False Prophets, Big Bucks

This blog post was written by Dan Solin
Posted November 17, 2009 on www.huffingtonpost.com

Jeremy Siegel Ph.D. has very impressive credentials. He is the Russell E. Palmer Professor of Finance at The Wharton School of the University of Pennsylvania. He is the author of a number of financial books, including Stocks for the Long Run.

Professor Siegel has become a cottage industry. His web site refers to him as the "Wizard of Wharton" and offers subscriptions so that readers can benefit from his market newsletter and "investment strategies."

His stock market skills are extolled by no less an expert than Jim Cramer, who wrote that "Jeremy Siegel is one of the great ones. [His article at the market top was] one of the most stark and prescient calls I have ever seen."

Of course, Cramer said the same thing about Lenny Dykstra, who he also called "one of the great ones in this business". Dykstra recently filed for bankruptcy, declaring assets of $50,000 and debts of $30 million. But I digress.

Professor Siegel makes end of the year predictions about the performance of the stock markets. When he did so at the end of 2007, with his predictions for 2008, I wrote a blog warning investors not to rely on his predictions. I noted that we all wish there was a guru out there who could see the future but that these claims were "... a disservice to investors when those who should know better foster this false hope."

How accurate were Professor Siegel's 2008 predictions?

Professor Siegel predicted that "...the economy will avoid a recession" in 2008. His crystal ball also revealed that "the stock market will have another winning year in 2008" and that "financial stocks, which have plummeted 18% so far this year, will outperform the S&P 500 index next year [2008] as the credit crises fades."

The recession of 2008 was the worst since the Great Depression.
The S&P 500 lost 38.49% in 2008. It was its worst year since 1937. Financials underperformed all market sectors, losing 56.95%.

I am not picking on Professor Siegel. His predictions are no better or worse than many others.
The securities industry and the financial media inundate investors with market predictions. The reality is that they have no value, whether they are delivered by a carnival barker like Cramer or a well credentialed academic like Professor Siegel.

Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.