|
 'Irrational Exuberance' will no doubt consolidate Robert Shiller's position within his chosen field, but the book is also of considerable value to the intelligent lay person. Other writers have drawn attention to the market's overpriced level. Other writers have also done the numbers and concluded that stock returns are not likely to out pace bond returns, for example, over the next decade. But no other writer provides such a detailed and convincing analysis of the factors that have stoked our mania for stocks and brought us to the top of a speculative bubble. Shiller's account of what academics such as Prof. Irving Fisher thought of stock market valuations in the 1920s is a useful reminder that even the experts can get it wrong. More importantly, his analysis of past decades suggests a cyclical movement in the all too human desire to believe in a new economic age. Among the truths which Americans evidently have not learned is that new economic eras do not result in permanent stock market booms. That technology enables more efficient production which in turn helps keep inflation low has been acknowledged publicly by Alan Greenspan. But the market's reaction extends way beyond what this fundamental change might warrant, for all of the reasons Shiller cites.While Prof. Shiller's analysis is highly credible, his suggestions for the individual investor are, in places, difficult to understand. Indeed his discussion of diversification may only be deciphered by his fellow economists. Lay men and women can hardly be expected to know what "...taking short term positions in claims on income aggregates," means. Nor can they regard his advice to invest in markets that do not yet exist as practical guidance. These, however, are minor quibbles. Unlike many market commentators these days, Shiller's underlying social conscience puts him on the side of the little guy. Yet even so, this books is aimed primarily at policymakers who have the power to influence public behavior for the good. The prospect of thousands of retirees living on the margins because they invested too much of their 401(k) money in the stock market is surely one which will compel their attention. Jim Sanders Annandale, Virginia
Besides that, the book talks about various personal, social, and psychological factors affecting the moves in stock market which underneath has nothing to do with economy in general. There are some interesting observations about the social/political/economic climate at the time of two stock market crashes of 1929 and 1987 and what was the general feeling of people about the stock market before and after the crash. The book also talks about the media frenzy and how 'celebrity' guests on CNBC and the like play a role in stock market behavior and how the so called guests can never really tell the truth because of their vested interested in the inflated stock market. This should not come as a surprise to anyone who catches even few minutes of CNBC before heading out for work in the morning! There is another interesting argument presented against the hoopla surrounding the 'new economy' and the author talks about how internet has not really played a big role in the current stock market booms (well speaking of when NASDAQ was @ 5000 level). Again, I don't fully agree with his explanation but some does make sense... Oh well, a refreshing and thoughtful book, will give you something to tinker upon and perhaps diversify! and go back to the old fashioned 'savings' rather than messing with your 401K by putting 100% in stocks (sounds familiar?).
Of course the market has been a great place to stash your cash if you got in at the right time--in 1982, for example, at the very start of the longest-running bull market in history. But put your money there now at your own risk. Seventy-two percent of mutual fund managers believe that we're in a speculative bubble now, with the Dow, at 11,000, reaching for figures that far exceed the historic level which would put the rational figure at 6,000. Shiller would not be surprised if the Dow settled in at, say, 10,000--in the year 2020! And what's more, he'd not be astonished if the Dow sank to 6,000 in the near future. I was convinced after reading Shiller. He has marshalled his facts in a carefully researched screed against following the sheep-like crowds and I have replaced the tens of millions I had invested in common stocks with far more secure, if less exciting, instruments. Harvey S. Karten film_critic@compuserve.com
|
I'm still mulling over what to make of this book. There are certain things which make a lot of sense and stand out from the rest of the stuff we read and hear about, be it on TV, internet, or magazines. The most important thing this book presents is the argument against the common notion of stocks as the best long term investment option when compared to bonds etc. It is definately not something I'm used to hear or read. Even the champions of long term investing, the Motley Fool, believes in stocks as the best long term investment. This book has compelling arguments to suggest otherwise. For instance, the lack of factoring in inflation factor while comparing performance of stocks vs bonds etc over any period of time. I'm still thinking about it and need to read some more stuff before I fully agree/disagree with the author.
