Cover image for Bull! : a history of the boom, 1982-1999 : what drove the breakneck market--and what every investor needs to know about financial cycles
Title:
Bull! : a history of the boom, 1982-1999 : what drove the breakneck market--and what every investor needs to know about financial cycles
Author:
Mahar, Maggie.
Personal Author:
Publication Information:
New York : HarperBusiness, [2003]

©2003
Physical Description:
xxii, 486 pages : illustrations ; 24 cm
Language:
English
ISBN:
9780060564131
Format :
Book

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Summary

Summary

In Bull!, Maggie Mahar tells the sweeping tale of the Great Bull Market of 1982-1999, a legendary run-up that pulled the entire nation into its gravitational field.

Mahar lays out the origins of the boom and takes the reader behind the scenes, on Wall Street, on Main Street, and in Washington, letting him see the story through the eyes of the fund managers, market gurus, analysts, politicians, business journalists, and 401(k) investors who, together, helped create the longest-running bull market in U.S. history. Some were touts; others were true believers. On the sidelines, a Greek Chorus of seasoned professionals tried, vainly, to describe the emperor's new clothes.

Filled with colorful portraits of many of the central figures of the boom years -- Alan Greenspan, Henry Blodget, James Cramer, Abby Joseph Cohen -- Bull! draws together a complex cast of characters, illuminating the web of relationships that kept the market aloft.

More than a financial history, Bull! is a lively, often witty social history of the stock market that became a part of popular culture. It is also the tale of individual investors, which chronicles the intimate stories of ordinary people -- housewives and college professors, salesmen and waitresses -- who got caught up in the excitement and then watched their life savings drain away.

How did it happen that the very real risks of investing in stocks were forgotten? Mahar explodes the myth of "stocks for the long run," explaining how the market's promoters crunched the numbers to create the illusion that if an investor stays in the casino just a little longer, he is guaranteed to come out a winner. Casting Warren Buffett in a new light, she explains how a value investor is, in the end, a long-term market timer who understands that success depends on how much you pay when you get into the market -- and when you get out. By putting the bull market of 1982-1999 in a larger historical context, she shows how, over time, longtime bull markets beget longtime bear markets.

The future defies prediction, but the history of financial markets makes one thing clear: markets always revert to a mean. Taken as a single story, Bull! is both an illuminating history and a cautionary tale about investing. Analyzing the economic and psychological forces that drive financial cycles, Mahar shows how an extraordinary influx of cash and credit, combined with the obsessive attention of a new financial media, created a cult of equities. Challenging the notion that stocks always outperform all other investments, she reveals why many of Wall Street's most experienced investors believe that the 21st-century investor needs to throw out the old rule book and make a new beginning as he plans for his financial future.

No investor should keep his or her money in the stock market without first reading this book.


Author Notes

Before becoming a financial journalist, Maggie Mahar was an English professor at Yale University, teaching 19th- and 20th-century poetry and prose. In 1982, she began covering financial markets, freelancing for Money magazine, Institutional Investor, and The New York Times, before joining Barron's as a senior writer in 1986


Reviews 4

Publisher's Weekly Review

Financial journalist Mahar offers a thorough and accessible history of the explosive 1982-1999 bull market that is illuminating as well as sobering from the current bear market persspective. She notes that most people swept up in the euphoria of this latest market surge failed to recall the lessons of 1929-1934 and 1970-1974, when earlier bubbles collapsed and investors lost heavily. Citing studies by esteemed economists John Kenneth Galbraith and Charles Kindleberger, Mahar reminds readers that this self-blinding euphoria is a regular feature of every bull market. In vivid detail, she documents the trends and outsized personalities that fueled this particular bull market, including the surge of leveraged buyouts of 1984-1987, the mania for junk bonds, falling short-term interest rates, the rush of individual investors into 401(k) retirement plans, the power (and appetites) of mutual funds and the media frenzy that lent an unlikely allure to quarterly corporate earnings reports. As the runup in stock prices gained momentum in the late 1990s while evidence of corporate accounting shenanigans mounted, Mahar's account assumes the compelling power of an oncoming train wreck. Survivors of the recent market meltdown can profit from Mahar's assertion: "Ultimately, secular bear markets teach investors to learn to manage risk in a different way, focusing not on the odds, but on the size of risk." Individual investors will also gather that they need to be more skeptical of some sources of "information" and to be much better informed not to be burned again. Charts. (Nov.) Forecast: National broadcast and media campaigns (including a 25-city national radio and 15-city NPR) will grab the attention of investors, and Mahar's unblinking assessment of the self-delusions rampant during a bull market will help many understand how the golden egg they thought they held now has begun to smell rotten. (c) Copyright PWxyz, LLC. All rights reserved


Choice Review

Mahar, former academic (English, Yale Univ.) turned financial journalist, has written a readable work on financial cycles that emphasizes the 1990s. However, she does devote some space to the period preceding it, beginning with the 1960s. As important, the Mahar ties readers into John Kenneth Galbraith's A Short History of Financial Euphoria (CH, Nov'93) and Charles Kindleberger's Manias, Panics and Crashes (4th ed., 2001). As a result, this book places the period in historical perspective through the mouths of some of the participants. Henry Blodget, the Merrill Lynch super analyst who had doubts about his pronouncements on AOL and other high tech companies, read Galbraith's book too late. On the other hand, Gail Dudack, chief market strategist of UBS Warburg, after reading Kindleberger's work, saw the classic signs that would lead to a crash. Her timing was off (1997) and it cost her (e.g., she was dropped from the Wall Street Week show), as the bull continued to roar. There is much in this book to recommend to undergraduates, regardless of their major. The descriptive prose reads well and might help the young understand that while the details differ, financial cycles are a recurring phenomenon. ^BSumming Up: Recommended. Public and academic library collections, lower-division undergraduate and up. W. S. Curran Trinity College (CT)


Booklist Review

Mahar, a journalist, explores the intrigue and implications of the famous 1982-99 bull market. We are introduced to money managers, stock analysts, and market timers who played critical roles, as well as an unprecedented number of average men and woman (called main street investors ) who poured their retirement savings into mutual funds--money most of them could not afford to lose. Small investors were not advised of the inherent risks in their investments, says Mahar, and the media hype was so great and the news was so good that thousands upon thousands gave Wall Street their confidence. The book concludes with the author's thoughts on topics such as the buy and hold strategy; managing risk in a bear market; strategic market timing; and commodities, gold, and the dollar. The 1982-99 run of the bulls on Wall Street was part of a longer cycle that governs the stock market, and Mahar teaches many valuable lessons in this excellent history and analysis. --Mary Whaley Copyright 2003 Booklist


Library Journal Review

Financial journalist Mahar has written a comprehensive history of the 1982-99 bull market in U.S. stocks. She explains that this bull market got its initial impetus from both the undervaluation of equities during the 1970s and the end of the Cold War. The market was then fueled by the introduction of individual retirement accounts and the tendency of their owners to invest in equities. Stimulating these new investors was the advent of CNBC and other popular investment media. The media provided a forum for brokerage firms and their analysts to trumpet the benefits of equity investments, and corporations added to the boom in their stocks by creative and sometimes illegal accounting methods. Though expressing concern about stock market exuberance, Federal Reserve Chairman Alan Greenspan nevertheless cooperated by providing the monetary support needed for the bull market to continue. Mahar concludes by summarizing how investors who haven't seen a bear market for 17 years might plan their investing strategies. Mahar takes complicated topics and explains them clearly for the average reader. Her exceptional book is most highly recommended to even the smallest public or academic library.-Lawrence R. Maxted, Gannon Univ., Erie, PA (c) Copyright 2010. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.


Excerpts

Excerpts

Bull! A History of the Boom, 1982-1999: What drove the Breakneck Market--and What Every Investor Needs to Know About Financial Cycles Chapter One The Market's Cycles January 1975. When Richard Russell squinted, he saw the silhouette of a bull emerging against a bleak horizon. The author of Richard Russell's Dow Theory Letter , Russell had been writing his financial newsletter since 1958, and by now he had a wide following -- at least among those still willing to read about stocks. Over the past two years, the Dow Jones Industrial Average had lost nearly half of its value. The Dow had last seen blue skies in 1966 when it grazed 1000. Two years later, it flirted with 1000 again, but in fact, the bull market that began in the fifties was peaking -- much as the bull market that began in the eighties peaked at the end of the nineties. After reaching its apex in the late sixties, the Dow rallied and plunged, rallied and plunged without getting anywhere -- until finally, in January of 1973, the benchmark index smashed 1000, setting a new high at 1051.69. It seemed that a new bull market had begun. In fact, the bear was just baiting investors, luring them in so that they could be impaled on the spike of a final bear market rally. What followed was the crash of 1973-74. When it was all over, in December of 1974, both the Dow and the S&P 500 had been slashed nearly in half; trading volume had all but dried up; mutual fund managers were grateful to find jobs as bartenders and taxi-cabdrivers, and Morgan Guaranty, the nation's largest pension-fund manager, had lost an estimated two-thirds of its clients' money. As for individual investors, the public was shorn. Between December of 1968 and October of 1974, the average stock had lost 70 percent of its value. Nonetheless, at the beginning of 1975, Richard Russell could all but hear the bull snorting. At last, he believed, the bear market had bottomed. And he was right, just as he would be in the fall of 1999, when he warned readers that the first phase of a bear market had begun. By then, Richard Russell's Dow Theory Letter was the oldest and one of the most widely read financial newsletters in the United States. Russell based his predictions on "Dow Theory," an analysis of stock market cycles invented by William Peter Hamilton and Charles Dow. (Co-founder of Dow Jones & Company, Charles Dow also lent his name to the benchmark stock market index.) At the end of the century many investors would assume that "market timing" meant day trading, buying and selling stocks in a matter of hours, days, or, at most, months. But Dow Theory does not attempt to predict the highs and lows of particular stocks, nor does it strain to forecast the market's short-term gyrations. Instead, it focuses on longer trends -- cycles that can last for years. Each cycle is the peculiar product of a particular moment in economic and political history, but in Dow's view the force behind each go-round was the same: human nature. Most descriptions of investor psychology reduce human behavior to a series of simple knee-jerk reactions: rampant greed followed by blind fear. Charles Dow sketched something subtler in The Wall Street Journal editorials that he wrote between 1899 and 1902. He recognized that investors do not rush into a bull market, and when it ends they do not swoon in surrender to the bear. Both bull and bear cycles begin slowly, he observed, because "[t]here is always a disposition in people's minds to think the existing conditions will be permanent. When the market is down and dull, it is hard to make people believe that this is the prelude to a period of activity and advance. When prices are up and the country is prosperous," Dow added, "it is always said that while preceding booms have not lasted ... [this time there are] 'unique circumstances' [which will make prosperity permanent]." Because human beings are slow to embrace change, these cycles can run a decade, or longer. In fact, as Gail Dudack, chief market strategist at SunGard Institutional Brokerage, shows in the table below, the history of the S&P 500 from 1982 through 1999 can be broken down into alternating "strong" and "weak" cycles that average nearly 15 years. During the booms, investors who plowed their dividends back into their portfolios reaped returns averaging nearly 18 percent a year -- even after adjusting for inflation. During the dry spells, by contrast, average "real" (inflation-adjusted) total returns dropped to less than 2 percent. Without dividends, investors lost nearly 3 percent a year. In the final third of the twentieth century, the market's returns fit the pattern with ruthless precision: from January 1967 through December 1982, investors averaged 0.2 percent annually -- and that was if they reinvested their dividends. Those who became discouraged and stopped plowing their dividends back into the market lost an average of nearly 4 percent a year -- year after year, for 16 years. Finally, in 1982, the cycle turned: from January 1983 through December 1999, real returns averaged 12.1 percent. If an investor reinvested his dividends, he was rewarded with annual returns of 15.7 percent. "Few investors realize how much dividends have contributed to the stock market's performance," Dudack observed. "Nor does the public realize that in this century, there have been three separate periods, ranging from 16 to 20 years, when inflation-adjusted capital gains on the S&P have been negative." Inevitably, any attempt to break the past down into cycles involves choosing beginning and ending points that are, to some degree, arbitrary. Others might well divide the market's cycles somewhat differently. But virtually every market historian agrees on the larger picture: the history of the market is a story of bull and bear markets that take place against a backdrop of much longer waves ... Bull! A History of the Boom, 1982-1999: What drove the Breakneck Market--and What Every Investor Needs to Know About Financial Cycles . Copyright © by Maggie Mahar. Reprinted by permission of HarperCollins Publishers, Inc. All rights reserved. Available now wherever books are sold. Excerpted from Bull C: A History of the Boom, 1982-2004 by Maggie Mahar All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.

Table of Contents

Acknowledgmentsp. xi
Prologue
Henry Blodgetp. xvii
Introduction
Chapter 1 The Market's Cyclesp. 3
Chapter 2 The People's Marketp. 17
Beginnings (1961-89)
Chapter 3 The Stage is Set (1961-81)p. 35
Chapter 4 The Curtain Rises (1982-87)p. 48
Chapter 5 Black Monday (1987-89)p. 61
The Cast Assembles (1990-95)
Chapter 6 The Gurusp. 81
Chapter 7 The Individual Investorp. 102
Chapter 8 Behind the Scenes, in Washingtonp. 123
The Media, Momentum, and Mutual Funds (1995-96)
Chapter 9 The Media: CNBC Lays Down the Rhythmp. 153
Chapter 10 The Information Bombp. 175
Chapter 11 AOL: A Case Studyp. 193
Chapter 12 Mutual Funds: Momentum versus Valuep. 203
Chapter 13 The Mutual Fund Manager: Career Risk versus Investment Riskp. 217
The New Economy (1996-98)
Chapter 14 Abby Cohen Goes to Washington; Alan Greenspan Gives a Speechp. 239
Chapter 15 The Miracle of Productivityp. 254
The Final Run-Up (1998-2000)
Chapter 16 "Fully Deluded Earnings"p. 269
Chapter 17 Following the Herd: Dow 10,000p. 288
Chapter 18 The Last Bear Is Goredp. 304
Chapter 19 Insiders Sell; the Water Risesp. 317
A Final Accounting
Chapter 20 Winners, Losers, and Scapegoats (2000-03)p. 333
Chapter 21 Looking Ahead: What Financial Cycles Mean for the 21st-Century Investorp. 353
Notesp. 385
Appendixp. 459
Indexp. 467

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