It is not the first time that we deal with the issue of financial bubbles in this blog. We already saw the Investor Psychology on Bubbles and Crashes y os conté my experience investing in Terra during the dotcom bubble. The book that I am going to talk about now was one of the few capable of analyzing the dot-com bubble from a rational point of view and anticipating its disastrous consequences. In this article I will analyze and give my opinion on the now historical book Irrational Exuberance by Robert Shiller.
Irrational exuberance datasheet
- Title: Irrational Exuberance
- Authors: Robert J. Shiller
- Publisher: Turner Publications
- Año: 2.000
- Page: 330
Analysis and opinion of irrational exuberance
As always, before I start to analyze a book, I like to briefly talk about its author. Robert Shiller is an American economist, professor at the CAPE o PER10 (also called Shiller's PER) to determine if the market was overvalued or undervalued.
Unlike the Chicago school economists who advocate efficient markets, Shiller incorporates psychological, sociological, and cultural factors into his analyzes to explain the behavior of markets. For this author, not all individuals who operate in the market act rationally, but rather are influenced by other factors that are quite far from rationality and objectivity.
The expression "irrational exuberance" was coined by Alan Greenspan, president of the US Federal Reserve between 1.987 and 2.006. Robert Shiller defines irrational exuberance as “the positive thinking of investors that, due to their very characteristics, prevents them from seeing the real situation”.
The book was published right in the middle of the dot-com bubble, shortly before its burst. In it, some of its causes are analyzed, among which we can highlight:
- Technological and demographic factors
- Cultural factors
- Psychological factors
- Support from academics and the media
As Robert Shiller correctly predicted, the dot-com bubble ended up bursting and taking the savings of many investors (although we should rather call them speculators) ahead. Fortunately, the few who listened to him would end up almost unharmed, for which I suppose they will be grateful to him even today.
The book is packed with charts, studies, and historical analysis. You can see that its author is a professor at Yale University, due to the way he analyzes the data and the clarity with which he expresses his ideas.
Irrational Exuberance Assessment
Irrational Exuberance is a book full of history, analysis and common sense in equal measure.
- Score: 8
- Medium level
- Recommended for: People who want to better understand the movements and history of the stock market from an analytical point of view.
Buy the book "Irrational Exuberance" on Amazon