Investment-history

Introduction

The objectives of the book are:  To study in detail the stock market crashes, to discover what went wrong and to learn from these past traumatic episodes; and  To identify and explain the underlying structure of the financial market behavior.

Chaos is Discovered Newtonian vs. Chaos For the last 300 years, our thoughts have been profoundly influenced by the Newtonian theory, which, as we know, rests on assumption of a linear system. This theory is best applied to system with two objects interacting with each other. When used to elucidate the system with three objects or more, Newtonian theory collapses.

Chaos theory, which is based on complex and non-linear system, is a relatively new discipline (circa 30 years). Its use in social science and field of physics have gained wide acceptance. The author attempts to apply the theory to the financial market.

Chaos Rules

Chaos describes unpredictable behavior that is governed by rules. Ian Stewart in his book, "Does God Play Dice?" gives the following definition: "Chaos is lawless behavior governed entirely by law".

Chaos in Financial Market

The author comment regarding the stock market behaviors using the chaos theory is as follows:  Financial market is inherently unstable and dynamic system, and the mood of the majority of its player can flip almost instantaneously from one state to another. Hence financial market resembles a chaotic system. An orderly phase may dissolve into chaos & then tip back to a more ordered state.  Stock markets are holistic that sometimes their collective behaviors will be different from that of their component unit (i.e. individuals & investors).

Chaos Theory in Actions After noting the similarities between financial markets behavior and chaos theory, the author studied several important financial crises over the last 300 years to see whether there was any underlying structure beneath the crashes. She discovered that many speculative bubbles shared a cluster of common features. \ The author does not try to predict when the crash will happen. Instead, she seeks to uncover what is the underlying structure of financial market and how investor can profit from it by assessing in which phase he is at a particular time.

The author studied the following crashes and described the sequence of events using the ten phase structure: 1. Bubbles of 1720  Mississippi Madness  South Sea Fiasco 2. Modern Bubbles  Great Crash 1929  Global Crash 1987  Japanese Bubble  Bonds Bubble

So what if we know the history and chaos theory?

How To Be Prepared? Compiling a checklist based on the structure of crash scenario (ten-phase structure) has the following purposes:

 It is a systematic way of dealing with the situation. It provides an orderly framework to analyze the signals and prepare oneself for any occurrence of the crash; and

 It helps the investors to judge more clearly how far along the route of chaos scenario has progressed.

(The checklist is elaborated in the textbook).

In addition to the checklist, there is also a need to look out for other cluster of symptoms or occurrence of other events (such as emergence of new financial tools, collapse of big corporations etc) to confirm the findings from the checklist.

What to do with the checklist? To avoid any avalanche of selling, one must be able to identify at least the first 3-5 phases and clear your position at phase 5 or 6 (i.e. when gullible public joins in or when doubt starts to form).

However, if one misses the signal and fails to sell off by phase 6, it is still not too late to do so as long as it is done before the markets reach the bottom. This will allow one to cash out and reinvest when the markets hit the bottom.

What if u misses all the phases? - As the chaos theory shows, the market will turn around eventually. However, the issue is how long will it take? No one knows.

Timing the Crash - Is it possible? Whilst it may not be too difficult to identify the signals of an impending crash (based on the phases in the structure of crashes), one can never accurately predict the timing of occurrence. Time is the most untrustworthy and unpredictable element. As shown in the charts, the points might get squeezed together or pulled part -- this is a common feature of a chaotic system.

Since predicting the exact timing of crashes is highly unreliable, in order to avoid being caught off guard, one has to closely watch for any trigger event that may unleash a selling cascade. Another strategy is to give up the hope of catching the extreme peak and bottom and be contended as long as you buy near the bottom and sell near the top.

Conclusion

Chaos theory has taught investors how to preserve their capitals from the disaster of a crash. The 3 main points to bear in mind are as follows:

 Need to recognize any unintentional actions of the financial authorities which may create a classic chaos conditions and prepare own course of actions;

 Even the most sophisticated and cautious long term investors can become irrational and act in tandem with the speculators; and

 Understand that falling bond prices with rising interest rate may result from the collapse of a financial pump instead of a reflection of the fundamental outlook of the economy.

One of the most important events to watch is the action by the presiding authorities which may trigger a financial pump and set the phase transition in motion. When it happens, one should know how to react.

In conclusion, as a Fund Manager, one should

 Be fully aware of what is happening in the financial, political and economic sectors around the world. One of them could be the trigger event.  Be able to identify at which phase the financial market is in and predict the transition and the edge of chaos.  Be able to clear his position and not to be influenced by the herd behavior if he concludes that the market at peak and near the point of collapse. This is a tough discipline to follow especially if he has a strict mandate and the clients' expectations increase during the boom.

This is a good book introducing the global economics

This book details the business career of Milken, the rise to the top and then the fall to prison. The book has a fair amount of rather interesting tabloid type information of his business operation, his life style and his take home pay - so much money it is almost sickening. The author also takes us through how he got caught, what the charges were, the trail and the prison time. We also get some information on Milken after jail. Overall you can tell the bias of the author in that he obviously views Milken in high regard and has not one nice thing to say about the government attorneys. The book is well written and interesting, if not bias. There is some new information here and if you are interested in the period or the man then this is a book you should read.

The story of the biggest Japanese investment bank.
The development of this broker powerhouse was based on their door-to-door salesman: 'The pressure to generate stock-market orders is with a salesman every waking hour.' (p.191)
No orders, no commissions ... fired.
Good picture of the Japanese employee: a well paid slave, nearly without freedom or domestic life (see also the hilarious book by Amélie Nothomb 'Fear and Trembling').
Only 10% of the company's profits go to the employees, the other 90% to the directors, who spend fortunes on mistresses, official or not.
This book is not critical enough, although now and then it touches the other heart of the matter: churning of client accounts by overstressed salesmen, bribing of politicians and state officials, murky deals with underworld figures.
Interesting investigation but not the whole truth.

I am a graduate student and my professor lauded the virtues of this book and forced it upon us in a comparative political economy class. Mr. Pontusson, I felt overwhelmed by data, technical points and excessive facts and figures. Had I followed the Sweden model in other readings I would have been better prepared to take in your teachings.

To all others, I suggest T.J. Pempel's Regime Shift. I need to re-read this book definately, (as it's obvious I haven't debated the content of it) but I was put off by the writing style of the author. Those are my thoughts.

Sorry to the author.
But I do want to ask him if he knows what he has written down.
Or at least I wonder if he wants the readers to understand his book.

I spent a lot of time for this book.
Even after finance class with this book as a textbook
and even after reading some other materials,
I am still saying to myself "what the xxxx is going on?" whenever I read this book. (I don't mean some arithmatics used there)

Some reviewers said that it would depend on who you are. Really?

I think I finished enough courses in statistics, economics, finance, and mathematics. And some of them are Ph.D level.
Do I need stronger backgound to understand?
Or Do I have to skip so many paragraghs in every pages?
So many typos? Anything conceptual?

This book presents finance in the modern way: p=E(mx). After having read it, the reader should be able to understand the papers currently published in the field. That's the big advantage of the book, because, in this sense, it is better than Duffie's, Dothan's or Ingersoll's. Be advised that the book is not worried about technicallities or math, but the economics underlying the models in it.

However some deep discussions assumes the reader knows: mean-variance frontier, (C)CAPM, APT, and so on, including the several empirical tests already performed on these models and their results. This is not always true, and the reader can easily get lost.

The author uses graphs to clarify the ideas. It is not always successful. Many graphs are confusing. For instance, the author assumes the reader knows how to add and to subtract vectors graphically, which is really easy if you knew that in advance, but difficult to figure out if you do not.

Also there are several minor mistakes the reader should take care of. I am sure the second edition of the book will correct those mistakes and will make the book a lot better.

I think the part talking about the GMM econometrics very clear and that helps a lot to implement the models presented in it.

I recommend the book, mainly because there is no other book treating modern finance like that. Once you get used to it, you'll see the book is not difficult and very useful.

This is a book designed for advanced MBAs (who want to know what current academic research in finance is about) or 1st-Y PhD specializing in Finance.

It covers many theoretical approaches in finance and points out the connections between them, providing a unified framework. This is very helpful as there was prior to this little understanding between old-CAPM types and more recent general equilibrium modelling. Now, if you want to go deeply into pure theory (esp. continuous time) modelling, go to Duffie, and good luck to understand it. There is a brief coverage of options and a very clear presentation of basic bond pricing and term structure.

The book also covers thoroughly empirical testing, especially GMM. The author shows how easy all this is to do, and points out many tricks and traps, providing intuition for how the various methods work. This part is I think quite original and very insightful.

There are also two surveys, on predictability of returns and the infamous equity premium puzzle, which are also very nice.

I love the informal style, with a rather chatty presentation, lots of pictures and intuition, and a short chapter format that makes it easy to read a little part.
The downside: sometimes the chatty style is not so clear and precise. Also, you'll have to go back and forth in the book since it is a lot about connections between the various approaches, which is good (that's the real plus of the book, but at first it can be a bit annoying).

To sum up, that's the book I'd recommand to sbd who has had some economics and some quantitative background and wants to really understand what people are doing.

(I guess the other reviewers prefer the 'theorem-proof' style of Duffie, who doesn't explain where the economics is - I'm quite surprised by their opinions, which seem to me rather rare).

This is an account which does not delve enough into the psychology of Nick Leeson personally (as opposed to traders generally) to be interesting, and is too apologetic for the management debacle that was Barings. Skip it. Nick's disingenous account is better. Lefevre's story of about stock operators is better still

Unlike the previous reviewer, I found the book to be a captivating and educational read! The plot held my attention throughout the book, even through the technical descriptions of how investment futures work. I felt that the book was a balanced blend of story and analysis. If you want more than a superficial account of the Barings debacle, this is a good book for you.

It is true that this author focuses as much on the role of management in the fall of Barings as on Nick Leeson's role in it, which is fine. It is an opinion that she substantiates somewhat persuasively throughout the book. The reader gets the sense that Nick was just an opportunist who took advantage of a glaring management weakness at Barings. (The author will not be able to persuade you, however, that Nick is just a good guy who slipped. He's scum. I think the author was too lenient with him.) But through her account of Baring Bank's mismanagement of its Futures division, the author provides a very useful lesson for senior management out there.

Having read all of Mr. Bogle's other books, I found this one a total waste of time. Too bad, since his other books are masterpieces!

I am a big Bogle and Vanguard Fan, and I say this as a shareholder. But this is a big waste of time, unless you like reading transposed speeches. Anyone looking for a in depth look into the development and early days of the Vanguard Group as Bogle transitioned from Princeton...to Wellington Renegade will be horribly disappointed. I know I was.

It's ironic that the cover of the book doesn't allude to it's content...copies of speaches. I guess "Character Counts" only when your dealing with other people's money...

Go Vanguard!

Several reviewers say not to buy this book because it repeats itself over & over. That is just the point that these people (who must have low SAT scores) missed; namely that virtue and honor do not change.We all learn by repetition and that is what Mr. Bogle does. Vanguard was and continues to be founded on bedrock solid honest principles that will not change.He is especially cognizant of his "Crew" (they are above employees)and their constant contribution to the success of Vanguard. Mr Bogle had a heart transpant in 1996 and remains in vigorous and good health. My favorite quotation of his is "The past is history. The furure's a mystery. Today is a gift. That's why we call it the present." (Page 272) This book could be sold in Christian Bookstores. I am sure many in the financial world cannot or will not understand it.I bought 5 copies of this book to give to my family & friends. It not only gives a history of the stock market for the last 80 years (and the shenanigans), but a wonderful lesson in CHARACTER COUNTS.

I am currently a student at the University of Arizona in Dr. Gibbs' Individuals and Societies 103 class (entitled "What is Politics?), and can say that Dr. Gibbs applies his bias in most everything he teaches. While I have not read his Ph.D. dissertation, I can analyze what he does in classes and apply them to the likelihood of the quality of this work.

About 50% of the real-life examples used in class are regarding the recent war in Iraq. About 75% of his example are either logical arguments by liberals or fallacious arguments by conservatives (usually by technical fallacy or by an example's failure to include obvious evidence). He clearly engages in selectively choosing which examples to use in order to push his agenda. I fear my views may be punished, though I am currently unable to tell because our first test is this Friday.

As long as Dr. Gibbs continues to teach our class in this fashion, think about what kind of chicanery he could spin on foreign policy.

This book is based on the Business Conflict Model, which Gibbs uses to explain US foreign policy in developing nations. As you may have guessed, the model assumes that all foreign policy to third world nations is based on private business interest. It is us policy to protect American interest abroad. Usually that includes business investment and such. Anyway the book uses one approach to understand US policy , while also offering that other approaches are not as useful.

If the maryland reader were more eruidite, he might find that Dr. Gibbs isn't the only intellectual who asserts that CIA-orchestrated coups in Guatemala were influenced by ties with banana corporations. In fact, it's practically common knowledge that the CIA was acting in the interest of united fruit co. when it implemented "Operation PBSUCCESS," for the LEGALLY AND DEMOCRATICALLY ELECTED Guatemalan president at the time, Jacobo Arbenz, was implementing a land reform program that threatened US companies like United Fruit by enabling members of the guatemalan communist party to farm land that United fruit owned.

There are a few Books and television documentaries that argue (quite convincingly) the claim that the coup in Guatemala was motivated by an american interest in preserving a "friendship" with united fruit company.One book, "Banana Wars" written by anthropologists Dr. Mark Moberg and Dr. Steve Striffler. There was also a segment in a history channel documentary on this , as well (Though, unfortunately) I forgot the title. Another great book on the matter is: "Bitter Fruit: The Story of the American Coup in Guatemala" by: by Stephen C. Schlesinger, Stephen Kinzer, John H. Coatsworth, John H. Coatsworth.

At some point, people who find allegations that corporate interests manipulate US foreign policy absurd will have to face the fact that the american government would rather put profits and above people.

Some amusing stuff, marred by contributor William E. Simon's neanderthal offerings, e.g., "multiculturalism" as one of the "Most Destructive Ideas in Public Life" along with "No-fault divorce" and "The welfare state," etc. His list of "God's Greatest Gifts to Mankind" includes Jesus Christ, heaven, the USA and the Bible, no kidding.

Initially I thought that Rukeyser had lost a few I.Q. points, but then I realized that he did include "the worst" in the title. Sometimes the way to really embarrass people is to just quote them.