Toward Rational Exuberance: The Evolution of the Modern Stock Market

by B. Mark Smith

Book Overview

A professional stock trader with two decades of practical experience traces the evolution of popular theories of stock market behavior, showing how they have greatly influenced the way the investing... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 0374281777
• ISBN13: 9780374281779
• Release Date: January 2001
• Publisher: Farrar Straus Giroux
• Length: 342 Pages
• Weight: 1.30 lbs.
• Dimensions: 1.2" x 6.3" x 9.3"

Customer Reviews

Must Read Material

Mark Smith has succeeded in writing one of the best histories of the stock market certainly in recent times and maybe of all time. The book has rich descriptions of many of the individuals and companies that have shaped the market over the years. But much more importantly, the book has a coherent, important message. Smith argues, quite persuasively, that the history of the stock market can be seen as a continual (if sometimes bumpy) upward movement in the valuation measures applied to the market. Smith brings us back to the days when common stocks needed to YIELD more than bonds because they were riskier. He then traces the advance of P/E ratios all the way to the present. Although I am still unconvinced by his arguments that the markets of the late 20s and late 60s were not bubbles (he seems to almost make bubbles definitionaly impossible), this book is a valuable contribution to the current debates about the state of the market.This is not a get-rich-quick book or a how-to manual, but the story Mark Smith lays out is vitally important to all investors and is an enjoyable read to boot. Highly Recommended.

Packed With Knowledge!

Since it now appears that the laws of economics do indeed still apply to the U.S. stock market, it seems a good time to brush up on the history of Wall Street. Such a look back is especially important to the millions of investment bankers, brokers and individual investors who cut their teeth in the "irrational exuberance" of the `90s and are now catching their first real glimpse of the bear. B. Mark Smith's comprehensive history of the U.S. equity market demonstrates, if nothing else, that this ain't the first time a bubble's burst and it sure won't be the last. The beauty of Smith's book derives from his ability to link the development of the market with the history of the times. He begins with the founding of the first exchange in the late 1700s and traces the market's increasingly powerful role through the last century, when it helped fuel modern technological and economic growth. The book is especially intriguing when it discusses the relatively unknown early years of the market, before its big crash in 1929. We [...] recommend this fascinating history to executives, financiers and academics, as well as to a broad audience of history buffs, even those with little knowledge about stocks.

A market history that fills in the blanks

This is an excellent objective history of the evolution of the US stock market. Smith takes us on a colorful and fascinationg journey, introducing us to the people, the politics, and the events which shaped the modern market. Unlike many authors, he does not try to nail down universal truths. He rather shows the ways the market has evolved from a gambler's playground to one of the major shaping forces of the US economy. He gives very cogent arguments against some of the strongly held beliefs, both optimistic and pessimistic, about today's market. I learned a lot and enjoyed the read.

A dry subject made interesting

A key debate among economists is just how "rational" markets are. One school says they are completely rational, immediately absorbing all available information into the pricing of the items traded in each market. Others (with far fewer followers these days) say markets are far from rational, needing massive government intervention. The terriory between these two viewpoints is most likely where the "truth" lies.Smith takes an interesting, very focused approach to this debate. His focus is the history of the U.S. stock market; his thesis is that the market is getting closer to rational perfection with each passing decade. The result is an eminently readable book. In his march through twentieth century stock market history he introduces us to a host of characters - some are famous names you will already know; others are les well known scoundrels that taught lessons valuable to those who police the market. Smith's story also introduces, and explains, various investment strategies and fads, placing each in historical context.If you already have a doctorate in economics, this book may teach you little. But if you read history, business and economics titles because you want to, not because you have to, buy this book.

outstanding

This is an excellent, very readable history of the New York Stock Exchange from its nascence, in the 1790's, until just recently. B. Mark Smith traces the efforts over that period by market officials and government regulators to restrict and punish the shenanigans that dishonest traders and companies can dream up and of analysts to try and figure out precisely what drives market valuation. Steering a middle ground between the pessimism of Robert Schiller's Irrational Exuberance and the optimism of James K. Glassman's Dow 36,000, Smith seems to play the facts pretty straight and to cautiously advocate the view that the market, and specifically the value placed on stocks, has become increasingly rational over time. The importance of his thesis, however gingerly proposed, becomes obvious when he makes the point that the Market has gone from being perceived as a somewhat crooked den of speculation to the single most important investment venue for the great mass of Americans. This radical change has been so gradual that it is easy to ignore, but Smith's book makes it clear just how humongous a factor it is in modern life. Consider for a moment the very real prospect that Social Security will, over the next generation, become a largely private, stock based retirement system. At the time that Social Security was created, this idea would have been dismissed as a form of dementia. The one weakness of the book, and it is a weakness of market forecasters in general, is that it largely ignores such political realities in analyzing stock values. For the truth of the matter is that even if stocks are overvalued right now, three major factors are about to be brought to bear on the market : (1) Tax Cuts : Already well off, the American people will, over the next few years, be getting ever larger shares of their tax dollars back and that money is going to end up somewhere. Considering our already elevated standard of living, retirement accounts seem a likely destination. (2) Permanently Balanced Budgets : Though it has virtually escaped the notice of most people, we face a situation where Federal bonds may cease to exist and where there is no competition from government for loan money. This will both put tremendous downward pressure on interest rates and remove bonds as an investment vehicle. Both will drive investors toward stocks. (3) Privatization of Retirement : This process, already well under way, will see increasing reliance on 401k and similar types of retirement accounts, and the eventual transfer of Social Security accounts to private control. Here too, investors are likely to seek the type of returns that only stocks can offer.Add to these : the growth of Free Trade; the rapidly accelerating movement of most nations toward free market capitalism; and the huge productivity still to be realized as the entire planet becomes computerized; and you have a recipe for a long term g