Irrational Exuberance is an essential for every investor to have.
Before I dig in to the review… I loved this quote so much that I had to share it. It gives a small taste of what Irrational Exuberance is like.
The quote is: “Ultimately, in a free society, we cannot protect people from all the consequences of their own errors. We cannot protect people completely without denying them the possibility of achieving their own fulfillment.
We cannot completely protect society from the effects of the waves of irrational exuberance or irrational pessimism– emotional reactions that are themselves part of the human condition.”
The observations he made are chilling parallels to the great bull market we see right now. All throughout the book are stories and raw data to back up Shiller’s claims.
The book had fascinating outtakes on macro themes, both in the stock market and the broad economy.
I really think all investors should read Ch. 6 and 7 of this book. It should be necessary reading for anyone wanting to jump into the market. I can’t stress this enough.
Chapter 6 is called New Eras and Bubbles Around the World; it examines previous bull markets and draws comparisons to the one he faced at the time of writing.
Chapter 7 is called Psychological Anchors for the Market; it reveals investor behaviors and draws basic conclusions that will open your eyes to reality.
Irrational Exuberance Review
Strength of Argument: 10/10
Easy 10 here, how can I give him any less. The observations were spot on, so was his analysis. You almost couldn’t have called the peak better, but at a time when everyone was so confident it’s not easy to be the bad guy there. Shiller had no problem doing just that.
Like I said above Ch. 6 and 7 take the cake. They are unprecedented, and so insightful. Reminds me of the impact of Ch. 8 from Benjamin Graham’s The Intelligent Investor. Shiller uncovers the faulty mindsets of the investing public and warns repeatedly of the dangers of overvaluation.
Powerful Stories: 9/10
I was drawn into this book right from the beginning. Shiller gives a detailed account of the recent history of the stock market, and extrapolates it back to the beginning of the 20th century. It was like reading a history book about Wall Street, but without all the bore.
The New Eras and Bubbles Around the World was especially powerful, and was part of a fantastic account of the rise and fall of markets. Shiller uses these stories so effectively to teach and educate his readers.
I do admit some parts were lengthy and verbose, but what else do you expect from such a financial expert. On the other hand the book was wonderfully structured and organized to grab your attention and hold it throughout.
I especially was impressed with his concluding words. The quote above was in there, giving the finishing touches to a great work of art. Bravo indeed.
Actionable Content: 9/10
The book was more macro focused, and avoided diving into individual company analysis. While that’s kind of a shame, with Benjamin Graham already covering that space so well it would’ve been a waste anyways.
The biggest actionable take away from the book was to reduce stock exposure at a time of Irrational Exuberance. Taking heed of that advice would have saved many a portfolio.
The X-Factor: 10/10
All of the arguments were presented with a fierce rigor and strength. Shiller piles on the evidence for each of his arguments, enough to make the brainiest academic quiver.
I especially loved the attack on the efficient market theory. Not only does Shiller attack it, but he also disproves and dismisses it. Really fantastic insight.
Near the end of the book Shiller also presents his ideas for fixing the system. You don’t see hardly anyone in his space do this, and he does it well. It’s no wonder that Shiller later won a Nobel Peace Prize.
Required Reading. Period.
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**Irrational Exuberance Book Review**
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