It has inexplicably become epidemic, among the chattering classes of the 24-hour financial “news” cycle, to refer to the current equity market – with the S&P 500 sitting right on its 15-year average multiple of twelve-month forward consensus earnings – as being in a “bubble.”
This is a view that can only be held by someone whose memory doesn’t extend even a decade and a half into the past, to the wild vogue in technology shares – many of whose leading companies had no earnings, often no revenues, and sometimes no products. Because that was a bubble for the ages, worthy to take an honored place alongside the Tulip Mania and the South Sea Bubble. A select few data: in 1999, the Nasdaq composite index went up 85.6%, after having risen 39% the year before. In the eighteen months to its March 10, 2000 peak, the index actually tripled. It went from 4,000 to 5,000 in just forty-eight days. On that forty-ninth day, it made the spectacular blowoff top which has never since been approached. (For the record, it bottomed on October 10, 2002, at 1,108.)
Other than its accessibility in the very recent past, what distinguishes the tech mania from all other great bubbles of history is that it spawned a genuinely great book by one of its victims. Early in the year 2000, the New Yorker’s highly respected film critic David Denby was informed by his wife that she wished to end their marriage. Needing to divide their assets, but desperate to hold on to their Upper West Side cooperative apartment for himself and his two sons, Denby stumbled deep and then deeper into the moribund mania, with the inevitable consequences. The resulting memoir, American Sucker, is surely the best journal of its kind we will ever have, and it is must reading for every financial advisor.
It is Denby’s refusal either to excuse his descent into financial addiction or to blame anyone but himself for it that elevates this book into the deeply affecting cautionary classic it is. We cannot but care very much about him and his boys, and we are respectful of the sincerity of his motives – and of the lengths to which he goes to try to understand the phenomena in which he is speculating, believing as he does that he is investing, and unable to make the distinction. (Such is the nature of all “new eras.”) Thus, in American Sucker, what might have been a Woody Allen farce becomes something akin to Greek tragedy.
The literature of financial manias and crashes is voluminous, stretching as it does from Charles Mackay’s 1841 classic Extraordinary Popular Delusions and the Madness of Crowds to Rinehart and Rogoff’s definitive (and quite unreadable) This Time Is Different. But there has never been anything like American Sucker. Read it now so you won’t have to re-learn it later.
© 2014 Nick Murray. All rights reserved. Reprinted by permission. Nick highlights new books, articles and research findings in the “Resources” feature of his monthly newsletter, Nick Murray Interactive. To download a sample issue, visit www.nickmurray.com, and click on “Newsletter.”