Michael Hanson
Business in Review

Bull!

By, 01/05/2011

 

Bull!: A History of the Boom, 1982-1999: What Drove the Breakneck Market—and What Every Investor Needs to Know About Financial Cycles – by Maggie Mahar 

The trouble with journalistic investment writing is that it's not by professional investors; the virtue of journalistic investment writing is the prose is usually magnitudes better than professionals'. If you keep this bit of wisdom in your back pocket, Maggie Mahar's Bull! becomes a fine read for those wishing to remember and/or learn about the bull market odyssey of 1982 to 1999. 

Mahar offers an entertaining, episodic, and more or less chronological trip down memory lane for one of the greatest bull runs in market history. Remembering dethroned soothsayers like Abby Joseph Cohen and Mary Meeker; high flyers like Cisco, Global Crossing, and the infamous AOL/Time Warner merger; the venom dripping from Eliot Spitzer's fangs in search of options fraud; the wry smile of scapegoat junk bonder Michael Milken on his way to prison; thinking back with sentimental nostalgia on Uncle Alan Greenspan and his 1996 "irrational exuberance" speech; Long Term Capital Management!; even the rise of CNBC and Jim Cramer (booya!) as mainstream media titans and the fall of Louis Rukheyser from his perch as market cheerleader…it's all here and more. 

But one of the things journalists tend to do with investment writing is get the facts right but present them with skewed emphasis and perspective. Bull! presents the bull market as essentially one long, irrational bubble and is heavily skewed toward the ‘90s, lacking comparative detail on the ‘80s. One of the least understood facts about the tech-led stock market bubble is that it actually only lasted a couple years—right at the end. For most of the ‘80s and ‘90s, there was pessimism and strife amid one of the great runs of productivity, profitability, and GDP in world history. That is, the world boomed in these decades along with stock prices—the bull was largely justified until the end. My sense is the time this book was written (2003) shaded its perspective: This is essentially the biography of a bull market through the lens of a bear (remember, 2003 was only shortly after the tech-driven bear market ended and at the beginning of the Iraq war—pessimism was rampant). 

And, just the idea of thinking about markets in ~20 year cycles is perverse—even if such "secular" trends do exist (I'm not convinced they do simply on account of so few data points either way), they're useless in a practical sense. Actually, they're worse than useless—they can get investors into huge trouble. If you get even one secular market call wrong, your portfolio goals are cooked for good, end of story. (And even the worst "secular bears" have major multi-year upticks like the 324% bull market of 1932-1937.) Best to take it one year at a time—markets only discount into the future a couple years at most anyway. This secular bull (bubble) concept manifests in Bull! by downplaying '87's Black Monday, the recession and S&L-driven bear of '90-'91, and the "Asian Contagion" and Long Term Capital Management scare of '97-'98. I assure you, those were very real. It was hardly one long, irrationally exuberant run upward—investors were uncomfortable throughout, not so different than the ultra-pessimistic whizz-bang run of these last two years. 

One thing this book proves with copious evidence is the nature and form of true, euphoric stock market manias. It's such a sharp and important contrast to the previous market peak of '07. Simply, in '07 (and as MarketMinder has posited often) equities were infected by outside forces (namely bozo government officials and subsequently shaky credit markets), they were never irrationally overvalued—an important reason they've bounced back so quickly and forcefully the last two years. 

Because Bull! tends to favor the bears as prudent and throws egg on the faces of deposed bulls, the book indirectly sheds light on another vital lesson about bull markets: They can go on one heck of a lot longer than most expect, until even the stodgiest bears capitulate. Many, many bears were steamrolled for years before vindication in the 90s. Bubbles happen when everyone starts believing in them—Mahar does an excellent job of describing how many skeptical fund managers ultimately were sucked in on the wings of huge cash inflows and jubilant, almost Bacchic, investors demanding ever-higher gains just to keep up with indexes. Again, at least for stocks, nothing like the most recent cycle. 

Investors seeking practical analysis of this era are better off elsewhere—the last few chapters function as good stand-ins for age-old investing debates on market cycles and asset allocation, but don't contain usable advice. If you're looking for a jaunty ride through the memorable events of the era, Bull! is good reading.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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