Steve Bradshaw's Reviews > Irrational Exuberance

Irrational Exuberance by Robert J. Shiller
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May 06, 11

bookshelves: investment
Read in April, 2011

A tremendously unbiased history of the US stock and real estate markets and a must read for anyone investing money (in any asset!)

Shiller delightfully lays out the pitfalls of investing in stocks at times of high PE ratios (a point that hits home given the book's first release date in late 1999) along with the wisdom of investing in times of economic upheaval and in value stocks that offer consistent earnings and dividends. A big take away for me was the impermanence of economic runs, both good and bad, and the impressive reversion to the mean of stock valuations over long periods of time.

It's interesting to see a comprehensive history of US home price returns. Despite conventional wisdom, real estate has performed really poorly over the last 100 years (mainly due to an ever increasing supply of property). Although there are tax benefits, "equivalent rent benefits" and the availability of cheap leverage. The data definitely make one rethink buying a home!

The conclusion of the book, that we are in for a decade or more of dismal stock returns (or false runs followed by large drops), is concerning given the great bull market that our parents' generation experienced from 1982 through 2001 and the quick recoveries we've seen following recent recessions. There is no doubt that there is still too much confidence in the stock market, something we may see change in our lifetimes.

My take away: invest in good income earning value stocks that will compound returns consistently into the future, and don't rely on mutual funds and market indexes to keep rising like a law of nature!

For me this book was in the league of Ben Graham's Intelligent Investor, no small compliment from a dyed-in-the-wool value investor.
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