Siegel vs. Arnott: The Stock Market Debate

It isn’t exactly boom, baff, pow, but is an interesting debate anyway. Jeremy “Stock for the Long Run” Siegel waxes bullish and institutional fund manager Robert “First Quadrant” Arnott does bearish in this Forbes-hosted tussle.

Who comes out on top? Well, that really depends on what you mean by “top”. Both give solid, empirically-based presentations of their cases. Both say that Wall Street strategists are too bullish going forward. Both like, of all things, timber and foreign stocks.

Where do they differ? Siegel thinks stocks have room to move on higher payout percentages, especially dividends. Arnott thinks that 25% of S&P earnings is bogus, so adjusted for that we are already at 50% payout ratios — very close to historical norms. Siegel’s rejoinder is that there are also bogus expenses, like R&D, which should be capitalized, so there is some earnings understatement counter-balancing Arnott’s claim of overstatement.

It’s all good stuff and highly thought-provoking. With my back to the wall, however, my view is that Siegel wins this round, but it’s a squeaker.