“The four most expensive words in the English language are: ‘It’s different this time.’” – Sir John Templeton, investing legend
Forbes columnist Ken Fisher’s new book is a very timely read for all investors, whether bullish or bearish. If you are convinced (as many of us seem to be), that we are in a ‘new normal,’ that we are in a ‘secular bear market,’ that we will soon have a ‘double dip recession,’ or in general that nothing good will ever happen in the stock market ever again, “Markets Never Forget” will dunk your head into a bucket of ice water and make you reconsider.
It’s all too easy to buy into the shrieking negativity that dominates so much coverage these days, but the majority of it is easily challenged by glancing at stock market history, some of it pretty recent. Although Mr. Fisher acknowledges that past performance doesn’t necessarily predict the future, stock history is a useful “laboratory” that lets us see what happened under certain sets of economic and political circumstances.
Let’s start with that terrifying ‘double dip recession’ so many people are screaming about. Well, it’s imminent, isn’t it? Everybody knows that, right?
Fisher asks us this: Would you be willing to bet big on an event that has only happened 3 times in 33 markets cycles—a 10% occurrence, 2 of 3 of those happening pre- and early Federal Reserve? Because that’s how often a double-dip recession has occurred in the United States since 1854 (if we define it as a recession with a 12-month growth break, immediately followed by another recession). The last time we had one was from 1980-81, which came right before a decade-long bull market. Before that, you’d have to go back to 1918 to find another ‘double dip recession.’ Interesting, huh? You won’t hear about that on CNBC.
The central theme of the book is that human beings have faulty, myopic memories that lead us to expect these rare events (like the double dip) to occur all the time, even though it can be largely disproved just by checking easily available history. We just forget, because our brains are hardwired to think that the current time is always “the worst it’s ever been.”
“Markets Never Forget” is also peppered with some amusing headlines that you’d think were ripped straight from today’s papers. Even going back to the 1930s and before, writers and analysts chewed their nails over ‘the new normal’—slow growth, high unemployment, and basically Armageddon. We’re still here—people just forget.
Spanning eight well-researched, refreshingly level-headed chapters, “Markets Never Forget” skewers all of the common, persistently boring talking points from “jobless recoveries” to stock market volatility to stock returns depending on which political party is in power in Washington (and the result may surprise you).
And the conclusion is simple: This time it is NOT different; we just forget.
Read up, monkeys!
Monkey’s Review 1: Barbarians At the Gate
Monkey’s Review 2: The Financier
Monkey’s Review 3: Decision Points
Monkey’s Review 4: Debunkery
Monkey’s Review 5: When Genius Failed
Monkey’s Review 6: Monkey Business
Monkey’s Review 7: Death Of The Banker
Monkey’s Review 8: A Journey
Monkey’s Review 9: Damn It Feels Good To Be A Banker
Monkey’s Review 10: The Quants
Monkey’s Review 11: All About Hedge Funds
Monkey’s Review 12: The Unlikely Disciple
Monkey’s Review 13: Adventure Capitalist
Monkey’s Review 14: The Hedge Fund Book
Monkey’s Review 15: Investing In Hedge Fund of Funds
Monkey’s Review 16: Hilarity Ensues
Monkey’s Review 17: The Prince
Monkey’s Review 18: Markets Never Forget (But People Do)
Monkey’s Review 19: The Money Culture
I agree with a lot of your conclusions, mainly concerning the overblown doomsday attitude of so many people. At the same time, I thought this most recent meltdown taught us a valuable lesson about the possibility of these "black swan" events.
what is mentioned in the book regarding algos? pretty sure HFT didn't account for over 70% of the stock market in the years past. just playing devil's advocate here.
There was plenty of technological innovation in the 20th century.
the internet has only been around since the 90's and HFT didn't exist until the early 2000's. what are u suggesting?
"our brains are hardwired to think that the current time is always the worst it’s ever been.” - may be true but if you compare right now to history, you don't think its top 2 worst economic times of all time?
Are we pretending like this recession isn't the worst since the great depression and its just not as bad if not worse in Europe? Unemployment around 9% (including those with too much pride to re-join the workforce at lower paying jobs than their previous) for the past 4 years?
If you check the history of the US economy, has growth often been as stagnant as it has been the past 4 years? I'm confused as to why a double dip recession is far fetched. Sure you can say it hasn't happened often in history, but how many times has the housing bubble burst at the same time consumer demand was diminishing and banks either failed or accepted huge bailout packages while the US continues to jack up its debt with no signs of stopping? (run on)
And the stock market isnt inflated right now? Consumers spending is on the rise? Businesses are expanding in order to support this increase in demand? There's a solid plan in place to get unemployment back to its previous natural rate?
sheesh
Before 1980-81, the last double dip we had was actually NOT the Great Depression, it was in the 1910s. What he's saying is that even when it has happened, it hasn't doomed long-term stock returns, as the 80's and 90's were both tremendous bull markets in the most recent example. There are ALWAYS ways to make money, even in a recession.
Great reviews, man! Thank you for sharing!
Will look into it. :)
Somewhere there are always good companies to own. Man is not yet doomed to perpetual night.
This sounds like a rip off of Ken Rogoff's "This Time Is Different," but without the extensive empirical study.
I urge you to pick up Rogoff's book asap
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