The Asset Magazine

Book review: Wild Gyrations - Crises really are opportunities

The Asset July / August 2009 by Daniel Yu

In Market Panic, Wild Gyrations, Risks and Opportunities in Stock Markets (John Wiley & Sons, second edition, February 2009), veteran business journalist and editor, Stephen Vines, applies his sober and at times cynical mind to demystify the world of finance. By cowering in fear as a knee-jerk reaction to a crisis, Vines argues that we tend to miss the opportunity in a crisis. “The more I read and the more I studied the data, one thing became staggeringly clear: it is far easier to know what to do when a market falls into a crisis than it is to know when to buy and sell shares at other times,” he writes.

 
This is the essence of Vines’ book – an attempt to explain market panics in plain language and, more to the point, why market meltdowns, such as the one we are witnessing, are buying opportunities. “The basic certainty is that any market suffering a profound fall will, often quite quickly, enjoy a substantial recovery. It could even be said that market crises are almost designed as buying opportunities, yet much of the literature on investing is devoted to telling investors how to avoid getting burned at times of crisis,” he opines.
 
Vines touches on a wide range of panics in this book including a whole chapter at the beginning dedicated to the 2008 crash. While much has been written and analyzed about this current crisis, his approach is less emotional and has that matter-of-fact tone debunking popular views on how severe this crisis has been and certainly how similar it has been relative to what has been experienced in modern financial history.
 
For example, while it is true that in cash terms the losses incurred in this crisis are far larger than previous meltdowns, in percentage terms markets actually fell more sharply in 1987. The size of the losses today, he explains, is a function of globalization, especially with Asia and its stockmarkets increasingly integrated to the global financial system. Another interesting comment is that the concept of securitization, a form of repackaging of loans and the so-called investment trusts – chronicled extensively by the economist John Kenneth Galbraith in his excellent book The Crash of 1929 – contributed to the wholesale speculation that eventually led on to the panic of 1929.
 
At a time when the world is gripped in fear, Vines book is a welcome addition to the literature on the history of modern finance. The concepts he raised in the book are not earth-shattering, but backed by solid research they are a reminder that amidst the gloom and doom of the past 18 months, there is that silver lining. To those able to see it, the greatest investment opportunities just lie ahead. 
 


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