A Decade of Delusions: From Speculative Contagion to the Great Recession

482 Pages·2011·2.37 MB·English

by  Frank K. Martin, John C. Bogle

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A Decade
of Delusions
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A Decade
of Delusions
From Speculative Contagion
to the Great Recession
Frank K. Martin
John Wiley & Sons, Inc.
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Copyright © 2011 by Frank K. Martin. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Martin, Frank K.
A decade of delusions : from speculative contagion to the great recession /
Frank K. Martin.
p. cm.
Includes index.
ISBN 978-1-118-00456-2 (cloth); ISBN 978-1-118-07814-3 (ebk);
ISBN 978-1-118-07815-0 (ebk); ISBN 978-1-118-07816-7 (ebk)
1. Investments—United States. 2. Finance—United States—History—
21st century. 3. Financial crises—United States. 4. Speculation—United States.
I. Title.
HG4910.M349 2011
332.60973—dc22
2011004110
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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May the few who profi t from this book be
mindful of the many who cannot.
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Contents
Foreword xi
Preface xvii
Chapter 1 Lead Us Not into Temptation 1
May Reason Prevail 2
Patience and Persistence 6
The Dean of Wall Street Revisited 12
The Investor’s Dilemma 19
It’s a Numbers Game 20
The Supremacy of Earnings 22
“Stealth Compensation” 36
Conclusion 42
Chapter 2 Techno Babble, Techno Bubble 43
A Tale of Two Markets 45
Back to the Future? 53
Warren Buffett on the Stock Market 58
Is the Internet the Answer? 65
What’s a Long-Term Investor to Do? 68
Investment Redefi ned 69
vii
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viii contents
Chapter 3 “Pop!!”.com 75
Risk: No Longer an Afterthought 76
Investment Strategy: Is It Time for Technology? 83
Is There a Snowball Rolling Our Way, Gathering
Mass and Speed? 87
The Art/Science of Managing Risk 88
Baby Boomers: Whither Goest Thou? 99
The Internet and IPO Frenzy 100
Fool’s Gold 101
Goliaths Slain 102
Chapter 4 Swimming against the Current 113
Prelude to Our Investment “Strategy” 116
Interest Rates: It Had Better Be Uphill from Here 127
The Power of Popular Delusions 131
The Mind of Crowds 139
Investment Consultants: The Great Middleman Myth 142
Chapter 5 The “Greenspan Put” . . . Again 145
Investment Strategy 146
The Reckoning 149
Sober in the Morning 151
Micro versus Macro 151
The Margin-of-Safety Paradox 153
Waiting Patiently for Those Hanging Curves 154
Chapter 6 Only Fools Rush In 159
The Rogues Gallery, 2003 Vintage 160
Making Progress in the Post-Bubble Environment 164
How Did We Get Here in the First Place? 171
The Apogee of the Mutual-Fund Boom 181
The Great Abdication of Fiduciary Responsibility:
The Defi ned-Contribution Plan 188
Where the Buck Really Stops 192
Chapter 7 Expanding Concern: A Bigger Bubble? 197
Maybe the Markets Are Not Random? 200
A Short History of Financial Euphoria 218
Fully Deluded Earnings: Penance (?) in the
Cuff-Links Cooler 222
Run for the Roses: Of Pawns, Guinea Pigs . . . and
“Retail Investors” 231
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