Trading Software and Books Reviews

Conquering Stock Market Hype

Conquering Stock Market Hype is a book written for share investors who don’t have the time or the inclination to check their portfolio each day.

The author believes the bell does ring at market tops and bottoms if you have the inclination and knowledge to listen for it. When extreme public optimism (cab drivers offering share tips) and pessimism (negative press headlines) fades, people who are listening get plenty of warning that it is time to manage their investments. Allan laments the behaviour of professionals who invariably warn investors to avoid shares when they are cheap and to invest in real estate or government bonds when they are expensive.

Conquering Stock Market Hype begins with a historical review of market tops and bottoms. Beginning with market bubbles the author takes the reader through the roaring twenties, the Japanese real estate and share market euphoria of the late 1980s, the 1990s Asian crisis and the Internet boom of the late 1990s and early 2000s. Using the psychology of bubbles to summarise each boom, the author lays out a road map that all can use to identify the next bubble. However, Conquering Stock Market Hype does not start and finish with market tops. A similar examination is made of panics. Reading the discussion of booms and panics should leave you in no doubt about the folly of listening to conventional ‘financial’ wisdom!

Following his discussion of sentiment, the author introduces the reader to more conservative fundamental ways of measuring whether or not shares are over- or under-valued. He gives the reader a good explanation of the P/E (price earnings), Yield Curve and Fed Model valuation tools.

Conquering Stock Market Hype doesn’t leave the reader in any doubt about what to do once the market has reached a top or bottom. The book cuts to the chase, recommending index funds over individual shares. The author supports views with the plain fact that in the ten years to 30 June 2003 the S&P Index averaged an annual return of 10.04 per cent compared to the average active funds’ 8.29 per cent.

Although Conquering Stock Market Hype is more an investment than a trading book, I enjoyed it for its simple no-nonsense approach to ignoring the ‘professionals’ when it comes to investing and not falling for their spin that their ‘active’ share selection will outperform the market. If you’re looking for a good and easy-to-read overview of share investing and can accept the principle that ‘simple is best’, then Conquering Stock Market Hype is the book for you.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

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