Bull!: A History of the Boom and Bust, 1982–2004

by Maggie Mahar

Russell was correct: the market had laid the foundation for a new bull run. The Dow was now cheaper than it would be at any time for the rest of the century. Eagerly, Russell trumpeted the good news. It was, he told his subscribers, time to buy stocks.

Few were willing to take the wager. It

TWENTY YEARS LATER

THE SENSE OF AN ENDING

That Prudential’s investment banking business was anemic greatly simplified Simmons’s decision.

They’re shooting the generals,

The institutional clients

That night, Acampora cautioned those who listened to CNN’s Street Sweep: “Forget the averages. Look at your portfolio…everyone should be sitting down and really seriously going through their holdings, and if there are any stocks in there that look vulnerable—and obviously it’s a matter of interpretation—I would sell them.”

As for Acampora, he had learned his lesson. After that, he confided, “Instead of saying ‘sell,’ I use terms like ‘rotation.’ I no longer use words like ‘bear.’ I just say, ‘It’s too early to pick a bottom.’”

SILENCING DISSENT

John Kenneth Galbraith

A Short History of Financial Euphoria—

A bubble, Galbraith observed, is always supported by the belief that there is something new in the world. The history of past cycles is dismissed as irrelevant. “For practical purposes,” Galbraith wrote, “the financial memory should be assumed to last, at a maximum, no more than twenty years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally...

WHAT THE MARKET’S CYCLES MEAN FOR THE 21ST-CENTURY INVESTOR

The great virtue of laissez-faire capitalism, say its staunchest admirers, is that it allows a boom to run its course, and then lets the bubble collapse.

“The errors of the up cycle must be sorted out, reorganized or auctioned off,” Grant observed. “Cyclical white elephants must be rounded up and led away.”26 Only then can a capitalist economy resume its progress. The correction clears the way for another cycle.

This is “part of the genius of capitalism,” declared Treasury Secretary Paul O’Neill following the collapse of Enron in January of 2002. “Companies come and go…people get to make good decisions or bad decisions, and they get to pay the consequence or to enjoy the fruits of their decisions.”

Markets do not punish the greedy; nor do they necessarily reward the virtuous and frugal saver. Markets are amoral. “Good decisions” and “bad decisions” play a role in the outcome, but much depends on the wanton accidents of timing—when you get in and when you get out.

Ideally, an investor cashes in his chips when a market peaks. If he holds on, his losses compound. Meanwhile, he loses the opportunity to make money elsewhere, and there is always someplace in the world to make money.

But in any market cycle, those who find themselves losing the game of musical chairs are boun...

Denial, anger, desperation…these are just some of the stages that investors pass through before accepting defeat.

So, even after it became clear to the vast majority of investors that the Great Bull Market of 1982–99 had ended, mutual fund investors stood firm.

As late as March 2003, Gail Dudack observed: “Net redemptions since the beginning of 2002 have been tiny compared with total stock fund assets. The net cash outflow in the 12 months ending March 30, 2003, amounted to 3.6 percent of the sector’s assets. Usually, before a new cycle begins, outflows are much greater—as high as 8 percent a year. You need cash to fuel a new cycle,...

“People have talked about how steadfast the individual investor has been. But I think it’s been more paralysis than steadfastness,”

Don Phillips, managing director of Morningstar Inc., the Chicago firm

401(k) investor.

Ironically, these are the very responses that fuel bear market rallies, making it dangerously difficult to tell when a market has finally scraped bottom.

If investors simply bowed their heads and accepted defeat, bear markets would last no more than a few months. Everyone would sell, and that would be that. But human nature, once again, intervenes. Men resist disaster. This is why even the “Great Crash” of 1929 did not happen in a day, a month, or a year.

Thị Trường Gấu chỉ kéo dài trong 1 vài tháng

The bear was playing possum.

What is commonly called the “Crash of ’29” was in fact the crash of 1930–32: that is when the wealth of Gatsby’s gilded world was destroyed.

The pattern was repeated at the end of the sixties, when the Dow fell to 631 in May of 1970, rallied to over 1050 in January of 1973, and then took a final, fatal nosedive that ended with the crash of 1973–74. Only then did investors learn not to buy on dips.

What precisely does this mean for the years ahead? No one knows.

But since both human nature and the laws of supply and demand remain more or less constant, there is good reason to expect that past cycles might forecast, at least in broad brush strokes, the shape of the future.

What is certain is that an understanding of the market’s cycles is an investor’s only defense against bec...

—2— THE PEOPLE’S MARKET

Each age has its peculiar folly, some scheme, project or phantasy into which it is plunged, spurred on either by the love of gain, the necessity of excitement, or the mere force of imitation…. Money has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers and risked almost their existence upon the turn of a piece of paper…. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly and one by one. —Charles MacKay, Extraordinary Popular Delusions & the Madness of Crowds, 1852

Spring 1998.

CNBC’s Squawk Box.

CNBC and Bloomberg

By the end of the decade, ABC’s Who Wants to Be a Millionaire? had become the signature show of the era. Coast to coast, Americans answered, “I do, I do.”

BMWs.

Trophy mansions replaced trophy wives.

a mutual fund, a 401(k), or some other retirement plan.

Somewhere in between the retirees and the Gen X investors, graying baby boomers discovered that they had just enough short-term memory left to learn how to use the Internet.

It was all there, online, on television, all the time—a beguiling stream of data.

Sometimes the thrill of casino capitalism lent much-needed color to otherwise drab lives: At a social gathering on Manhattan’s West Side, circa 1998, a middle-aged woman described her victories trading online.

“The market isn’t open—CNBC isn’t even on.”3

Ne...

Bombay to Beijing,

Commonsense Investment