Booms, Bubbles and Busts in US Stock Markets

Booms, Bubbles and Busts in US Stock Markets is a user-friendly overview of the inner workings of the US stock market, this book examines the current market conditions before looking back to the events of the past century – the Great Depression, the 1970s oil crisis, the party-for-the-rich atmosphere of the 1980s and the emergence of the new economy.

Introduction:

The primary focus of this highly readable and often provocative book is the American stock market during the 1990s and the first few years of this century. It deals with the factors surrounding the remarkable investment bubble and subsequent crash some years later. Although it is essentially a case study, the book makes a broader contribution by addressing more general aspects of stock market behaviour, investment strategy and government policy.

Dr Western provides graphic and, it must be said, chilling insights into the antirational aspects of stock market behaviour. For the general reader, and especially those contemplating retirement, the sections dealing with conflicts of interest and the psychology of investment will be extremely unsettling. In the foreseeable future very few people can expect financial security and peace-of-mind after leaving the paid work force. The concept of a guaranteed nest-egg is a thing of the past. As daunting as it may seem to the average citizen, who has grown accustomed to relying upon expert advice and rising markets, there is no alternative but to play a much more active and informed role in the management of their own financial affairs.

The starting point in becoming more financially literate is being aware of the biases in the system. Here Dr Western is especially useful, with special reference to the 1990s he demonstrates the distorting influence of securities analysts, stockbrokers and financial planners and the structural predisposition towards optimism and blind faith. In Dr Western’s words, the combination of fear and self-interest ‘created a bias toward buy and hold strategies even when the cold truth required sell advice’. However, for most of us, the biggest challenge will be to achieve a higher level of insight into the darker reaches of personal and social psychology. Once again Dr Western offers excellent guidance. His treatment of herd behaviour, the pervasive fear of missing out and the theory of the ‘bigger fool’ will cause embarrassment and even shame for many of us: ‘everyone knows that stocks are vastly overvalued but still play the game on the basis that there are bigger fools in the world’.

This book will have a wide appeal. Like the Political Economists of the Nineteenth Century, Dr Western has the increasingly rare gift of applying economic theory to contemporary events and of proposing realistic policy prescriptions. In the same tradition he writes in a free-flowing, distinctive style with none of the dry opaque jargon that characterizes the work of so many of his peers. While never timid in expressing his own opinions, he is nevertheless careful to draw on a wide range of sources, explore the evidence systematically and acknowledge alternative viewpoints. Because it is both scholarly and vivid, this book will attract a variety of readers including academic peers, advanced university students and ever ever-expanding pool of general readers with an interest in stock market behaviour.