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Bull: What Every Investor Needs to Know About Financial Cycles, by Maggie Mahar
Review by Victor Niederhoffer
Mahar's book contains a nugget. But the nugget is surrounded by a pastiche of anecdotes about people like Ralph who saw a bear market in 1998, and Jim Grant who questioned the bull (since 1980), and Chanos who saw the problems in corporate accounting more vividly and earlier than others. (Query: Is the accounting now, or then, worse than it was before, and does that make for higher expected future prices or worse?) She quotes approvingly the bearish mantra that even though the market seems to have risen over the years, there have been 10-year periods when it went down. (Query: What is the distribution of these 10-year periods classified by return?) She believes that there was something called a bull market that ended in 1999, that wise people saw ending in the 1990s but were too early to fully profit from. (Query: How do you know when there is a bull market and bear market prospectively?) She upholds one of the two of three things we can be surest about in this world --- that one competitor will always denigrate another. And she has a nice discussion of the locker room , frat house atmosphere of CNBC, which she credits with causing much of the hysteria.
In short, no understanding of risk versus return, the randomness of prices within the constantly augmenting uptrend, the dysfunction of technical analysis, the role of expectations, or the total randomness or nonexistence of cycles on a prospective basis (or the seeming cyclical nature of random series.)
Oh yes, the nugget. She quotes from a hagiographic interview of Enron's Skilling and Lay by CNBC reporter Mark Haines (who owned Enron at the time. The Skilling interview took place just seven months before Enron filed for bankruptcy protection. "Mr. Skilling, so what is driving your business here? Is it primarily the energy shortage in the West? "No, Mark," Skilling replied. "What's going on just in general is we have a tighter electricity and natural gas market than we have had really in the last decade. What Enron sells is reliable delivery and predictable price, and so the value of the produce we sell is just going up right now." (Note the use of the diminutive "really.")
In any case, the nugget -- the only nugget in the book (although Ms. Mahar doesn't get it) is that the perfect lie consists of saying something seemingly bad about your activity or persona to throw the listener off the track. Galton describes how travelers in Africa always planted a cache of relatively valueless articles in an obvious place so that their real loot would be untouched by robbers (the value of a diamond encased in silver under the skin is underlined.) -- Victor Niederhoffer (04/26/2004)