Can we time the market? No, but this timely book by an investment executive and CNBC contributor gives some idea of how various the triggers for its collapse can be.
The five market crashes Nations (The Complete Book of Option Spreads and Combinations, 2014, etc.) chronicles are comparatively recent, the first from 1907, the last from 2010. This lifts some of the predictive power from the author’s argument, since the so-called panic of 1893 was easily as severe as any of its successors, while some of the crashes of the early republican era were similarly devastating. Even so, the overarching points are valuable. Nations points out that investment in the market is key in moving the economy forward and that it has indeed led to individual enrichment; he notes that a dollar invested in 1899 would have been worth nearly $157 at the time of the 2010 hiccup. However, he adds, had we not experienced the ruinous crash of 1907, the whole package would have been worth another $45 or so, and if we had been able to avoid the five worst days of the ever cresting and falling cycle, then that dollar would have been worth $319.24. Nations describes some of the mechanisms for these moments of free fall, ranging from malfeasance in the market to technical glitches in our increasingly prevalent computer-driven trades. Interestingly, some of the market crashes, by the author’s account, were set in motion by the government’s doing the right thing in restraining monopoly, short trades, and other examples of the free market gone bad. Do what we will to avoid them, though, crashes are a function of that market and the people who participate in them, fiscal evidence of uncertainty and fear. As Nations also writes, though the climb back can be agonizingly slow, the market eventually recovers. In an account with more villains than heroes, indifferently written but full of useful object lessons, Nations concludes with the warning that for all that, “it will crash again.”
An eye-opening examination of the many ways money can be made—and disappear.