill Education and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise. CONTENTS Foreword Preface Acknowledgments PART I STOCK RETURNS: PAST, PRESENT, AND FUTURE Chapter 1 The Case for Equity Historical Facts and Media Fiction “Everybody Ought to Be Rich” Asset Returns Since 1802 Historical Perspectives on Stocks as Investments The Influence of Smith’s Work Common Stock Theory of Investment The Market Peak Irving Fisher’s “Permanently High Plateau” A Radical Shift in Sentiment The Postcrash View of Stock Returns The Great Bull Market of 1982-2000 Warnings of Overvaluation The Late Stage of the Great Bull Market, 1997-2000 The Top of the Market The Tech Bubble Bursts Rumblings of the Financial Crisis Beginning of the End for Lehman Brothers Chapter 2 The Great Financial Crisis of 2008 Its Origins, Impact, and Legacy The Week That Rocked World Markets Could the Great Depression Happen Again?

See also Developing countries entitlement crisis and, 58–59, 64–68 equity markets in, 49 in global investing, 195–196 real GDP in, 67 retiree-to-worker ratios in, 60–64 Employee Retirement Income Security Act, 178 Employment costs, 265 Employment reports, 261–262 Energy sector, 120–125 England. See also United Kingdom, 209–210 Entitlement crisis age wave in, 58–59, 62–64 conclusions about, 71 emerging economies and, 58–59, 64–68 introduction to, 57–58 life expectancies in, 59 productivity growth in, 69–71 retirement ages in, 59–62, 64–67 world demographics and, 62–64 Equity since 1802, generally, 5–7 during 1982–2000, 12–17 common stock theory and, 8–9 “Everybody Ought to Be Rich” on, 3–5 favorable factors for, 139 financial crises and, 17–19 Fisher on, 9 globally, 196 historical facts about, 3–19 Lehman Brothers and, 18–19 market peaks and, 9 media fiction about, 3–19 mutual funds, 358–363 overvaluation and, 14–15 “permanently high plateau” of, 9–10 in postcrash views, 11–12 premiums, 87–88 real return on, 170 required return on, 144, 147–148 risk premiums, 171–172, 350–352 sentiments about, 10–11 Smith on, 8 stocks and, historically, 7–10 tech bubble and, 16–17 top of the market and, 16 worldwide, 88–90 Equity mutual funds, 358–363 “The Equity Premium: A Puzzle,” 171 Equity risk premiums, 171–172, 350–352 Establishment surveys, 261–262 ETFs (Exchange-traded funds).


Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

addicted to oil, asset allocation, backtesting, Black-Scholes formula, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund

Siegel. Click here for terms of use. This page intentionally left blank 1 CHAPTER STOCK AND BOND RETURNS SINCE 1802 I know of no way of judging the future but by the past. PA T R I C K H E N R Y, 1 7 7 5 1 “EVERYBODY OUGHT TO BE RICH” In the summer of 1929, a journalist named Samuel Crowther interviewed John J. Raskob, a senior financial executive at General Motors, about how the typical individual could build wealth by investing in stocks. In August of that year, Crowther published Raskob’s ideas in a Ladies’ Home Journal article with the audacious title “Everybody Ought to Be Rich.” In the interview, Raskob claimed that America was on the verge of a tremendous industrial expansion. He maintained that by putting just $15 per month into good common stocks, investors could expect their wealth to grow steadily to $80,000 over the next 20 years.

DOI: 10.1036/0071494707 Professional Want to learn more? We hope you enjoy this McGraw-Hill eBook! If you’d like more information about this book, its author, or related books and websites, please click here. For more information about this title, click here C O N T E N T S Foreword xv Preface xvii Acknowledgments xxi PART 1 THE VERDICT OF HISTORY Chapter 1 Stock and Bond Returns Since 1802 3 “Everybody Ought to Be Rich” 3 Financial Market Returns from 1802 5 The Long-Term Performance of Bonds 7 The End of the Gold Standard and Price Stability 9 Total Real Returns 11 Interpretation of Returns 12 Long-Term Returns 12 Short-Term Returns and Volatility 14 Real Returns on Fixed-Income Assets 14 The Fall in Fixed-Income Returns 15 The Equity Premium 16 Worldwide Equity and Bond Returns: Global Stocks for the Long Run 18 Conclusion: Stocks for the Long Run 20 Appendix 1: Stocks from 1802 to 1870 21 Appendix 2: Arithmetic and Geometric Returns 22 v vi Chapter 2 Risk, Return, and Portfolio Allocation: Why Stocks Are Less Risky Than Bonds in the Long Run 23 Measuring Risk and Return 23 Risk and Holding Period 24 Investor Returns from Market Peaks 27 Standard Measures of Risk 28 Varying Correlation between Stock and Bond Returns 30 Efficient Frontiers 32 Recommended Portfolio Allocations 34 Inflation-Indexed Bonds 35 Conclusion 36 Chapter 3 Stock Indexes: Proxies for the Market 37 Market Averages 37 The Dow Jones Averages 38 Computation of the Dow Index 39 Long-Term Trends in the Dow Jones 40 Beware the Use of Trend Lines to Predict Future Returns 41 Value-Weighted Indexes 42 Standard & Poor’s Index 42 Nasdaq Index 43 Other Stock Indexes: The Center for Research in Security Prices (CRSP) 45 Return Biases in Stock Indexes 46 Appendix: What Happened to the Original 12 Dow Industrials?

., 156 Emerging markets: market bubble in, 166–167 sector allocation and, 175i, 177 Emotion, coping with, 363 Employee Retirement Income Security Act of 1974 (ERISA), 143–144 Employee stock options, controversy over, 104–105 Employment cost index (ECI), 246 Employment costs, 246 Employment report, 241–243 Employment statistics, 237–238 Enel, 177 Energy sector: in GICS, 53 global shares in, 175i, 177 England, end of gold standard in, 187–188 ENI, 177 Enron, 89, 234–235 Equity, world, 162, 163i, 164 Equity risk premium, 16–18, 17i, 332–333 Establishment survey, 241 Index Europe: global market share of, 179, 179i, 180i sector allocation and, 175i, 177 Evans, Richard E., 356 “Everybody Ought to Be Rich” (Crowther), 3 Excess returns, 215 Excessive trading, 325–328 Exchange-rate policies, stock market crash of 1987 and, 274–275 Exchange-traded funds (ETFs), 252–253, 258, 342 authorized participants and, 252 choosing, 262–264, 263i creating, 258 creation units and, 252 cubes, 252 diamonds, 252 exchanges in kind and, 253 spiders, 252 using, 261–262 Exchanges in kind, 253 Exelon Corp., 177 Extraordinary Delusions and the Madness of Crowds (Mackay), 324 Exxon, 55 Exxon Mobil, 40, 144, 176i, 177–178, 183 Fads, 323–325 Fama, Eugene, 140–141, 152, 157 Fannie Mae, 54, 116 “Fear and Greed” (Shulman), 86 Fed model, 113–115, 114i Federal funds market, 196 Federal funds rate, 196 Federal Reserve System (Fed): dollar stabilization program and, 274 establishment of, 191–192 Great Depression and, 79 interest rates and, 196, 197i, 198–199 371 Federal Reserve System (Fed) (Cont.): money creation and, 195–196 postdevaluation monetary policy and, 193–194 postgold monetary policy and, 194–195 rate cuts following 1998 fall on DJIA, 88 Fernandez, Henry, 356n Fidelity Magellan Fund, 345–346, 348 Financial Accounting Standards Board (FASB), 102–103 Financial Analysts Journal, 97 Financial markets: central bank policy and, 247 inflation’s impact on, 246 Financial sector: in GICS, 53 global shares in, 175, 175i Firestone, 64 First National Bank of Pennsylvania, 21n First Union Bank, 21n Fischhoff, B., 326n Fisher, Irving, 4n, 23q, 78–79, 79, 80, 86, 201n Fisher, Lawrence, 45, 84 Fisher effect, 201–202 Fixed-income assets: fall in returns on, 15–16 real returns on, 14–16, 15i (See also Bonds) Flintkote, 60i, 62–63, 64 Float-adjusted shares, in capitalization-weighted indexing, 353 Foman, Robert, 85 Ford, Gerald, 216 Ford Motor Company, 64 Foreign exchange risk, hedging, 173 Foreign markets (see Global investing) Fortune Brands, 48, 61, 61n Forward-looking bias, 330 Franklin, Benjamin, 65q Franklin Templeton, 346 Freddie Mac, 54, 116 French, Ken, 140–141, 152, 157 Friedman, Robert, 108n Froot, Kenneth A., 173n FT-SE index, 238 Fund performance, 342–346, 343i–345i Fundamental analysis (see Technical analysis) “Fundamental Indexation” (Arnott, Hsu, and Moore), 356 Fundamentally weighted indexation, 353–357 capitalization-weighted indexing versus, 353–355 history of, 356–357 Fundamentals, 110 Futures contracts (see Stock index futures) Gaps, 275–276 Gartley, H.


pages: 319 words: 106,772

Irrational Exuberance: With a New Preface by the Author by Robert J. Shiller

Andrei Shleifer, asset allocation, banking crisis, Benoit Mandelbrot, business cycle, buy and hold, computer age, correlation does not imply causation, Daniel Kahneman / Amos Tversky, demographic transition, diversification, diversified portfolio, equity premium, Everybody Ought to Be Rich, experimental subject, hindsight bias, income per capita, index fund, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, Long Term Capital Management, loss aversion, mandelbrot fractal, market bubble, market design, market fundamentalism, Mexican peso crisis / tequila crisis, Milgram experiment, money market fund, moral hazard, new economy, open economy, pattern recognition, Ponzi scheme, price anchoring, random walk, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Small Order Execution System, spice trade, statistical model, stocks for the long run, survivorship bias, the market place, Tobin tax, transaction costs, tulip mania, urban decay, Y2K

“If she saved only 10% of her income and invested the savings in an S&P index fund she’d have a net worth of $1.4 million on retirement at age 67, in today’s dollars.”8 These calculations assume that the S&P index fund earns a riskless 8% real (inflation-corrected) return. There is no mention of the possibility that the return might not be so high over time, and that she might not end up a millionaire. An article with a very similar title, “Everybody Ought to Be Rich,” appeared in the Ladies’ Home Journal in 1929.9 It performed some very similar calculations, yet similarly omitted to describe the possibility that anything could go wrong in the long term. The article became notorious after the 1929 crash. These seemingly convincing discussions of potential increases in the stock market are rarely offered in the abstract, but instead in the context of stories about successful or unsuccessful investors, and often with an undertone suggesting the moral superiority of those who invested well.

The index shows no clear trend among institutional investors since 1989. 6. Frederick Lewis Allen, Only Yesterday (New York: Harper and Brothers, 1931), p. 309. 7. David Elias, Dow 40,000: Strategies for Profiting from the Greatest Bull Market in History (New York: McGraw-Hill, 1999), p. 8. 8. Dwight R. Lee and Richard B. MacKenzie, “How to (Really) Get Rich in America,” USA Weekend, August 13–15, 1999, p. 6. 9. Samuel Crowther, “Everybody Ought to Be Rich: An Interview with John J. Raskob,” Ladies Home Journal, August 1929, pp. 9, 36. 10. Bodo Schäfer, Der Weg zur finanziellen Freiheit: In sieben Jahren die erste Million (Frankfurt: Campus Verlag, 1999); Bernd Niquet, Keine Angst vorm nächsten Crash: Warum Aktien als Langfristanlage unschlagbar sind (Frankfurt: Campus Verlag, 1999). 11. Robert McGough, “Was Investor Survey a Rush to Judgment?”


The Great Crash 1929 by John Kenneth Galbraith

Bernie Madoff, business cycle, Everybody Ought to Be Rich, full employment, housing crisis, invention of the wheel, joint-stock company, margin call, market fundamentalism, short selling, South Sea Bubble, the market place

One of those who had benefited from the United Corporation promotion just mentioned was John J. Raskob. As Chairman of the Democratic National Committee, he was also politically committed to a firm friendship for the people. He believed that everyone should be in on the kind of opportunities he himself enjoyed. One of the fruits of this generous impulse during the year was an article in the Ladies' Home Journal with the attractive title, "Everybody Ought to be Rich." In it Mr. Raskob pointed out that anyone who saved fifteen dollars a month, invested it in sound common stocks, and spent no dividends would be worth—as it then appeared—some eighty thousand dollars after twenty years. Obviously, at this rate, a great many people could be rich. But there was the twenty-year delay. Twenty years seemed a long time to get rich, especially in 1929, and for a Democrat and friend of the people to commit himself to such gradualism was to risk being thought a reactionary.


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The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

"Robert Solow", banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

In one advertisement backing Herbert Hoover during the 1928 Presidential campaign, the Republicans promised: ‘A chicken in every pot and a car in every garage’. Irving Fisher, one of the country’s most distinguished economists, opined shortly before the crash that shares had reached ‘a permanently high plateau’. On the eve of the crash the financier John J Raskob, in an article called ‘Everybody Ought to be Rich’, came out with a plan to allow the poor to make money on the stockmarket. How debt levels and income concentration soared in 1920s America (Figure 8.1) 314 As in the decade leading to 2007, much of the apparent economic miracle of the 1920s had been built on an expansion of debt. As shown in figure 8.1, the ratio of household debt to national income rose by more than 70 per cent between 1920 and 1930.


pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

assortative mating, autonomous vehicles, blue-collar work, Bonfire of the Vanities, Branko Milanovic, business cycle, call centre, collective bargaining, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, easy for humans, difficult for computers, Erik Brynjolfsson, Everybody Ought to Be Rich, feminist movement, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, Gunnar Myrdal, income inequality, industrial robot, invisible hand, job automation, Joseph Schumpeter, longitudinal study, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, Paul Samuelson, performance metric, positional goods, post-industrial society, postindustrial economy, purchasing power parity, refrigerator car, rent control, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, Vilfredo Pareto, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

To embrace the fantasy of a poverty-free America, one had to be unaware that during the 1920s the bottom 95 percent saw its proportion of the nation’s income drop from 72 percent to 64 percent.13 The bigger problem, of course, was that economic catastrophe loomed for just about everyone. Why did people believe otherwise? Partly because financial experts told them to. In August 1929 the investor and Democratic National Committee chairman John J. Raskob published, in the Ladies’ Home Journal, an article titled “Everybody Ought to be Rich.” In mid-October Yale’s Irving Fisher—the most eminent economist of the era—pronounced, “Stock prices have reached what looks like a permanently high plateau.” Mere days later, the stock market crashed and the Great Depression began. By this time King had left the NBER for a professorship in economics at New York University. Although he was initially sympathetic to President Franklin Roosevelt, King tacked steadily rightward in his politics as FDR expanded Washington’s role in the economy.


pages: 366 words: 109,117

Higher: A Historic Race to the Sky and the Making of a City by Neal Bascomb

buttonwood tree, California gold rush, Charles Lindbergh, Everybody Ought to Be Rich, hiring and firing, margin call, market bubble, Ralph Waldo Emerson, transcontinental railway, Works Progress Administration

Although a substantial number of stocks had stalled or were suffering downtrends, few speculators saw the forest from the trees. Without hesitation, the bulls shrugged off attempts by the Federal Reserve to rein in margin loans. They muzzled the bears who dared predict doom, calling them “destructionists” of America. Investment trusts, like Riordan’s County Trust, opened at a rate of several per week and were leveraged to the hilt. Readers rushed newsstands to read John J. Raskob’s article “Everybody Ought to Be Rich.” One paper called his plan “a practical Utopia”; another said it was the “greatest vision of Wall Street’s greatest mind.” Advice on how to win a fortune on Wall Street became a business in its own right, publishers printing thousands of “morning letters” every day to show how to beat the market. The quick kill outpaced the investor’s interest in something as mundane as a dividend yield.


pages: 497 words: 153,755

The Power of Gold: The History of an Obsession by Peter L. Bernstein

Albert Einstein, Atahualpa, Bretton Woods, British Empire, business cycle, California gold rush, central bank independence, double entry bookkeeping, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial innovation, floating exchange rates, Francisco Pizarro, German hyperinflation, Hernando de Soto, Isaac Newton, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, large denomination, liquidity trap, long peace, money: store of value / unit of account / medium of exchange, old-boy network, Paul Samuelson, price stability, profit motive, random walk, rising living standards, Ronald Reagan, seigniorage, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

The market jumped another 50 percent in the second half of 1928. Then, after going nowhere in the first five months of 1929, it roared upward by 25 percent over the next three months before making its final top in August 1929. In late 1928, when John J. Raskob, Director of General Motors, friend of the DuPonts, and Chairman of the Democratic Committee, wrote in the Ladies' Home Journal that "Everybody Ought to Be Rich," he evidently had plenty of believers.1 It is fair to ask why the unfolding miracles in the stock market were of any concern to the Federal Reserve, which had been established in 1913 to supervise commercial banks and to provide liquidity for the economy as needed. The concern was not misplaced. Much of the boiling stock market was being financed by people who borrowed money to buy their stocks, often at interest rates well over 10 percent.


pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bonfire of the Vanities, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, corporate governance, corporate raider, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, fixed income, full employment, George Gilder, germ theory of disease, global supply chain, hiring and firing, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, means of production, Menlo Park, Mexican peso crisis / tequila crisis, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, plutocrats, Plutocrats, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Sand Hill Road, savings glut, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Six times as much common stock was issued in 1929 as in 1927. The Street was awash in credit. New investors could buy on 25 percent margin—that is, borrowing 75 percent of the purchase price. Regular customers could buy on 10 percent margin.1 Some of the wisest people in the country applauded the bull market. In 1927, John Raskob, one of the country’s leading financiers, wrote an article in Ladies’ Home Journal, “Everybody Ought to Be Rich,” advising people of modest means to park their savings in the stock market.2 A year later, Irving Fisher, one of the country’s most respected economists, declared that “stock prices have reached what looks like a permanent high plateau.” Others were more skeptical: as the market took off in 1927, the commerce secretary, Herbert Hoover, condemned the “orgy of mad speculation” on Wall Street and started to explore ways of closing it down.3 The orgy proved more difficult to stop than to start.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Glassman, an investment columnist for the Washington Post, and Hassett, a former senior economist with the Federal Reserve, inverted normal investment logic by arguing that over the long term shares were no riskier than bonds and that the traditional risk premium (higher return) demanded by investors could be eliminated. The Dow Jones Industrial Average, trading at the time around 11,000, was forecast to more than triple. In a 1929 article “Everybody ought to be rich” in the Ladies’ Home Journal, John Raskob, a director of General Motors, wrote in a similar vein. An investment in shares of just $15 a month would, with dividends reinvested, increase in value to about $80,000 after 20 years. But Raskob, the man who wanted his readers to invest in stock for long-term wealth, was selling his shares even before his article appeared, avoiding the 1929 crash.


pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

3Com Palm IPO, accounting loophole / creative accounting, air freight, Andrei Shleifer, asset allocation, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate governance, corporate raider, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, George Santayana, hiring and firing, index fund, intangible asset, Isaac Newton, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, stocks for the long run, survivorship bias, the market place, the rule of 72, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

There are no sure and easy paths to riches on Wall Street or anywhere else. It may be well to point up what we have just said by a bit of financial history—especially since there is more than one moral to be drawn from it. In the climactic year 1929 John J. Raskob, a most important figure nationally as well as on Wall Street, extolled the blessings of capitalism in an article in the Ladies’ Home Journal, entitled “Everybody Ought to Be Rich.”* His thesis was that savings of only $15 per month invested in good common stocks—with dividends reinvested—would produce an estate of $80,000 in twenty years against total contributions of only $3,600. If the General Motors tycoon was right, this was indeed a simple road to riches. How nearly right was he? Our rough calculation—based on assumed investment in the 30 stocks making up the Dow Jones Industrial Average (DJIA)—indicates that if Raskob’s prescription had been followed during 1929–1948, the investor’s holdings at the beginning of 1949 would have been worth about $8,500.


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The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

affirmative action, Albert Einstein, anti-communist, Ayatollah Khomeini, barriers to entry, Bob Noyce, Bonfire of the Vanities, Brownian motion, capital asset pricing model, card file, centralized clearinghouse, Charles Lindbergh, collateralized debt obligation, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, Donald Trump, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, global village, Golden Gate Park, Haight Ashbury, haute cuisine, Honoré de Balzac, If something cannot go on forever, it will stop - Herbert Stein's Law, In Cold Blood by Truman Capote, index fund, indoor plumbing, intangible asset, interest rate swap, invisible hand, Isaac Newton, Jeff Bezos, John Meriwether, joint-stock company, joint-stock limited liability company, Long Term Capital Management, Louis Bachelier, margin call, market bubble, Marshall McLuhan, medical malpractice, merger arbitrage, Mikhail Gorbachev, money market fund, moral hazard, NetJets, new economy, New Journalism, North Sea oil, paper trading, passive investing, Paul Samuelson, pets.com, plutocrats, Plutocrats, Ponzi scheme, Ralph Nader, random walk, Ronald Reagan, Scientific racism, shareholder value, short selling, side project, Silicon Valley, Steve Ballmer, Steve Jobs, supply-chain management, telemarketer, The Predators' Ball, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, transcontinental railway, Upton Sinclair, War on Poverty, Works Progress Administration, Y2K, yellow journalism, zero-coupon bond

Receipt from Beebe & Runyan, December 21, 1926, annotated by Leila. 30. They were married December 26, 1925. 31. February 12, 1928. 32. Howard became a deacon in 1928 at the age of 25. 33. Address to the American Society of Newspaper Editors, Washington, D.C., January 25, 1925. Chapter 6 1. Even so, only three in a hundred Americans owned stocks. Many had borrowed heavily to play the market, entranced by John J. Raskob’s article, “Everybody Ought to Be Rich” in the August 1929 Ladies’ Home Journal and Edgar Lawrence Smith’s proof that stocks outperform bonds (Common Stocks as Long-Term Investments. New York: The MacMillan Company, 1925). 2. “Stock Prices Slump $14,000,000,000 in Nation-Wide Stampede to Unload; Bankers to Support Market Today,” New York Times, October 29, 1929; David M. Kennedy, Freedom from Fear, The American People in Depression and War, 1929–1945.