Jeremy Siegel - Why I Changed My Mind about Index Funds

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A video of this interview appears here.

Jeremy Siegel

Jeremy Siegel is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania and a Senior Investment Strategy Advisor to Wisdom Tree Funds. His book “Stocks for the Long Run,” now in its fourth edition, has been cited as one of the top-10 all-time books on investing. It is available via the link above. A regular contributor to the Wall Street Journal and the Financial Times, he is frequently quoted in the financial press and is widely considered today’s preeminent market historian.

Dan Richards interviewed Siegel at his office at the Wharton School in Philadelphia on June 9.


We're talking today about your research on the best way to select stocks and build portfolios. Before we get into that: When you published Stocks for the Long Run in 1994, what was your thinking then about the best way for investors to participate in the stock market?

According to my research, it was very clear and straightforward: Investors should use index funds. Capitalization weighted was the best solution, and I advocated it very strongly in my first edition of Stocks for the Long Run.

That was 1994, 17 years ago. How have your views evolved since then?

The biggest source of my change in views came as a result of the technology and internet bubble in the late 1990s and early 2000s. I saw technology stocks go virtually crazy, up way above any fundamental values. Clearly, if you were an indexed investor, you held them. You didn’t sell them. You had to hold them in proportion to their market value, which was very substantial, and I felt that that may not be the best way for investors to actually invest in the market.

So that was the catalyst for starting to look at alternatives. How many different strategies did you consider?

Two principal strategies: One was investing in high-dividend stocks, and the other was to invest in low-price-earnings ratio stocks.

As you did your research and looked at those strategies, what conclusions did you arrive at?

I concluded that it was definitely better for investors to tilt their indexing toward either high-dividend and/or low-price-earnings ratio stocks.