For most Americans, a 401k plan is their first exposure to investing. Many of us are relying on the stock market to provide for us in our retirement yet at the same time, most of us are afraid of the stock market. It’s a valid concern. How can something so important to our financial future be so completely unpredictable? When Michael Alexander first started investing in the stock market, he noticed that few analysts seemed to have much knowledge of what the market has done in the…
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5.0 out of 5 stars
A Triumph!
This book changed my life! This is a must read for everyone whether you invest in the stock market or not.
Dr. Alexander has tackled one of the most difficult, ambiguous and controversial topics of economics: long wave cycles and their effects on stock market prices. His text along with the more popular “Irrational Exuberance” by Robert Shiller is a highly cautionary perspective on stock market investments. Both books appeared almost simultaneously with the downturn of the market in January 2000. Both books, for different reasons and by different routes, arrived at the conclusion that that the market was grossly overvalued.
Alexander takes a historical approach by looking at the performance of traditional indicators over many decades or even centuries. He analyzes the statistical probability of trends continuing for one, five, ten and twenty years, and then derives relationships that can be used to predict future behavior. One of the more interesting indices developed by Alexander is the P/R or Price/Resources ratio. The Price term is the traditional index of stock prices. The Resource term represents the sum of “plant, equipment, technical knowledge, employee skills, market, position, etc.” that enable the operator to produce a profit. Alexander aggregates and normalizes this value to constant dollars. He then uses the P/R ratio to express whether stocks are over or under valued.
Shiller tends to camouflage his statistics, but makes a much stronger argument for how people think about stock values: When prices are going up, it is easy to get excited about buying; prices rise, excitement rises, and they feed on one another. When prices are going down, people get discouraged, prices fall, people panic and loose faith in the ability of the market to produce future value. While we know and understand this relationship, we get caught up in it all the same.
The second major contribution that Alexander makes to long-term analysis is in tying stock cycles to technology cycles. This section of the text draws heavily on the Kondratiev cycle theory, but it then integrates this analysis into a more contemporary treatment that focuses on innovation and the resulting investment booms. It is easier to discern technology cycles from a historical perspective, and it is probably fair to say that earlier in the industrial revolution, basic changes did not come with the frequency that we are experiencing today. Even so, the telegraph, telephone, telecom and internet investment booms have clearly come one after another to produce the crescendo of investment frenzy that we experienced at the end of the 20th century. That is starting to unwind now, and P/E (or P/R) ratios are beginning to approach, however painfully, something that is closer to a historical norm. What we can’t really know is when the aggregate trend will turn around or how the change will manifest itself.
Alexander does not present a pessimistic view. Indeed, if one were to consider potential energy or resource shortages, economic disparity, agricultural or environmental dislocations, there could be much more room for gloom. On the other hand, he has not fully considered the potential positive effects of biotechnology on agriculture, health and the chemical industry (which is a bit surprising considering his background), the efficient allocation of resources that is resulting from greater accessibility of information or the general synergy in technology that is resulting from the interactions of computational, biological, physical and chemical sciences.
“Stock Cycles” is a highly useful book for anyone interested in technical prognostication about the future movements of markets. It will loose some readers with its charts, equations and generally dry style, but it is a serious and meritorious effort to put some sense into what is an otherwise emotion-driven field. Most readers would probably wish that they had read and heeded the advice from both Alexander and Shiller as soon as the texts appeared.
4.0 out of 5 stars
Interesting Book
Alexander describes his P/R valuation concept to serve as a marker in substitution to P/E, that has (nowadays) jumped to astronomical values, difficulting the…
The title of the book reveals one of the conclusions which result from an understanding of the longwaves in the economy and in the stock market. Mr. Alexander does an excellent job of examining the longwave and along the way explaining some of its implications, including why the recent explosion in the Nasdaq was to be expected and not an exception. Since the longwave provides the critical context for long term investing, it is an important tool for long term investors in the equity markets.
The analysis and explanatory work in this book deserve 5 stars. However, I awarded 4 stars because of the lack of discussion of the philosophical and policy implications if one assumes the validity of the longwave.
5.0 out of 5 stars
A great book!
If you are investing long term money without reading this book, then you are doing yourself a big disfavor.
5.0 out of 5 stars
Required Reading for All Investors Young and Old
I wish I read this book five years ago before the bubble broke, I’d have alot more money now if I did. Alas, hindsight is 20/20.
2.0 out of 5 stars
Mind numbing
The author goes on and on detailing the past but drew no sound conclusions. Left me wishing he would just make his point. This book was a tedious read.
2.0 out of 5 stars
Mind numbing
The author goes on and on detailing the past but drew no sound conclusions. Left me wishing he would just make his point. This book was a tedious read.
2.0 out of 5 stars
Author Recently Changed His Mind On Cycle
As he detailed in a 4/14/02 posting at the Longwaves forum (thru Colorado State U., beartopia dot com has the link) author Alexander has changed his mind since publishing this…
5.0 out of 5 stars
Long Wave Cycles Exist
The existence of Long Wave cycles is the most powerful argument as to why “buy and hold” is not always the best investment strategy.
5.0 out of 5 stars
MUST READ – To understand the current investing environment
This book is written in clear language that uses actual historical information to better understand the changing investment environment we are in today.