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Investing is fascinating – and the fact that we are still debating the benefit of owning stocks only heightens the allure.

Bill Gross, the managing director of Pacific Investment Management Co., triggered the latest debating round in his last investment note to clients, arguing that "the cult of equity is dying." That is, the long-held view of Jeremy Siegel – that stocks are excellent investments because they have returned an average of 6.6 per cent a year after factoring in inflation – is no longer valid. Stocks will actually return far less.

Mr. Siegel, author of Stocks For The Long Run and a professor of finance at the Wharton School of Business, shot back, arguing on CNBC that "I will grant that the last 10-12 years have been poor years." But he stood by this thesis, which has been dubbed "The Siegel Constant."

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Now, Barry Ritholtz of The Big Picture is weighing in: It's not that the expected returns from stocks are heading down and refuting the Siegel Constant, but that Mr. Siegel's Stocks For The Long Run "was a deeply flawed and erroneous book right from the start."

He contends that bonds have outperformed stocks over the past 1, 2, 5, 10, 30 and 40 years. And there is a reason: He argues – drawing from observerations by Jason Zweig and Birinyi Associates – that Mr. Siegel used very long-term data to get that 6.6 per cent figure for annualized stock gains, but in doing so he committed the sin of survivorship bias: He used data for companies that survived over the long term and ignored failures. He also may have been overly aggressive in his dividend assumptions.

"By artificially goosing equity return data for the 19th century, Siegel may very well have made equities over-owned in the 20th century," Mr. Ritholtz said. "Consider what this error means for traditional investors: The vast majority of classically educated MBAs and Economists have a very significant flaw in their investing assumptions. Imagine how many fund managers are running 100s of billions of dollars using this error as the basis for their money management."

I wonder if there is something else going on here, though. In challenging the effectiveness of owning stocks, are observers really making a comment about today, rather than the long term? After all, the S&P 500 has averaged a gain of just 1 per cent annually over the past five years, after factoring in dividends. That dismal return must make it awfully tempting to give up on stocks altogether.

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