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Boombustology: Spotting Financial Bubbles Before They Burst
The new, fully-updated edition of the respected guide to understanding financial extremes, evaluating investment opportunities, and identifying future bubbles
Now in its second edition, Boombustology is an authoritative, up-to-date guide on the history of booms, busts, and financial cycles. Engaging and accessible, this popular book helps investors, policymakers, and analysts navigate the radical uncertainty that plagues today’s uncertain investing and economic environment. Author Vikram Mansharamani, an experienced global equity investor and prominent Harvard University lecturer, presents his multi-disciplinary framework for identifying financial bubbles before they burst. Moving beyond the typical view of booms and busts as primarily economic occurrences, this innovative book offers a multidisciplinary approach that utilizes microeconomic, macroeconomic, psychological, political, and biological lenses to spot unsustainable dynamics. It gives the reader insights into the dynamics that cause soaring financial markets to crash. Cases studies range from the 17th Century Dutch tulip mania to the more recent US housing collapse.
The numerous cross-currents driving today’s markets—trade wars, inverted yield curves, currency wars, economic slowdowns, dangerous debt dynamics, populism, nationalism, as well as the general uncertainties in the global economy—demand that investors, policymakers, and analysts be on the lookout for a forthcoming recession, market correction, or worse.
An essential resource for anyone interested in financial markets, the second edition of
Adopts multiple lenses to understand the dynamics of booms, busts, bubbles, manias, crashes Utilizes the common characteristics of past bubbles to assist in identifying future financial extremes Presents a set of practical indicators that point to a financial bubble, enabling readers to gauge the likelihood of an unsustainable boom Offers two new chapters that analyze the long-term prospects for Indian markets and the distortions being caused by the passive investing boom Includes a new foreword by James Grant, legendary editor of Grant's Interest Rate Observer A comprehensive exploration of how bubbles form and why they burst, Boombustology, 2nd Edition is packed with a wealth of new and updated information for individual and institutional investors, academics, students, policymakers, risk-managers, and corporate managers alike.
Now in its second edition, Boombustology is an authoritative, up-to-date guide on the history of booms, busts, and financial cycles. Engaging and accessible, this popular book helps investors, policymakers, and analysts navigate the radical uncertainty that plagues today’s uncertain investing and economic environment. Author Vikram Mansharamani, an experienced global equity investor and prominent Harvard University lecturer, presents his multi-disciplinary framework for identifying financial bubbles before they burst. Moving beyond the typical view of booms and busts as primarily economic occurrences, this innovative book offers a multidisciplinary approach that utilizes microeconomic, macroeconomic, psychological, political, and biological lenses to spot unsustainable dynamics. It gives the reader insights into the dynamics that cause soaring financial markets to crash. Cases studies range from the 17th Century Dutch tulip mania to the more recent US housing collapse.
The numerous cross-currents driving today’s markets—trade wars, inverted yield curves, currency wars, economic slowdowns, dangerous debt dynamics, populism, nationalism, as well as the general uncertainties in the global economy—demand that investors, policymakers, and analysts be on the lookout for a forthcoming recession, market correction, or worse.
An essential resource for anyone interested in financial markets, the second edition of
Adopts multiple lenses to understand the dynamics of booms, busts, bubbles, manias, crashes Utilizes the common characteristics of past bubbles to assist in identifying future financial extremes Presents a set of practical indicators that point to a financial bubble, enabling readers to gauge the likelihood of an unsustainable boom Offers two new chapters that analyze the long-term prospects for Indian markets and the distortions being caused by the passive investing boom Includes a new foreword by James Grant, legendary editor of Grant's Interest Rate Observer A comprehensive exploration of how bubbles form and why they burst, Boombustology, 2nd Edition is packed with a wealth of new and updated information for individual and institutional investors, academics, students, policymakers, risk-managers, and corporate managers alike.
366 pages, Kindle Edition
First published January 1, 2011
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Displaying 1 - 11 of 11 reviews
August 22, 2018
One of the holy grails of investing would be to spot financial bubbles before they burst. Hedge fund manager Vikram Mansharamani who teaches a class at Yale called Financial Booms and Busts, has written a book on this very subject. With the notion that while asset markets most of the time are efficient they now and then stray to extremes, the author aims to provide a framework for understanding the likelihood of a bubble – a seismograph to identify the trembles before the rupture.
In a complex world the author argues that a multidisciplinary analysis is essential to be able to spot a potential bubble. The book is divided in three parts. In the first part the author presents a number of intellectual tools aimed at understanding the workings of a bubble. In the second the framework is applied to a number of historical bubbles and in the final part the author focuses in on a potential present day bubble.
The tools presented include George Soros Reflexivity Theory to spot how prices through feedback loops move into disequilibrium; The Austrian business cycle and Hyman Minsky’s Financial Instability Theory where stability produces instability through the accumulation of increasingly speculative debt until the process breaks in a so called Minsky Moment and thirdly the many biases brought forward by behavioural finance. Moving on, the author discusses political aspects such as moral hazard and manipulation of market prices and the last prism in this multifaceted lens is the biological models of epidemiology where studies of infection rates and removal rates give clues to disease transmission but could equally be used for the understanding of transmission of ideas plus models of animal herd behaviour and what those have to say about human groupthink.
This very loose framework is laid upon historical events such as the Dutch tulipomania, the equity bubble of 1929, the Japanese real estate bubble, the Asian crisis of the 90’s and the subprime crisis. Not surprisingly many of the features in the above models were indeed present. Most important and always included in the previous bubbles was reflexive dynamics between collateral values and access to credit, cheap money, overconfidence and beliefs that there would be a policy response if prices fell, i.e. moral hazard. The present day bubble that the author zeroes in on is China and he concludes that many of the same issues that caused previous bubbles are very much active in this moment. I will not go deeply into the Chinese bear case but regulated interest rates, indebted and speculative local governments, stage owned banks lending with the historic knowledge that credit losses will be dealt with by the state and runaway property prices in larger cities are parts of the plot.
At first I was a bit sceptical to the text, any one model is rather shortly described and the framework in itself and the way it was used on historical bubbles felt a bit forced. Of course the author already knew the tools he picked would show up in the historical bubbles, that is why he had chosen them. And why leave out the TMT- crash? Because it didn’t fit the model? Still, the more I read the more I came to like the book. Spotting bubbles is important. These are some of the best tools available for the purpose. They should be part of any investors’ arsenal.
Unfortunately for all of us and as Mansharamani would agree on, this book doesn’t answer the most important question regarding bubbles – when they will burst. With or without that knowledge, being able so sense a bubble building up is still immensely valuable.
In a complex world the author argues that a multidisciplinary analysis is essential to be able to spot a potential bubble. The book is divided in three parts. In the first part the author presents a number of intellectual tools aimed at understanding the workings of a bubble. In the second the framework is applied to a number of historical bubbles and in the final part the author focuses in on a potential present day bubble.
The tools presented include George Soros Reflexivity Theory to spot how prices through feedback loops move into disequilibrium; The Austrian business cycle and Hyman Minsky’s Financial Instability Theory where stability produces instability through the accumulation of increasingly speculative debt until the process breaks in a so called Minsky Moment and thirdly the many biases brought forward by behavioural finance. Moving on, the author discusses political aspects such as moral hazard and manipulation of market prices and the last prism in this multifaceted lens is the biological models of epidemiology where studies of infection rates and removal rates give clues to disease transmission but could equally be used for the understanding of transmission of ideas plus models of animal herd behaviour and what those have to say about human groupthink.
This very loose framework is laid upon historical events such as the Dutch tulipomania, the equity bubble of 1929, the Japanese real estate bubble, the Asian crisis of the 90’s and the subprime crisis. Not surprisingly many of the features in the above models were indeed present. Most important and always included in the previous bubbles was reflexive dynamics between collateral values and access to credit, cheap money, overconfidence and beliefs that there would be a policy response if prices fell, i.e. moral hazard. The present day bubble that the author zeroes in on is China and he concludes that many of the same issues that caused previous bubbles are very much active in this moment. I will not go deeply into the Chinese bear case but regulated interest rates, indebted and speculative local governments, stage owned banks lending with the historic knowledge that credit losses will be dealt with by the state and runaway property prices in larger cities are parts of the plot.
At first I was a bit sceptical to the text, any one model is rather shortly described and the framework in itself and the way it was used on historical bubbles felt a bit forced. Of course the author already knew the tools he picked would show up in the historical bubbles, that is why he had chosen them. And why leave out the TMT- crash? Because it didn’t fit the model? Still, the more I read the more I came to like the book. Spotting bubbles is important. These are some of the best tools available for the purpose. They should be part of any investors’ arsenal.
Unfortunately for all of us and as Mansharamani would agree on, this book doesn’t answer the most important question regarding bubbles – when they will burst. With or without that knowledge, being able so sense a bubble building up is still immensely valuable.
July 2, 2021
I wish I had read this book earlier. I came across this book after listening to a podcast by the author. This book is a modern take on the concept of booms and busts. There are several books on this topic that are classics, and I think this book should be among them.
The multi dimensional approach to understanding market excesses is a very intuitive and useful tool for all investors. At the very least, the reader will be aware of a market that is priced high and be prudent in asset allocation. Good book.
The multi dimensional approach to understanding market excesses is a very intuitive and useful tool for all investors. At the very least, the reader will be aware of a market that is priced high and be prudent in asset allocation. Good book.
August 6, 2018
An interesting combination of scientific perspectives from multiple fields to understand several case studies of historic market inefficiencies. The behavioral perspectives in particular are given through a lens that could contextualize any speculative craze.
December 23, 2013
This is one of those rare finance books that dares to venture into other areas, including psychology and epidemiology, that are, at first glance, completely unrelated to it. I have long been a fan of behavioral finance and find that it is a struggle to attempt to relate the interdisciplinary nature to others. Vikram Mansharamani does a superb job of bringing five areas together, using the resulting lenses to explain past bubbles, and attempting to predict the bursting of a currently existing bubble, while at the same time acknowledging that this is a very difficult thing to do.
I read a review (not sure if it was on Goodreads or somewhere else) that mentioned that this book is more of an introduction that leaves the reader having to consult other sources to delve deeper into the material. But this is exactly what I loved about this book! It provided a great overarching view, with some excellent references to consult and explore and investigate deeper. I also felt that Mr. Masharamani has a fantastic ability to explain rather complex concepts (such as CDSs) in a very succinct and understandable manner, a feat which many authors have tried to accomplish in a much more voluminous manner and failing miserably.
This book has provided me with countless books and articles to read to further investigate the subject! I hope more books are to follow.
I read a review (not sure if it was on Goodreads or somewhere else) that mentioned that this book is more of an introduction that leaves the reader having to consult other sources to delve deeper into the material. But this is exactly what I loved about this book! It provided a great overarching view, with some excellent references to consult and explore and investigate deeper. I also felt that Mr. Masharamani has a fantastic ability to explain rather complex concepts (such as CDSs) in a very succinct and understandable manner, a feat which many authors have tried to accomplish in a much more voluminous manner and failing miserably.
This book has provided me with countless books and articles to read to further investigate the subject! I hope more books are to follow.
October 31, 2011
This is like a series of book reports with the author summarizing other interesting books. That would be OK in itself for people wanting a Readers' DIgest version of the topics, but the author throws in his own biases and muddled thinking that detract rather than help. For example, he manages to omit Glass-Steagall, uptick rule, deregulation, etc. in what is supposed to be a comprehensive discussion of what leads to booms and busts. He calls Hugo Chavez a dictator even though Chavez was elected numerous times and his last election was specifically certified fair by international (including American) observers. Overall, he makes bubbles seem more complex and uncontrollable than they are and I don't think that is ultimately helpful.
The whole long rambling thing is a build-up to the big news that China is in a construction bubble; not a unique or amazing insight.
For general background information, the reader would be better served by reading the original books summarized in this one, or for entertaining narratives on bubbles, one of Michael Lewis's books on the topic or Bull! by Maggie Mahar.
The whole long rambling thing is a build-up to the big news that China is in a construction bubble; not a unique or amazing insight.
For general background information, the reader would be better served by reading the original books summarized in this one, or for entertaining narratives on bubbles, one of Michael Lewis's books on the topic or Bull! by Maggie Mahar.
August 7, 2011
Everyone needs to read this book. It's a a great, clear, simple guide to understanding the very obvious, inevitable financial and economic busts that currently loom over our heads today- particularly the Chinese economy and the US monetary system.
April 19, 2021
Innovative insights
Prescient analysis on markets unlike the standard regurgitation of the paradigm.
Using the analogy of pandemics to markets though not novel is presented in a pragmatic way that helps with future analysis
Prescient analysis on markets unlike the standard regurgitation of the paradigm.
Using the analogy of pandemics to markets though not novel is presented in a pragmatic way that helps with future analysis
November 28, 2012
Front material is quite repetetive....I'll get back to you upon reading further!
December 21, 2016
Nice aggregation of various lenses through which we should view markets. Unfortunately, nothing really new here.
January 15, 2017
Interesting ideas behind economic booms and busts. The tower / skyscraper one-upmanship as a signal of the peak of a boom was particularly interesting.
March 17, 2025
Great book. A multidisciplinary approach to economical cycles of booms and busts, relating them with the main historical examples. The reading is pretty easy and flows very well.
Displaying 1 - 11 of 11 reviews