Book Summary: Bull!

Book: Bull!

Author: Maggie Mahar

Key takeaways: This is one of the few books recommended by Warren Buffett, which is why I picked it up. There are several facets that Mahar details in the book as she chronicles the U.S. bull markets, though the lens I find most interesting is when she looks at them as a function of wealth of the individual investors. I have very few notes here because I made some of them in other places. You should read this book cover to cover.

1961 – 89: Newcomers were becoming the establishment on Wall Street because, because after the crash of 1929, few young men wished to launch their career in finance and thus were no middle-aged left and by the end of 60s half the analysts and salesmen had less than 5 years of experience, never having seen a bear.

Bob Farrell at Merrill Lynch -“A downturn normally has two stages, and investor sentiment goes through two fairly predictable phases,” said Farrell. “First there’s the guillotine stage—the sharp decline. That creates fear. That’s what happened in 1974. Then, the second stage goes more slowly—there’s the feeling of being sandpapered to death. The investor is whipsawed by a choppy market, and then worn down gradually. In place of fear come feelings of apathy, lack of interest, and finally, hopelessness. That is what happened for the rest of the seventies.”

Every bull market finds a new buyer–in ’50s it was the individual investors, in ’60s it was pension and mutual funds, in ’80s it was corporate America itself as it bought back shares or did takeovers, though foreign buyers also played their part.

In 1986, individual investors bought $28 bn of equity funds–1/4th of the $120 bn they poured in fixed-income funds.

1990 – 95: As late as 1992, largest share of 401(k) money remained invested in GICs (guaranteed investment certificates), fixed income investments offered by insurance companies. And why would they go away, in early 80s for example, investors could get double-digit returns from bank CDs. But they warmed up quickly. By 1999, individual investors accounted for 30% of NYSE volume vs. 15% in 1989.

The corporate lobby that beat FASB on options won yet another beltway battle that would encourage “creative accounting.” In December of 1995 Congress passed the Safe Harbor Act, a bill designed to shield both corporations and their accountants against shareholder suits if they misled investors about their earnings. Opponents called it “The Pirate’s Cove Act.” In the past, plaintiffs only had to prove that there was good reason to suspect that wrongdoing might have taken place. But, under this act, plaintiffs needed to show specific facts. Plus, it protected not only corporate officers, but also accounting firms.

 

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