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Toward Rational Exuberance: The Evolution of the Modern Stock Market
The stock market is big news today. Over 50 percent of the American public own stocks directly or indirectly, meaning that the financial well-being of tens of millions of people is directly tied to the market. Alan Greenspan has stated that it is not possible to understand the modern economy without understanding the stock market. But this has not always been so.
Many people now alive can remember a very different time, when the stock market was little more than a primitive insiders' game, viewed by most Americans with skepticism and suspicion. In Toward Rational Exuberance , B. Mark Smith, a professional stock trader with two decades of practical experience, tells the story of how this stunning transformation occurred. It is a fascinating story, involving colorful personalities, dramatic events, and revolutionary new ideas. In the course of the narrative, Smith traces the evolution of popular theories of stock market behavior, showing how they have greatly influenced the way the investing public views the market. But he also shows how some of these theories are based on faulty interpretations of market history that may lead investors astray. Freshly updated, this is a timely -- and definitive -- account of the market's true history and dangerous myths.
Many people now alive can remember a very different time, when the stock market was little more than a primitive insiders' game, viewed by most Americans with skepticism and suspicion. In Toward Rational Exuberance , B. Mark Smith, a professional stock trader with two decades of practical experience, tells the story of how this stunning transformation occurred. It is a fascinating story, involving colorful personalities, dramatic events, and revolutionary new ideas. In the course of the narrative, Smith traces the evolution of popular theories of stock market behavior, showing how they have greatly influenced the way the investing public views the market. But he also shows how some of these theories are based on faulty interpretations of market history that may lead investors astray. Freshly updated, this is a timely -- and definitive -- account of the market's true history and dangerous myths.
352 pages, Paperback
First published January 1, 2001
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Displaying 1 - 3 of 3 reviews
March 27, 2017
A mostly anecdotal history of the American Stock Market. Smith's thread, if there is one, is an argument for the efficient market hypothesis. But he never really tells us why us buying his argument has any importance. He in fact actually says that you can't prove efficient vs behavioralist anyway.
It's hard to write a finance book! My main takeaway is that "our" expectation for what the P/E ratio should be is very much a historical/human construct that is not based on any kind of reality.
For example, some people say that the historical rate of interest has hovered - since the beginning of time - around 4%. But we've seen that number pushed very low recently. Likewise with the P/E. For a while it seemed like it should be around 10 to 1, but we are now well above 25 to 1. It's a situation where the only reason to keep buying is that other people are still buying. Ie. you are not buying the stock for the dividend.
It's hard to write a finance book! My main takeaway is that "our" expectation for what the P/E ratio should be is very much a historical/human construct that is not based on any kind of reality.
For example, some people say that the historical rate of interest has hovered - since the beginning of time - around 4%. But we've seen that number pushed very low recently. Likewise with the P/E. For a while it seemed like it should be around 10 to 1, but we are now well above 25 to 1. It's a situation where the only reason to keep buying is that other people are still buying. Ie. you are not buying the stock for the dividend.
March 1, 2018
This came recommended at the end of Mr. Money Mustache's blog post about crypto-currencies, and I was immediately impressed by the depth and detail in Smith's historical account of the creation and evolution of the stock market.
His notes are incredible and more functional than just naming the "who" and the "when", he really explains how these events marked the times and helped push forward the constant understanding of the entire market system.
He captures every market player that I'd even tangentially heard of, even the ones that I'd forgotten from my business school days - JP Morgan, Clarence Barron, Fischer Black and Myron Scholes, Charles Dow, Charles Merrill, Warren Buffet, all the way to Peter Lynch and Alan Greenspan (the book was written in 2001). Somehow John Bogle didn't make the cut, but that can be forgiven, I suppose.
I'm not sure what I learned that can be applied now, but that's kind of the point. Everyone is still learning so much and there are so many mysteries regarding the human element and how it affects the stock market, but it's somehow comforting to know that the history of the market has constantly evolved to be more transparent and rational while maintaining its exuberance.
His notes are incredible and more functional than just naming the "who" and the "when", he really explains how these events marked the times and helped push forward the constant understanding of the entire market system.
He captures every market player that I'd even tangentially heard of, even the ones that I'd forgotten from my business school days - JP Morgan, Clarence Barron, Fischer Black and Myron Scholes, Charles Dow, Charles Merrill, Warren Buffet, all the way to Peter Lynch and Alan Greenspan (the book was written in 2001). Somehow John Bogle didn't make the cut, but that can be forgiven, I suppose.
I'm not sure what I learned that can be applied now, but that's kind of the point. Everyone is still learning so much and there are so many mysteries regarding the human element and how it affects the stock market, but it's somehow comforting to know that the history of the market has constantly evolved to be more transparent and rational while maintaining its exuberance.
June 24, 2018
The first half of the book was much more interesting
Displaying 1 - 3 of 3 reviews