Bull!: A History of the Boom, 1982-1999: What Drove the Breakneck Market -- and What Every Investor Needs to Know About Financial Cycles by Maggie Mahar

From the Publisher

In Bull!, Maggie Mahar tells the sweeping tale of the Great Bull Market of 1982-1999, a legendary run-up that pulled the entire nation into its gravitational field.

Mahar lays out the origins of the boom and takes the reader behind the scenes, on Wall Street, on Main Street, and in Washington, letting him see the story through the eyes of the fund managers, market gurus, analysts, politicians, business journalists, and 401(k) investors who, together, helped create the longest-running bull market in U.S. history. Some were touts; others were true believers. On the sidelines, a Greek Chorus of seasoned professionals tried, vainly, to describe the emperor's new clothes.

Filled with colorful portraits of many of the central figures of the boom years-Alan Greenspan, Henry Blodget, James Cramer, Abby Joseph Cohen-Bull! draws together a complex cast of characters, illuminating the web of relationships that kept the market aloft.

More than a financial history, Bull! is a lively, often witty social history of the stock market that became a part of popular culture. It is also the tale of individual investors, which chronicles the intimate stories of ordinary people-housewives and college professors, salesmen and waitresses-who got caught up in the excitement and then watched their life savings drain away.

How did it happen that the very real risks of investing in stocks were forgotten? Mahar explodes the myth of "stocks for the long run," explaining how the market's promoters crunched the numbers to create the illusion that if an investor stays in the casino just a little longer, he is guaranteed to come out a winner. Casting Warren Buffett in a new light, she explains how a value investor is, in the end, a long-term market timer who understands that success depends on how much you pay when you get into the market-and when you get out. By putting the bull market of 1982-1999 in a larger historical context, she shows how, over time, longtime bull markets beget longtime bear markets.

The future defies prediction, but the history of financial markets makes one thing clear: markets always revert to a mean. Taken as a single story, Bull! is both an illuminating history and a cautionary tale about investing. Analyzing the economic and psychological forces that drive financial cycles, Mahar shows how an extraordinary influx of cash and credit, combined with the obsessive attention of a new financial media, created a cult of equities. Challenging the notion that stocks always outperform all other investments, she reveals why many of Wall Street's most experienced investors believe that the 21st-century investor needs to throw out the old rule book and make a new beginning as he plans for his financial future.

No investor should keep his or her money in the stock market without first reading this book.

The New York Times

Mahar's focus is not on corporate corruption, but on the enablers who cheered on false business heroes and made the corruption possible. Though she tries to frame the book as an investment guide, it reads more naturally as an indictment of stock analysts and the financial media. What I learned -- something I didn't fully appreciate before -- was the extent to which the stock market bubble of the 1990's was supported by intimidation as well as exuberance. — Paul Krugman

Financial Times

Lays bare some of the fallacies of the bull market. Investors should lay it down, like a fine wine a reread it the next time a bull market is in full swing.

Publishers Weekly

Financial journalist Mahar offers a thorough and accessible history of the explosive 1982-1999 bull market that is illuminating as well as sobering from the current bear market persspective. She notes that most people swept up in the euphoria of this latest market surge failed to recall the lessons of 1929-1934 and 1970-1974, when earlier bubbles collapsed and investors lost heavily. Citing studies by esteemed economists John Kenneth Galbraith and Charles Kindleberger, Mahar reminds readers that this self-blinding euphoria is a regular feature of every bull market. In vivid detail, she documents the trends and outsized personalities that fueled this particular bull market, including the surge of leveraged buyouts of 1984-1987, the mania for junk bonds, falling short-term interest rates, the rush of individual investors into 401(k) retirement plans, the power (and appetites) of mutual funds and the media frenzy that lent an unlikely allure to quarterly corporate earnings reports. As the runup in stock prices gained momentum in the late 1990s while evidence of corporate accounting shenanigans mounted, Mahar's account assumes the compelling power of an oncoming train wreck. Survivors of the recent market meltdown can profit from Mahar's assertion: "Ultimately, secular bear markets teach investors to learn to manage risk in a different way, focusing not on the odds, but on the size of risk." Individual investors will also gather that they need to be more skeptical of some sources of "information" and to be much better informed not to be burned again. Charts. (Nov.) Forecast: National broadcast and media campaigns (including a 25-city national radio and 15-city NPR) will grab the attention of investors, and Mahar's unblinking assessment of the self-delusions rampant during a bull market will help many understand how the golden egg they thought they held now has begun to smell rotten. Copyright 2003 Reed Business Information.

Library Journal

Financial journalist Mahar has written a comprehensive history of the 1982-99 bull market in U.S. stocks. She explains that this bull market got its initial impetus from both the undervaluation of equities during the 1970s and the end of the Cold War. The market was then fueled by the introduction of individual retirement accounts and the tendency of their owners to invest in equities. Stimulating these new investors was the advent of CNBC and other popular investment media. The media provided a forum for brokerage firms and their analysts to trumpet the benefits of equity investments, and corporations added to the boom in their stocks by creative and sometimes illegal accounting methods. Though expressing concern about stock market exuberance, Federal Reserve Chairman Alan Greenspan nevertheless cooperated by providing the monetary support needed for the bull market to continue. Mahar concludes by summarizing how investors who haven't seen a bear market for 17 years might plan their investing strategies. Mahar takes complicated topics and explains them clearly for the average reader. Her exceptional book is most highly recommended to even the smallest public or academic library.-Lawrence R. Maxted, Gannon Univ., Erie, PA Copyright 2003 Reed Business Information.

Product Details

• Table of Contents
• Interviews & Essays
• Read a Sample Chapter

Table of Contents

Interviews & Essays

For nearly two decades, individual investors have been told that the safest way to invest is to buy stocks for the long run. Over time, they were promised, returns on U.S. stocks always beat all other investments.

Now investors are recognizing that it's not quite that simple. Everything depends on when you get into the market -- and when you get out. If you buy when stocks are cheap, you can do very well. If you buy when they are expensive and then hit a bear market, it can take years to make up for your losses.

Investors are also beginning to realize that stocks don't always outpace other investments. In the '80s and '90s,while everyone was talking about stocks, bonds were quietly enjoying their own magnificent bull market. In fact, if an investor had put half of his savings in long-term Treasuries in September 1980 and half into the S&P 500, by March 2003 he would have found that the two portfolios had done equally well.

Even going back 34 years, from February 1969 through March 2003, stocks outperformed long-term Treasuries by only 1 percent a year. That 1 percent would add up over time, but still, it's hardly a rich payoff for the extra risk involved in buying stocks -- not to mention the fees and commissions an investor pays when buying stocks or stock funds. By contrast, the fellow who bought 30-year U.S. bonds in 1969 could tuck them away, knowing with certainty that at the end of the 30 years, he was guaranteed to get his money back -- plus the promised interest.

Of course, if the stock investor who bought the S&P 500 in 1969 had the foresight to sell before the bear market started -- say, in 1999 -- he would have done far better than the fellow who bought bonds. But again, everything depends on exactly when an investor gets in and when he gets out. Buying and holding for 30 years is not enough. It has to be the right 30 years.

That applies to all investments -- not just stocks but bonds, real estate, oil, foreign stocks -- anything you might name. Seasoned investors realize that the trick is to get in when that particular asset class is cheap -- and to get out before it turns into a bubble.

Experienced investors also know that here is always someplace in the world to make money. And these days they are looking around, trying to spot the beginning of the next long-term bull market. They recognize that U.S. stocks and bonds have just had a very good long run -- now it's time for other investments to have their day in the sun.

In Bull! some of my sources recommend commodities -- metals, natural gas, oil, and grains -- as an alternative to stocks and bonds. Some talk about China and other emerging markets as a good bet for the long term. Many predict that the dollar will continue to slide, making both gold and other currencies more attractive.

Finally, experienced investors are paying far more attention to investments that pay dividends. These days, dividends of more than, say, 2 percent are rare -- and what is rare is always valuable.

Without question, the 21st-century investor faces challenges. The rules of the game have changed. When a bubble bursts, markets can be very volatile, and often they trade sideways for a very long time. In the final chapters of Bull!, many of my sources argue that in 2003, the S&P 500 is still too expensive, and dividends too low, to make the potential rewards worth the risk.

This is why they emphasize alternative investments. The only way to reduce risk is to diversify. Stocks alone are not enough -- and bonds are not the only alternative. Maggie Mahar

Read a Sample Chapter

January 1975. When Richard Russell squinted, he saw the silhouette of a bull emerging against a bleak horizon. The author of Richard Russell's Dow Theory Letter, Russell had been writing his financial newsletter since 1958, and by now he had a wide following -- at least among those still willing to read about stocks. Over the past two years, the Dow Jones Industrial Average had lost nearly half of its value.

The Dow had last seen blue skies in 1966 when it grazed 1000. Two years later, it flirted with 1000 again, but in fact, the bull market that began in the fifties was peaking -- much as the bull market that began in the eighties peaked at the end of the nineties.

After reaching its apex in the late sixties, the Dow rallied and plunged, rallied and plunged without getting anywhere -- until finally, in January of 1973, the benchmark index smashed 1000, setting a new high at 1051.69. It seemed that a new bull market had begun. In fact, the bear was just baiting investors, luring them in so that they could be impaled on the spike of a final bear market rally. What followed was the crash of 1973–74.

When it was all over, in December of 1974, both the Dow and the S&P 500 had been slashed nearly in half; trading volume had all but dried up; mutual fund managers were grateful to find jobs as bartenders and taxi-cabdrivers, and Morgan Guaranty, the nation's largest pension-fund manager, had lost an estimated two-thirds of its clients' money. As for individual investors, the public was shorn. Between December of 1968 and October of 1974, the average stock had lost 70 percent of its value.

Nonetheless, at the beginning of 1975, Richard Russell could all but hear the bull snorting. At last, he believed, the bear market had bottomed. And he was right, just as he would be in the fall of 1999, when he warned readers that the first phase of a bear market had begun. By then, Richard Russell's Dow Theory Letter was the oldest and one of the most widely read financial newsletters in the United States.

Russell based his predictions on "Dow Theory," an analysis of stock market cycles invented by William Peter Hamilton and Charles Dow. (Co-founder of Dow Jones & Company, Charles Dow also lent his name to the benchmark stock market index.) At the end of the century many investors would assume that "market timing" meant day trading, buying and selling stocks in a matter of hours, days, or, at most, months. But Dow Theory does not attempt to predict the highs and lows of particular stocks, nor does it strain to forecast the market's short-term gyrations. Instead, it focuses on longer trends -- cycles that can last for years. Each cycle is the peculiar product of a particular moment in economic and political history, but in Dow's view the force behind each go-round was the same: human nature.

Most descriptions of investor psychology reduce human behavior to a series of simple knee-jerk reactions: rampant greed followed by blind fear. Charles Dow sketched something subtler in The Wall Street Journal editorials that he wrote between 1899 and 1902. He recognized that investors do not rush into a bull market, and when it ends they do not swoon in surrender to the bear. Both bull and bear cycles begin slowly, he observed, because "[t]here is always a disposition in people's minds to think the existing conditions will be permanent. When the market is down and dull, it is hard to make people believe that this is the prelude to a period of activity and advance. When prices are up and the country is prosperous," Dow added, "it is always said that while preceding booms have not lasted ... [this time there are] 'unique circumstances' [which will make prosperity permanent]."

Because human beings are slow to embrace change, these cycles can run a decade, or longer. In fact, as Gail Dudack, chief market strategist at SunGard Institutional Brokerage, shows in the table below, the history of the S&P 500 from 1982 through 1999 can be broken down into alternating "strong" and "weak" cycles that average nearly 15 years. During the booms, investors who plowed their dividends back into their portfolios reaped returns averaging nearly 18 percent a year -- even after adjusting for inflation. During the dry spells, by contrast, average "real" (inflation-adjusted) total returns dropped to less than 2 percent. Without dividends, investors lost nearly 3 percent a year.

In the final third of the twentieth century, the market's returns fit the pattern with ruthless precision: from January 1967 through December 1982, investors averaged 0.2 percent annually -- and that was if they reinvested their dividends. Those who became discouraged and stopped plowing their dividends back into the market lost an average of nearly 4 percent a year -- year after year, for 16 years. Finally, in 1982, the cycle turned: from January 1983 through December 1999, real returns averaged 12.1 percent. If an investor reinvested his dividends, he was rewarded with annual returns of 15.7 percent.

"Few investors realize how much dividends have contributed to the stock market's performance," Dudack observed. "Nor does the public realize that in this century, there have been three separate periods, ranging from 16 to 20 years, when inflation-adjusted capital gains on the S&P have been negative."

Inevitably, any attempt to break the past down into cycles involves choosing beginning and ending points that are, to some degree, arbitrary. Others might well divide the market's cycles somewhat differently. But virtually every market historian agrees on the larger picture: the history of the market is a story of bull and bear markets that take place against a backdrop of much longer waves ...