Professor lifts the veil on Wall Street secrets

You may think you know a lot about money, but you probably don't know as much as Jeremy Siegel does. To kick off this year's Provost's Lecture Series, Siegel, a stock market expert and Finance professor in the Wharton School, delivered a lecture to a standing-room-only audience in Logan Hall yesterday afternoon. Siegel's lecture was the first of the year for the series, a pet project of Provost Robert Barchi that he hopes will enrich the intellectual life on campus. The title of Siegel's talk was simple: "Are Stocks Overvalued?" But the answer was far more complex. Siegel is a leading finance expert who appears regularly on CNBC and CNNfn. His research has examined the performance of stocks and bonds from 1802 to the present. He also recently penned a best-selling book, Stocks for the Long Run. In it, Siegel found that stocks tend to rise at a steady 7 percent rate, while bonds tend to rise at 3.4 percent and fluctuate significantly due to inflation. While it is generally agreed that stocks give the highest average returns, Siegel's research disproves the conventional wisdom that bonds are more stable than stocks. According to Siegel, risk numbers -- which indicate the likelihood of an investment losing money -- are irrelevant to the average investor. The most commonly cited figures are for one year, which show stocks around twice as risky as bonds. However, the figures for the long term tell a different story, Siegel said. After 20 years, stocks are less risky than bonds, which don't "snap back" from adverse conditions like stocks do. Though bull and bear markets capture popular attention, Siegel said they are "mere blips that fade into insignificance" when considering long-term performance. "We will never again have a great depression," Siegel said, because of a modern central bank. "We have virtually eliminated the risk of double-digit inflation." Considering these factors, non-technical stocks are not overvalued, according to Siegel. Turning his attention to technology stocks, which have captured the attention of the media and investors in recent years, Siegel cautioned against blind investment. He noted that to justify their prices with respect to earnings, tech stocks would have to continue growing at their present extraordinary rate of 22 percent a year for 10 years. But Siegel noted that there has already been a "shakeout" in Internet stocks, with little damage to the market. Siegel projects that a fall in tech stocks would bring the market down by only 10 percent. After his presentation, Siegel discussed the short-term economy. He expects third-quarter earnings will be good, but the fourth quarter could be disappointing. He said this decline may lead the Federal Reserve Bank to lower rates in early 2001. Barchi, who organizes the lecture series and selects the speakers, acknowledged that choosing only a few of Penn's faculty members is difficult. He also noted that he wants to include speakers whose topics will appeal to a wide range of people in Penn's "community of scholars." Judging from those who attended, Barchi was successful in attracting more than a Wharton audience. Graduate School of Education student Angela Becker said, "It's a large voice for the student body." Wharton sophomore Chad Edmonson said he came because he "wanted to see what all the hype's about." Edmonson was not disappointed, as he praised Siegel for delivering a "vivid, entertaining lecture."