Chapter One: The Growth Trap

The speculative public is incorrigible. It will buy anything, at any price, if there seems to be some "action" in progress. It will fall for any company identified with "franchising," computers, electronics, science, technology, or what have you when the particular fashion is raging. Our readers, sensible investors all, are of course above such foolishness. --Benjamin Graham, The Intelligent Investor, 1973

The future for investors is bright. Our world today stands at the brink of the greatest burst of invention, discovery, and economic growth ever known. The pessimists, who proclaim that the retiring baby boomers will bankrupt Social Security, upend our private pension systems, and crash the financial markets, are wrong.

Fundamental demographic and economic forces are rapidly shifting the center of our global economy eastward. Soon the United States, Europe, and Japan will no longer hold center stage. By the middle of this century, the combined economies of China and India will be larger than the developed world's.

How should you position your portfolio to take advantage of the dramatic changes and opportunities that will appear in the world markets?

To succeed in this rapidly changing environment, investors must grasp a very important and counterintuitive aspect of growth that I call the the growth trap.

The growth trap seduces investors into overpaying for the very firms and industries that drive innovation and spearhead economic expansion. This relentless pursuit of growth--through buying hot stocks, seeking exciting new technologies, or investing in the fastest-growing countries--dooms investors to poor returns. In fact, history shows that many of the best-performing investments are instead found in shrinking industries and in slower-growing countries.

Ironically, the faster the world changes, the more important it is for investors to heed the lessons of the past. Investors who are alert to the growth trap and learn the principles of successful investing revealed in this book will prosper during the unprecedented changes that will transform the world economy.

The Fruits of Technology

No one can deny the importance of technology. Its development has been the single greatest force in world history. Early advances in agriculture, metallurgy, and transportation spurred the growth of population and the formation of great empires. Throughout history, those who possessed technological superiority, such as steel, warships, gunpowder, airpower, and most recently nuclear weapons, have won the decisive battles that allowed them to rule over vast parts of the earth--or to stop others from doing so.

In time, the impact of technology spread far beyond the military sphere. Technology has allowed economies to produce more with less: more cloth with fewer weavers, more castings with fewer machines, and more food with less land. Technology was at the heart of the Industrial Revolution; it launched the world on a path of sustained productivity growth.

Today, the evidence of that growth is seen everywhere. In the developed world, only a small fraction of work is devoted to securing life's necessities. Advancing productivity has allowed us to achieve better health, retire earlier, live longer, and enjoy vastly more leisure time. Even in the poorer regions of our globe, advances in technology during the past century have reduced the percentage of the world's population faced with starvation and those living in extreme poverty.

Indeed, the invention of new technologies has enabled thousands of inventors and entrepreneurs--from Thomas Edison to Bill Gates--to become fabulously...

 

"Jeremy Siegel has done us a great service with his superb work. While no one can predict the future of stocks with certainty, Siegel's analysis marks the verdict of history: the triumph of the shareholder over the shareflipper, the investor over the speculator, the builder over the gambler. Strong conclusions, good writing, and a refreshing message make this a compelling and important book to read."

 

"Jeremy Siegel's lively new book is much more than a typical Siegelian guide to asset allocation. It is a masterful, provocative, fact-stuffed, commonsense, and creative guide to profitable stock-picking strategies. Even the most cynical and experienced investors will gain from reading Siegel's latest contribution to their well-being."

 

"Jeremy Siegel is a wise man and an astute observer of the ever-changing investment universe. The Future for Investors is essential for the professional and serious amateur investor to navigate the new era."

 

"The professor who taught America to love stocks in the 1990s is as optimistic as ever. But he's added a new twist to his theory: Get dividends."

 

"Siegel thinks about the future in a unique and original way, with insightful thoughts about the broad sweep of history as well as hard-headed investment analysis."

 

"The 'Wizard of Wharton' weighs in on the markets ahead. . . . Deeply committed to understanding the macro-financial sector and its constant change has made him an outstanding teacher for [those] who hunger for his brand of forward-looking economics as they apply to the markets."

 

The Future for Investors by Jeremy J. Siegel
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