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35 of 35 people found the following review helpful:
5.0 out of 5 stars
A must-read for anyone in the stock market, October 28, 2000
This review is from: The Trouble With Prosperity: A Contrarian's Tale of Boom, Bust, and Speculation (Paperback)
When I first started investing in stocks, I read two financial books with two very different slants on the markets. The first was Peter Lynch's "One Up on Wall Street" - a breezy, everyone-can-do-it, "buy what you know" feel-good primer. The second was this book, James Grant's "The Trouble With Prosperity", a real wake-up call to anyone who thinks that investing is easy, stocks ought to go up forever, and that the good times will always last. My investing life was probably spared several times over by Grant's book. Let me spill the beans right here: the trouble with prosperity, in Grant's view, is that people begin believing it will never end. As a result, financial decisions begin to be made - both by individuals and by institutions - during prosperous times that are based on too rosy a view of the future. When reality sets in and conditions turn out not as expected, those poor decisions end up creating imbalances in the markets that need to be corrected before economic health can begin anew. So lenders made more and more unwise loans in the late 80's... leading to a banking crisis. Real estate values rise on speculation and then crash. We are seeing at this writing some wrenching corrections and volatility in tech stocks based on too-optimistic views of their future earnings. And the list goes on. Grant's view of the corrections are that they are painful but necessary, sort of like the occasional brush fire that clears out the old undergrowth and allows for new growth to begin again. His is an urgently needed message in an age of electronic brokers and cheerleading financial media. Read and heed what Grant has to say to help guard against your own 'irrational exuberance' in whatever market you are in and to help see your financial future in light of both prosperous times and their inevitable corrections.
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6 of 6 people found the following review helpful:
4.0 out of 5 stars
Superb book that explains financial markets, June 15, 1998
This review is from: The Trouble With Prosperity: A Contrarian's Tale of Boom, Bust, and Speculation (Paperback)
A great book. If you really want to understand how an economy functions, read this book. Explains, amongst other things, the currently flaccid state of the Japanese economy, and the issues with having the government (through the Federal Reserve) set interest rates. Also writes about historical precedents..remember the old saw about learning from history? An engaging, informative read.
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5 of 5 people found the following review helpful:
4.0 out of 5 stars
Grant Was Right, January 10, 2003
This review is from: The Trouble With Prosperity: A Contrarian's Tale of Boom, Bust, and Speculation (Paperback)
According to James Grant, this is what goes wrong during good times: "Of all the consequences of sustained prosperity, none is so powerful as the delusion that markets always go up." Not many people wanted to hear that when it was first published in 1996. Which is probably why he added this redundancy: "They do not always go up." Grant chronicles periods of boom and bust. He is effective at this. For example, he quotes The Journal of Commerce during a bear market in 1952: "Many bankers visualize a return to the conditions of 150 years ago, when many sections of Wall Street and environs were residential and retailing districts." It's difficult to imagine that Wall Streeters would be that bleak. It's also difficult to imagine that investors would be as unrealistic as they were in the 1990s: "In response to warnings that dividend yields were too low, or that price-earnings yields were too high, the public only invested more, thereby sending yields even lower and price-earnings multiples higher." Four years after Grant wrote that the S&P 500 began to decline. The Trouble with Prosperity is not a "how to get rich book" for "dummies" or "idiots." This is a serious discussion of financial history which gets heady at times. For instance, the author applies theory from the Austrian school of economics. "In the Austrians' judgment," he explains, "there is one principal source of collective error: interest rates. Set them too low and people will overreach." The central bank is the culprit. "The quarrel I have with the Federal Reserve", proclaims Grant, "is not so much that it creates credit as that it pretends to know the interest rate at which that credit (in the form of bank reserves) should be lent and borrowed." Alan Greenspan, in other words, is not omniscient. James Grant is not a cheerleader for the stock market. He is a genuine contrarian, a skillful writer, and he was right.
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