Customer Reviews

Speculative Contagion: An Antidote for Speculative Epidemics

5 star:		(3)
4 star:		(1)
3 star:		(0)
2 star:		(0)
1 star:		(0)

 

 

Every so often someone will ask me which I consider the best investments books. This is not an easy question to answer, firstly there is an enormous amount written on finance every year (much of it pure junk, of course), and secondly if you miss off someone's personal favorite they take it as a personal affront. So it was with some trepidation that I put together my ideal investors reading list. In my "modern" category (to qualify to be in this section the book must have been written within the last ten years, but have the potential to become a classic given time), I included Frank Martin's Speculative Contagion, which is a book that represents an investor's real time experience of dealing with the market. Several books could have fitted the bill; Cunningham's edited version of Buffet's letters was a front runner (The Essays of Warren Buffett), as was Chancellor's edited version of Marathon Asset Managements' views (Capital Account). However, in the end I settled on Frank Martin's Speculative Contagion. This book pulls together the annual reports that Martin had written to his clients throughout the bubble and burst years. It is source of much investment insight. I recently used Martin's trinity of risks as a basis of a better way of thinking about the nature of risk from an investment perspective. Martin's book provides us with opportunity to see exactly how bad it feels to be on the wrong side of a bubble, but also delivers insights into the discipline needed to stick to sensible investment process though thick and thin.

Frank Martin's Speculative Contagion takes one on a real time basis of the nearly 7 year episode of the delusions of the ".com" bomb run up to, and its subsequent bust. Much like reading the "Extraordinary Popular Delusions and the Madness of Crowds", by Charles Mackay saved many from the hyperbole of the ".com" phenomenon, maybe this book will save you from the next episode of the Madness of Crowds.

In addition to providing one with the history of the market and the psychological episodes, it is also full of Benjamin Graham and Warren Buffett anecdotes throughout. Also in Chapter 8, What History Teaches, the author provides us with some potential antidotes for future speculative epidemics, with such headings as:

- Free Markets: Popular Delusions and the Madness of Crowds
- Aspiring to Rationality by Overcoming Heuristic Biases
- Today Is Not Tomorrow: Cycles and Differing "Opportunity Sets"
- Inverting the Traditional High-Risk/High-Return Paradigm
- The Inevitability of Regression to the Mean
- There Are No Called Strikes in the Investment Ballgame
- Focus on the Important
- The Malevolent Mathematical Mystery of Modern Money Management (i.e. MPT)
- The Absurdity of the Collective Wisdom of Individual Irrationality
- Diversification and the Myth of Safety in Numbers

All in a very historical and insightful review of the Bubble and post-Bubble years.

This is a very well written book that captures the essence of common sense value investing. The book highlights the importance of independent/non-lemming thinking the is required to be a successful value investor. Very few people can achieve this mentality. This book will help you think on your own - a vital trait for being a successful investor. A must have for your investment library. You will not be disappointed.

"Speculative Contagion" was the first of Frank Martin's books ("A Decade of Delusions" published 2011). Both belong on the bookshelf of any investor. Many value investors point to two chapter's in Benjamin Graham's "The Intelligent Investor" (Chapters 8 and Chapter 20), as chapters worth reviewing on a regular basis. When I need to hit the reset button on my investment mind, I will turn as well to Chapter 8 - "What History Teaches" of Frank Martin's book, "Speculative Contagion." Reading Martin's books certainly helps a thoughtful investor maintain perspective and 'keep their head about them when all around are losing theirs.'