Sunday, October 21, 2012

Book Review: Markets Never Forget (But People Do)

Markets Never Forget (But People Do) (2011) by Ken Fisher

This book can be considered a sequel to the author's previous book, Debunkery, which I read and reviewed earlier this year. The main thesis of this book is that people tend to forget about (or ignore) market history, which results in misconceptions and improbable projections about the relationship between market performance and various economic and political factors. To give some examples from the book:
  • In the past few years there has been plenty of talk about the risk of a "double-dip recession," even though it is an improbable event, reflecting less than 10% of past recessions.
  • People tend to forget that major drops in the market are often followed soon after by strong rebounds, producing a V-shaped pattern.
  • Even though the market's average annual return has been around 10%, it is actually rare for the return in a given year to be around 10%.
  • If you are a perma-bear, then you will be wrong more often than right because the market has positive annual returns about two-thirds of the time.
There is also discussion of the market in relation to volatility, government debt, politics, globalization, and other issues. I disliked the chapter on politics; even though I agree with some of the author's views, he expresses them in a harsh and unprofessional manner that drags the book down to a lower level. Putting that aside, I think the book shows that a knowledge of market history can be useful for dispelling some of the misconceptions and improbabilities promulgated by the media and pundits.

Note: I read this book in September 2012.

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