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Toward Rational Exuberance: The Evolution of the Modern Stock Market
The True History, and Dangerous Myths, of the Modern Stock Market.
The stock market is big news now, influencing every aspect of the modern economy. Accepted wisdom has it that the market will provide retirement security for anyone willing to diligently save and invest. Yet many people can remember a 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 fascinating story of how this stunning transformation occurred. Smith traces the evolution of popular theories of stock market behavior, showing how they have become widely accepted over time. He also clarifies some of these theories -- such as the notion that the market is often susceptible to speculative "bubbles" that will inevitably burst -- and explains how they are based on faulty interpretations of market history.
The central thesis of Toward Rational Exuberance is that the modern stock market is the product of a dynamic evolutionary process; it cannot be predicted by extrapolating arbitrary historical standards into the future. It is only by understanding the way the modern market has been created that today's investor can begin to understand the market itself.
The stock market is big news now, influencing every aspect of the modern economy. Accepted wisdom has it that the market will provide retirement security for anyone willing to diligently save and invest. Yet many people can remember a 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 fascinating story of how this stunning transformation occurred. Smith traces the evolution of popular theories of stock market behavior, showing how they have become widely accepted over time. He also clarifies some of these theories -- such as the notion that the market is often susceptible to speculative "bubbles" that will inevitably burst -- and explains how they are based on faulty interpretations of market history.
The central thesis of Toward Rational Exuberance is that the modern stock market is the product of a dynamic evolutionary process; it cannot be predicted by extrapolating arbitrary historical standards into the future. It is only by understanding the way the modern market has been created that today's investor can begin to understand the market itself.
357 pages, Kindle Edition
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