Stock Cycles: Why Stocks Won't Beat Money Markets Over the Next Twenty Years [Paperback]

Michael Alexander (Author)

Book Description

Publication Date: October 12, 2000

"Important reading for serious investors."-InvestorsInsight.comFor most Americans, a 401k plan is their first exposure to investing. Many of us are relying on the stock market to provide for us in our retirement yet at the same time, most of us are afraid of the stock market. It's a valid concern. How can something so important to our financial future be so completely unpredictable? When Michael Alexander first started investing in the stock market, he noticed that few analysts seemed to have much knowledge of what the market has done in the past. While no one can give precise answers to questions about the future of the market and be right all the time, Alexander feels that it's possible to gain an understanding of the future of the stock market by studying its past.Analyzing years of historical data for patterns of behavior that might repeat in the future, Alexander provides strong statistical evidence for a cyclical pattern in the stock market. These Stock Cycles show that long periods of poor stock returns have always followed long periods of good returns. Are we in for good times or is the party over?

Editorial Reviews

About the Author

Michael Alexander, Ph.D., is a research engineer at Pharmacia Corporation. He has had a lifelong interest in economic and stock market history. His first book, Stock Cycles is the result of five years of historical research and economic analysis. Alexander recently published The Kondratiev Cycle, a novel about what rhythms of history tell us about our past and future. Originally from Milwaukee, Wisconsin, he now lives with his wife and two children in Kalamazoo, Michigan.

Product Details

• Paperback: 216 pages
• Publisher: iUniverse Star (October 12, 2000)
• Language: English
• ISBN-10: 0595132421
• ISBN-13: 978-0595132423
• Product Dimensions: 9.2 x 6.1 x 0.5 inches
• Shipping Weight: 12 ounces (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (13 customer reviews)
• Amazon Best Sellers Rank: #767,246 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

63 of 65 people found the following review helpful:

5.0 out of 5 stars A short view of long cycles, July 7, 2001

By 

Thomas W. Jeffries (Madison, Wisconsin) - See all my reviews
(REAL NAME)   

This review is from: Stock Cycles: Why Stocks Won't Beat Money Markets Over the Next Twenty Years (Paperback)

Dr. Alexander has tackled one of the most difficult, ambiguous and controversial topics of economics: long wave cycles and their effects on stock market prices. His text along with the more popular "Irrational Exuberance" by Robert Shiller is a highly cautionary perspective on stock market investments. Both books appeared almost simultaneously with the downturn of the market in January 2000. Both books, for different reasons and by different routes, arrived at the conclusion that that the market was grossly overvalued.

Alexander takes a historical approach by looking at the performance of traditional indicators over many decades or even centuries. He analyzes the statistical probability of trends continuing for one, five, ten and twenty years, and then derives relationships that can be used to predict future behavior. One of the more interesting indices developed by Alexander is the P/R or Price/Resources ratio. The Price term is the traditional index of stock prices. The Resource term represents the sum of "plant, equipment, technical knowledge, employee skills, market, position, etc." that enable the operator to produce a profit. Alexander aggregates and normalizes this value to constant dollars. He then uses the P/R ratio to express whether stocks are over or under valued.

Shiller tends to camouflage his statistics, but makes a much stronger argument for how people think about stock values: When prices are going up, it is easy to get excited about buying; prices rise, excitement rises, and they feed on one another. When prices are going down, people get discouraged, prices fall, people panic and loose faith in the ability of the market to produce future value. While we know and understand this relationship, we get caught up in it all the same.

The second major contribution that Alexander makes to long-term analysis is in tying stock cycles to technology cycles. This section of the text draws heavily on the Kondratiev cycle theory, but it then integrates this analysis into a more contemporary treatment that focuses on innovation and the resulting investment booms. It is easier to discern technology cycles from a historical perspective, and it is probably fair to say that earlier in the industrial revolution, basic changes did not come with the frequency that we are experiencing today. Even so, the telegraph, telephone, telecom and internet investment booms have clearly come one after another to produce the crescendo of investment frenzy that we experienced at the end of the 20th century. That is starting to unwind now, and P/E (or P/R) ratios are beginning to approach, however painfully, something that is closer to a historical norm. What we can't really know is when the aggregate trend will turn around or how the change will manifest itself.

Alexander does not present a pessimistic view. Indeed, if one were to consider potential energy or resource shortages, economic disparity, agricultural or environmental dislocations, there could be much more room for gloom. On the other hand, he has not fully considered the potential positive effects of biotechnology on agriculture, health and the chemical industry (which is a bit surprising considering his background), the efficient allocation of resources that is resulting from greater accessibility of information or the general synergy in technology that is resulting from the interactions of computational, biological, physical and chemical sciences.

"Stock Cycles" is a highly useful book for anyone interested in technical prognostication about the future movements of markets. It will loose some readers with its charts, equations and generally dry style, but it is a serious and meritorious effort to put some sense into what is an otherwise emotion-driven field. Most readers would probably wish that they had read and heeded the advice from both Alexander and Shiller as soon as the texts appeared.

21 of 23 people found the following review helpful:

5.0 out of 5 stars The definitive work to date on stock market cycles., January 12, 2001

By A Customer

This review is from: Stock Cycles: Why Stocks Won't Beat Money Markets Over the Next Twenty Years (Paperback)

With the glut of books published today on the prospects for the stock market, most of which are nothing more than hype pieces, Mr. Alexander brings together information largely overlooked or mostly undiscovered by the layperson and scholar alike. A truly ground-breaking work, Mr. Alexander presents evidence to construct an exceedingly sound argument for why today's wildly overpriced stock market not only cannot continue its pace of manic gains but why stocks (as measured by the S&P 500) are so richly priced that prices are not likely to exceed by any significant degree 1999-2000 all-time highs for the better part of the next generation.

If you are the typical bubblehead, looking for a stock tip or two to make a quick buck, you will not get from this book a list of stocks that will triple in three months; but it is this kind of market participant, given the behavior of recent years, who needs the information in this book more than most.

For the long-term investor, especially the tens of millions of Baby Boomers retiring (or planning to) en masse in the next several decades, the information contained in this book is indespensible to your financial future.

For professional money managers and academics, save for Professor Brian Berry's "Long-Wave Rhythms" and Robert Shiller's "Irrational Exuberance", there are few books in recent memory that do such an excellent job in presenting follow-on research to the heretofore largely dismissed (wrongly so , I hasten to add) foundational work of the Russian economist Kondratieff and the subsequent analytical research since the 1930s-40s (Schumpeter, et al.) that has come to be known as the Long Wave.

If you are interested in a serious, unbiased, quantitative, and historical examination of the dynamics of long-term stock market cycles, Mr. Alexander has created what I am convinced is the definitive work to date.

10 of 11 people found the following review helpful:

4.0 out of 5 stars The Book I Wish I Had Read 20 Years Ago, January 21, 2001

By 

Kit. Webster (Austin, TX) - See all my reviews

This review is from: Stock Cycles: Why Stocks Won't Beat Money Markets Over the Next Twenty Years (Paperback)

The title of the book reveals one of the conclusions which result from an understanding of the longwaves in the economy and in the stock market. Mr. Alexander does an excellent job of examining the longwave and along the way explaining some of its implications, including why the recent explosion in the Nasdaq was to be expected and not an exception. Since the longwave provides the critical context for long term investing, it is an important tool for long term investors in the equity markets.

The analysis and explanatory work in this book deserve 5 stars. However, I awarded 4 stars because of the lack of discussion of the philosophical and policy implications if one assumes the validity of the longwave.