Siegel and Schwartz on Stocks for the Long Run

Episode Summary

Executive Summary: Barry Ritholtz interviews Jeremy Siegel and Jeremy Schwartz about the latest edition of Stocks for the Long Run, covering fundamental indexing, value vs. growth, inflation, the Fed’s policy error, productivity, real estate, bonds, gold, and crypto. Siegel argues cap-weighted indexing is flawed, value has become attractive again, and the Fed has tightened too far, risking recession, while Schwartz adds product and market context from WisdomTree.

Main Topics: Stocks for the Long Run and book updates (Priority: 5/5): Siegel explains how the book has evolved across six editions, adding chapters on COVID, crypto, real estate, factor investing, and the recent bear market while preserving its core long-run market lessons. Fundamental indexing vs. cap-weighted indexing (Priority: 5/5): The conversation centers on WisdomTree’s approach to weighting by fundamentals such as dividends and earnings rather than market cap, which Siegel argues improves risk-return trade-offs and creates a value tilt. Value vs. growth and market cycles (Priority: 5/5): Siegel and Schwartz discuss the extraordinary underperformance of value in the 2010s, the dominance of mega-cap tech, and why current valuations suggest a strong rebound potential for value and dividend strategies. Fed policy, inflation, and recession risk (Priority: 5/5): Siegel strongly criticizes the Fed for dismissing inflation too long and then tightening too aggressively, arguing the policy error may push the economy into recession if not paused soon. Productivity, work-from-home, and the real economy (Priority: 4/5): They debate whether recent productivity declines reflect measurement problems or genuine economic weakness, especially amid remote work and post-pandemic labor changes. Asset allocation: bonds, real estate, gold, and crypto (Priority: 4/5): Siegel says bonds are less attractive than equities over long horizons, REITs are riskier than many assume, gold remains a weak long-run inflation hedge, and Bitcoin partly displaced gold as a speculative store of value. Career advice and mentorship (Priority: 3/5): The guests reflect on mentorship, remote-first work, and advice for younger investors, emphasizing comparative advantage, data skills, and building careers around genuine strengths.

Key Arguments: Market-cap weighting is not the most efficient indexing method; weighting by dividends and earnings can improve the risk-return profile and embed a value tilt. The tech bubble and subsequent mega-cap tech boom demonstrated how cap-weighted indexes can become overly concentrated and vulnerable to overvaluation. Value investing’s historic edge did not disappear; it was obscured by the extraordinary run of growth stocks, especially the large U.S. technology platform companies. The Fed’s 2021–2022 response was too slow on the way up and now too aggressive on the way down, increasing recession risk. Inflation should have been anticipated because fiscal stimulus and money-supply growth were unusually large in 2020–2021. Recent productivity weakness is a major concern because productivity drives living standards; remote work may be part of the explanation, but the decline may also be real. Stocks remain the best long-run asset class; bonds may offer near-term nominal yield, but after inflation they are unlikely to beat equities over time. Gold is a weak long-run inflation hedge; Bitcoin briefly took on the “digital gold” narrative but has been highly speculative. Real estate feels stable because prices are observed infrequently, but REITs can experience drawdowns as severe as or worse than equities. The current setup makes value, dividend, small-cap, and some emerging-market assets look relatively attractive versus expensive growth assets.

Data Points: Years of teaching at Wharton: 45 years (active teaching), 49 years total university teaching including Chicago - Siegel describes his academic career and emeritus status. First edition of Stocks for the Long Run: May 1994 - Siegel notes the first edition used data through 1992. Book editions: 6 editions - The conversation focuses on the latest revision of the classic investing book. WisdomTree size: $75 billion - Barry describes WisdomTree as a $75 billion ETF and mutual fund company. Stock long-run real return: 6.7% compound annual return - Siegel says this figure was unchanged after extending the data by 30 years. Real estate data history: 50 years of REIT data - Siegel says this was enough to include a fuller real estate analysis. REIT vs. S&P 500 return: Virtually exactly the same - Siegel says the REIT index return matches the S&P 500 over the studied period. Value vs. growth underperformance: Worst 15 years in history - Siegel says value’s underperformance relative to growth was unprecedented in the modern data series. Value outperformance in 2022: About 2,000 basis points - Schwartz notes value beat growth by roughly 20 percentage points. High-dividend vs. price-to-book value: Another 1,000 basis points - Schwartz says high-dividend strategies outperformed other value definitions by another 10 percentage points. High-dividend strategy yield: 11x earnings / 9% earnings yield - Siegel cites the valuation of a dividend-focused basket. Real yield comparison: 1.5% TIPS real yield - Used to contrast equities’ earnings yield with bonds’ real yield. Emerging markets PE: About 12–13x earnings - Schwartz describes broad emerging-market valuations. High-dividend emerging-market PE: About 5x earnings - Used to show the cheapness of certain dividend-oriented EM exposures. Petrobras dividend yield: Almost 40% - Siegel uses Petrobras as an example of an extreme dividend payer in Brazil. Russian index treatment: Marked at zero, not removed - Siegel says WisdomTree is not forcing Russia out of the index while there is no market to sell it. Money supply growth in 2020: 25% - Siegel says money supply growth was extreme during the pandemic. Money supply growth in 2021: 18% - Siegel says the expansion remained very high in 2021. Expected consistent money growth for 2% inflation: 5% - Siegel argues 5% money growth is compatible with 2% inflation. Productivity growth collapse: Slowest since World War II; nearly twice as severe as any prior collapse - Siegel says first-half 2022 productivity data were historically bad. New workers hired: 4 million - Siegel notes payroll gains despite negative real GDP. CARES Act spending: $2 trillion + $1 trillion + $1 trillion - Siegel cites successive fiscal packages as a major inflation driver. Housing prices: Up 40% from March 2020 to spring 2022 - Siegel says housing rose sharply before the Fed tightened. Rental/housing index: Up 30% - Siegel says market-based housing measures rose far more than BLS inflation measures. BLS housing inflation: About 10%–12% - Siegel argues the official data lag behind reality. Stocks vs. bonds over long run: Stocks less volatile than bonds over 30-year real periods - Siegel argues long-horizon investors may not need bonds. Gold long-run real return: Less than 1% above inflation - Siegel characterizes gold as a weak inflation hedge long term. Bitcoin and gold period: Bitcoin usurped gold’s role during early inflation fears - Siegel says younger investors moved to Bitcoin as “digital gold.”

Pivotal Quotes: "Market cap isn't the most efficient way to organize an index." — Barry Ritholtz / discussion framing: Introduces the core debate around indexing methodology and WisdomTree’s philosophy. "It is significantly better risk-return trade-offs." — Jeremy Siegel: Siegel explains his conclusion from research on fundamental indexing. "It's gross negligence as a steward of our monetary system." — Jeremy Siegel: Siegel’s strongest criticism of the Fed’s delayed response to inflation.

Implications: Listeners should expect continued debate over inflation, rates, and equity leadership. The guests argue value, dividend, small-cap, and some EM exposures look more attractive than crowded growth names, while the Fed risks overtightening into recession.