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This was one of those books that grew on me.? The author, the well-known John Mauldin, strings together a bunch of ideas originated by others.? That’s not much different than what Tadas Viskanta does at Abnormal Returns.? He brings us the best ideas that he has culled from others.? That is a significant piece of work that should not be denigrated by others.
The beginning of the the book is consumed with 12-20 year market cycles.? There are times when investing in risky assets where you face headwinds and tailwinds. The headwinds and tailwinds are driven by valuation, often expressed through Q-ratio, CAPE, or Michael Alexander’s Price-to-Resources ratio, out of which the book makes a lot (link here for an example).? It’s a Price-to-Adjusted Book value ratio as I see it.
Regardless of the method, if you buy in at high valuations, the wind is in your face, and you are not likely to earn much.? The opposite is true for low valuations, but at the valuation trough, everyone is disgusted, and few are willing to buy.
So it takes a strong stomach and mind to follow a method like this.? Strong stomach, because when it is time to buy one will fear that the money will be lost.? Strong mind, because near valuation peaks people will tell you that you are nuts to leave the party — it’s just getting started.
But what if a decent sized portion of institutional money did this?? The cycles would go away, or be muted.? That’s not likely to happen in my opinion: some men may change, but you can’t change mankind.? Emotions of fear and greed dominate over clear thinking.
The book touches on many other topics:
- Why strategies go in and out of favor
- Why to be skeptical of those who give investment advice (including Mauldin & me)
- That the growth rate of the economy eventually limits the growth rate of any company.
- The effect of demographics on the markets
- Why chasing performance doesn’t work.
- Why most newsletter writers strategies could never be as good as they state, or they manage money in tiny niches.
- How to detect value in stocks.
- How to use bonds and commodities in asset allocation.
I say “touches on” because in line with its title, it is a “little book.”? You are only getting a taste of what an intelligent investor who hires other managers to manage money for clients thinks.? This is especially true as you go through the section on value investing, which does not get much beyond dividend yield, dividend growth, and price-to-book (common equity).
As such, this book will not be a complete answer to any investor wanting to learn about the markets.? It introduces basic concepts in ways that most ordinary people could learn.? Reading time should be less than two hours.? One more thing, the book has very little in the way of math.
I appreciated the short summaries at the end of each chapter.? If someone wanted to get the gist of the book, they could read all of the short summaries in about 10 minutes, and then they would have the skeletal ideas of the book, allowing them to read all or part of the book with greater understanding.
Quibbles
The book could have used an index.
Who would benefit from this book:People who want an introduction to investing, including long-term market cycles would benefit from this book.? It would be of modest help to experienced investors who understand market cycles.? If you want to, you can buy the book here: The Little Book of Bull’s Eye Investing: Finding Value, Generating Absolute Returns, and Controlling Risk in Turbulent Markets (Little Books. Big Profits).
Full disclosure: This book was sent to me without my asking for it.
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David; I have been meaning to post this but this book can be found by pretty easily on the internet used book sellers;
The Great Bull Market: Wall Street in the 1920s by Robert Sobel; what i found most useful was the examination of market participants and government and the facts they had to examine at the time when making their business and investment decisions. Given we know how events culminated in 1929 it is worth considering whether these people were “whistling in the dark” or was it reasonable to have confidence in the future not knowing the outcome in store for markets, the economy, and the citizenry from 1930-1939. I would love to read your thoughts.
Looks good, Paul, will look into it, but the review stack is 16 high — Mark Mobius is next. Another “little book.”
It is well written; and not long at all. I have referred to this multiple times as it contains plenty of data; yet it reads easy as Sobel was a good writer.