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In summing up his approach to investing, Siegel writes, "Poor investment strategy, whether it is for lack of diversification, pursuing hot stocks, or attempting to time the market, often stems from the investor's belief that it is necessary to beat the market to do well in the market. Nothing is further from the truth. The principle of this book is that through time the after-inflation returns on a well-diversified portfolio of common stocks have not only exceeded that of fixed income assets but have actually done so with less risk. Which stocks you own is secondary to whether you own stocks, especially if you maintain a balanced portfolio." 

Stocks for the Long Run considers subjects as diverse as the history of the various market indices and what makes for a business cycle to contrarian indicators and the utility of 200-day moving averages. If you've just come into investing in the last few years and feel the need for a solid and comprehensive text about the market, Stocks for the Long Run is probably the best primer available. It also works as an excellent reference for seasoned investors and anyone else interested in how the market works. --Harry C. Edwards --This text refers to an out of print or unavailable edition of this title.

Euphoria over the Dow Jones industrial average rocketing across the 14,000 mark in response to strong corporate earnings calls into question how rational the exuberance really is.

Earnings results Thursday from corporate stalwarts such as IBM propelled the stock market to a record close just over 14,000. The broader Standard & Poor's 500 index also surged to a record close of 1,553.

The Dow Jones industrial average is one of the stock indexes often cited as a benchmark of economic health.

David Leonhardt, an economics columnist for The New York Times offers perspective.

Linda Wertheimer: Does reaching 14,000 actually mean anything?

David Leonhardt: "The idea that the Dow has reached 14,000 really isn't particularly meaningful for a couple of reasons; and the first is that the idea that stocks are rising shouldn't particularly be newsworthy because the price of nearly everything rises, thanks to inflation. The government prints more money each year, and the price of bread and cars and stocks rise."

What about the idea that the Dow Jones industrial average represents, what, is it 30 companies? If you were going to look at economic health based on stocks would you do better to look at the Standard & Poor's index which is 500 stocks? Would that be a better measure?

"It absolutely would be a better measure. The Dow is a really interesting statistic. It was invented in the 19th Century by a man named Charles Dow. And when he invented it we didn't have nearly the sophisticated economic tools that we have today. So he actually invented a fairly rudimentary statistic. According to the Dow, a company like Caterpillar, which makes farm equipment and isn't actually that a big of a company, counts more towards the Dow and is considered more important than Microsoft, or Citigroup, or General Electric. And so while there were reasons for Charles Dow to do what he did, there really is no good reason for the rest of us to use the Dow as the main benchmark of the stock market."

You also write in your column this week that the stock market's recent highs don't tell us much about the health of investments either. Why is that?

"That's mainly because of inflation. One of the most disappointing things to me is even people who are professional commentators on the stock market don't take inflation into account. So you just see this line that basically goes up and up and up and up and up. It doesn't really get at the subtleties of the story. The stock market is only at a high when you don't consider inflation – when you don't compare it to everything else around us, when you don't compare it to the other investments that you could have made.

"The S&P 500 adjusted for inflation is actually still 17 percent below the peak that it reached in 2000. Now if you do a slightly more complicated calculation and you include the dividends that people make on their S&P 500 mutual funds, and you include the typical fees they have to pay, it's only 8 percent below its peak. But that's no record high.

"So the idea that that the stock market has never been better, which is really the implicit message in 'record-high stock market,' really isn't true."

You don't necessarily get rich investing in the stock market. What you mainly do is preserve your money, is that right?

"Over long periods of time you make money. If you set aside money when you're in your 20s and 30s and invest it in a diversified way — and don't pay really high fees to mutual fund managers who somehow persuade you that they know more than everybody else — you are likely to get a really nice return over long periods of time.

The thing that I think is unfortunate about all this hoopla surrounding Dow 14,000 is it causes people to think you get a really nice return almost always, and that's just not the way the world works."
Economy
Dow Slides Below 14,000 After Earnings Misses

A day after closing above the 14,000-point threshhold for the first time, the Dow Jones industrial average retreated nearly 150 points Friday in response to disappointing corporate earnings and investors taking profits.

The Dow fell 149.33, or 1.07 percent, to 13,851.08. Friday's slip left the widely watched market barometer slightly lower than at the start of the week.

Caterpillar Inc., a heavy equipment maker, and Google, Inc., an Internet search engine, reported weaker-than-expected results Friday for the second quarter ended June 30.

"As people start to absorb the numbers and start to see the second-quarter numbers aren't good as the first quarter, that starts to create some pullback a bit," said Nick Raich director of research at National City Private Client Group.

Caterpillar is one of 30 stocks that comprise the Dow and had been one of the best-performing stocks in the Dow, significantly contributing in the blue-chip rally to 14,000. Google is not a component of the Dow Jones industrial average, but its performance is closely watched by investors.

The Dow slid as much as 200 points before trimming losses.

While some investors were taking from the rich market, the below-par corporate earnings caused a bit of panic.

Peoria, Ill.-based Caterpillar's net income tumbled 21 percent to $823 million, or $1.24, from $1.04 billion, or $1.52 in the same period a year ago.

"Disappointing earnings in the second quarter were attributable to the sharp negative swing in on-highway truck engine profitability, weakness in North American machine sales, continued selected supply chain disruptions and higher material costs," Chairman and CEO Jim Owens said in a statement.

Revenue climbed 7 percent to $11.36 billion compared with $10.61 billion last year.

"The strength of economies outside of North America, our broad global footprint and growth in diversified service businesses all helped us deliver higher sales," Owens said.

Caterpillar was the weakest performer Friday among the Dow stocks, falling $3.78, or 4.4 percent, to $83.20.

Mountain View, Calif.-based Google's profit fell short of expectations as staff expenses weighed on the bottom line. The aggressive spending caught some analysts off guard.

Google reported net income of $925.1 million, or $2.93, compared with $721.1 million, or $2.33. Revenue of $3.87 billion for the quarter rose 58 percent from $2.46 billion last year.

Shares of Google fell $28.47, or 5.2 percent, to $520.12.

WAR COSTS ENDANGER OUR FUTURE SECURITY
Thu Jul 19, 2007
It seems at first thoughtless, with nearly 4,000 Americans dead and tens of thousands of Iraqis having perished in our war to "save" them, to talk about money. But the ever-soaring costs incurred by our boys in the White House is not something to gloss over out of sentimentality.

Indeed, several of our best thinkers have delved into these costs, which will shake our national security and sanity for years to come. Their conclusions are shocking.

In a book to be published in the fall, William R. Polk, a prominent Middle East specialist who taught at Harvard and was on the policy and planning staff in the White House, writes in a pre-publication summary: "The monetary costs are great and rising. Current costs are running at more than $7.1 billion a month -- $10 million an hour -- and are rising more than 20 percent a year. The direct costs of the war are expected to rise shortly to at least $700 billion.

"According to Nobel Laureate economist Joseph Stiglitz and former Assistant Secretary of Commerce Linda Bilmes, the real cost to America, as it would be figured by standard accounting methods, is between $1 trillion and $2 trillion."

Polk has long been a student of guerrilla warfare and civil wars. He carries his scholarship still further in this book, "Violent Politics: A History of Insurgency, Terrorism & Guerrilla Warfare From the American Revolution to Iraq."

Trying to win over "the people" to your power as the legitimate authority in the country? "One searches the historical record in vain for an example of success. The foreign occupying force, by definition, is alien." The government backed by us, in Vietnam or Iraq or any of the other examples, as the answer? "No insurgency has been defeated in this way for at least the last century."

Special forces as the answer, as espoused particularly by former Defense Secretary Donald Rumsfeld? "The 'Special Operations Command (SOC)' is now composed of 53,000 men and operates on a budget in 2007 of $8 billion. It has already dispatched teams of Special Forces to some 20 American embassies in Latin America, Africa and the Middle East. These teams operate separately from the embassies and are not subject to control by the senior civilian American representatives." He further notes that America now has nearly 400 existing foreign bases with prepositioned weapons.

In short, this administration is not only spending us into oblivion with its imperial delusions, but it also has empowered what are essentially alternative systems of military organization, outside the traditional American practice of civilian control. This development itself -- if not its intention -- can be seen in all the great dictatorships: Think Hitler and the SS, Khomeini and his Revolutionary Guards, Castro and his special personal guards.

Another fine book has just been published about the American "adventure" in Iraq: "The Price of Liberty: Paying for America's Wars" by Robert D. Hormats, New York financier and former member of the White House National Security Council. It, too, is a must-read for those who dare to think about the cost of war and its relationship to security.

Hormats goes back to the dawn of the great American experience, showing how American leaders from Jefferson, Madison and Lincoln to FDR, and from Eisenhower to George H.W. Bush, were adamant about keeping America secure through sound financial decisions. Comparing the "Victory bonds" and the shared sacrifice of World War II to the profligacy of today's "just go out and shop" attitude, he finds America in bad shape indeed.

For more than 200 years, Hormats writes, America has depended upon the central, constant theme that "sound national finances have proved to be indispensable to the country's military strength. ... These considerations are particularly vital today, when terrorists seek to create turmoil in American society and destroy the crucial economic infrastructure and the institutions that underpin U.S. prosperity and stability."

All of this becomes more dangerous because of U.S. dependence upon foreign capital. "In 2001," Hormats writes, "foreign capital inflows totaled $780 billion; by 2005 ... that figure had doubled to nearly $1.5 trillion. In 2005, foreign investors purchased more than half of the Treasury securities issued ... meaning that foreigners financed over half of the government's deficit." By 2006, he adds, the U.S. economy and government were more dependent on foreign capital than at any time since the founding of the nation. Indeed, "As the Founding Fathers recognized more than 200 years ago in the economic as well as the military realm, weakness invites aggression. For them, a sound economy and sound finances were as much a part of the nation's defense as a strong military. That remains true today. Chronic deficits, rising debt and significant dependence on foreign capital make the United States vulnerable and offer an added enticement to terrorists who think they can severely disrupt the U.S. economy."

Ironically, as both the Organization for Economic Co-Operation and Development and the International Monetary Fund have argued, instead of building up deficits, the United States ought to be doing exactly the opposite -- developing big surpluses for the upcoming costs of the aging population.

But no, that would be too dull for these armchair adventurers, too much in concert with the principles upon which the nation was founded. And so the administration continues to exercise its hubris in Iraq, and the country barely complains because -- if you're not in Iraq -- "the times are good."

Or the times seem to be good. Underneath that mirage stretches the desert of an unknown and dangerous future.

Injured veterans could be shortchanged in their government disability pay depending on where they live because of wide disparities from state to state, an internal study concludes.

The 1 1/2-year investigation, conducted by the Institute for Defense Analysis, is the first to examine scientifically the reasons behind the Veterans Affairs' uneven handling of veterans claims for disability compensation. It was launched by the VA following reports in 2005 of wide differences in payments.

The 50-page report, made available to The Associated Press, found that average annual disability payments swung widely — from $7,556 in Ohio to $12,395 in New Mexico. Nationwide, the average pay was $8,890.

Illinois, which was the lowest in the nation in 2004 at $6,961, was the seventh lowest at roughly $7,816.

"The process by which VA adjudicates claims has potential for producing persistent regional differences in rating results," said David Hunter, who compiled the study. "For certain claims, different raters could reasonably arrive at different results."

Since reports of disparities emerged in 2005, the VA has struggled to explain them. It has largely blamed problems on demographic factors beyond its control; for instance, whether a particular state had more Vietnam veterans, who on average receive higher payments, or whether a veteran had legal help when making a claim.

But the study released to the AP found that roughly one-third of the problems could be blamed on poor VA standards and inadequate training. As a result, disability raters in VA regional offices often had too much power and discretion to decide how much pay a veteran was entitled.

The report also faulted the VA for not collecting data on certain types of claims, such as how many post-traumatic stress disorder cases are rejected. As a result, it was impossible to determine whether part of the disparity might be due to a VA office inappropriately rejecting a high number of claims for PTSD, a signature injury of the Iraq war.

Some soldiers and veterans groups have charged that Army disability review boards, which are under the Pentagon's purview, unfairly reject PTSD claims to avoid paying disability pay. No data was available to determine whether that might be the case for the VA, the report said.

Among the findings:

_PTSD claims generate among the highest disability pay, averaging $20,000 each year to more than 200,000 veterans. While VA staff expected PTSD claims would be more subjective from state to state, their ratings were actually more stable compared with other injuries and illnesses, such as cardiovascular problems.

_Veterans who receive legal help or aid from advocacy groups receive on average $11,162, compared with $4,728 for those who go it alone. Currently about two-thirds of veterans get such advocacy help; the highest representation is in North Dakota (81.9 percent), while the lowest is in Maryland (44.8 percent).

_Vietnam veterans received annual awards of $11,670, compared with $7,410 for those who fought in other wars. The lowest pay was given to Gulf War veterans — $6,506.

The report comes as the Bush administration races to improve its veterans care system following disclosures earlier this year of shoddy outpatient treatment at the Pentagon-run Walter Reed Army Medical Center.

On Tuesday, VA Secretary Jim Nicholson unexpectedly announced he would step down by Oct. 1 to return to the private sector, leaving the helm of the VA's vast network of 1,400 hospitals and clinics that provide supplementary care to 5.8 million veterans.

Both Congress and a presidential commission are considering sweeping measures that could shift more responsibility for rating a veterans' disability from the Pentagon to the VA — a move that some veterans advocates say could further strain an already backlogged VA system.

In interviews, Patrick Dunne, VA's assistant secretary for policy, planning and preparedness, and Ronald Aument, the VA's deputy undersecretary for benefits, said they welcomed the findings and would take additional measures to improve training and oversight.

Beside hiring hundreds of additional staff, the VA is beginning to collect more data on the types of claims rejected, standardizing procedures from office to office and improving collaboration with its medical personnel to ensure claims processors have enough information to make a decision based on objective criteria, Aument said.

The agency also is doubling the size of its quality assurance program — currently 15 people — to review data and audit pay outcomes on a regular basis.

A separate review of the VA system for handling disability claims is also under way to determine how to cut through bureaucratic delays, confusing paperwork and long appeals processes as thousands of veterans return home from Iraq and Afghanistan.

"If we work on accuracy, consistency will in turn follow" Aument said.