BULL!

I’m a few chapters away from finishing the book “Bull! A History of the Boom 1982 – 1999” by Maggie Mahar, a former WSJ and Barron’s reporter.

Just before Memorial Day each year, the WSJ runs a “What are you reading this summer?” column. I’ve participated in the past, and was asked again this year. Bull! is the book I am recommending.

Mahar does a terrific job dissecting what led to the longest market boom in history, and how it turned into the ugliest bear market since the 1929 crash. Anyone who believes we’re at the beginning of another multi-decade expansion may want to read this.

My own research into boom and bust cycles suggests after multi-decade Bull moves, markets do not simply crash and then resume their prior uptrend immediately. Markets go through long phases — bullish, bearish and sideways — lasting anywhere from 5 to 18 years.

Last year’s rally (2003) led many people to assume that we are “off to the races” again. The author presents some very sobering reasons as to why that’s terribly unlikely. And, it’s not for the usual reasons the perma bears always trot out. It simply takes time to work then off the massive excesses of a huge bull run.

Some of the specific items I learned fron Bull!:

-Few people know that the popularization of 401(k)s led to the “second act” of the Bull Market — it caused fresh money to pour into the market in the early 1990s.

-In 1993, Connecticut Senator Joe Lieberman was the prime opponent to the SEC enforcing FASB rules for expensing options. Who knows how much less severe the bear market damage might have been if that rule was appropriately enforced. Consider how much less destruction the big stock option issuing firms would have suffered if they were required to accurately report their earnings (i.e., expensing and reporting them as per FASB rules). Had firms like Yahoo, Cisco, Intel, EMC not have run up as far as they had, might their SPLAT!!! have been a lot less severe?

-How devastating were the effects of the 1995 Safe Harbor Act, and the Private Securities Reform Act of 1995? It actually shielded corporations and their accountants from positive acts of misleading investors as to earnings; How many Enrons, Worldcoms, Global Crossings and Tycos might have been avoided?

Along the way, the author demolishes a number of closely held Wall Street myths: Buy and Hold is the best strategy (hardly); You cannot time the market (you can); Stocks outperform all other asset classes (they don’t).

The narrative format works surprisingly well, considering the detailed subject matter. Despite the hundreds of documenting footnotes, it reads like a well paced novel. That makes it perfect for the hammock on weekends . . . ”

Maggie Mahar: Bull! : A History of the Boom, 1982 1999