Irrational exuberance – Robert J Shiller

Irrational exuberance – Robert J Shiller

Keeping up on your reading is always a good idea. It allows you to be well informed when you make your career management decisions.

Irrational exuberance – the book discusses the concept of irrational exuberance from many different perspectives. The author tries to explain how bubbles start in financial, real estate and other markets. Some of the information is extremely insightful and allows the informed reader to better understand why these things happen.

What I find with many of these books is that the authors give great insight on the “what” but provide us with very little information on the “how”. What I mean by that is going back and looking at our inclination toward being irrational, what can I do about it and how can I avoid getting caught up?

And most importantly, how do I protect myself while not missing out on opportunities? Let me give you an example of what I mean.

The Trump rally

Right now we are into the Trump stock market rally. The market has risen significantly since the election. It reaches new highs almost daily with the Dow now pushing 21,000. A pretty lofty level.

Now it would seem to me that the market move is somewhat irrational. Trump has promised many things but has delivered on very little. Looking at many of the planned changes, only a few have been implemented. Notwithstanding his assertion that he will “drain the swamp”, he still needs to clear much of his agenda through the US Congress.

So what is my strategy? Do I go with the trend or pullback? Is this a bubble in the making? If Trump fails to carry out his agenda, what happens? Will there be a significant market setback? Don’t know.

This is where the book fails me. It’s all fine and dandy to look back at the past and point out where there has been irrational exuberance. But what is the line between optimistic and delusional?

Career mismanagement

Let’s see if there are any lessons to be learned from this book when I look back at my career.

In the 1980s we saw some pretty exciting times. Financial deregulation/innovation was the norm, rather than the exception. Financial services companies all over the world were hiring record numbers of new employees at pretty hefty salaries. The expectation was that there was more than enough for everyone. Now looking at Shiller’s book, one might come to the conclusion that the 1987 stock market crash and its impact on financial markets was inevitable. But I was there, we were caught up in it.

Banks around the world were setting up investment banking and capital markets divisions. They were all looking for staff and the cost of new hires was being bid forever upwards. It was unsustainable, and it did come to an end.

I spent much of that time period working for organizations that were not committed to the market. When the going got tough, they left town. There’s more to the story on my side, but the bubble did burst for many of those employed in the industry. For many years, it was difficult for many of them to replace their jobs.

So there are lessons to be learned from reading books such as Shiller’s. I only wish that he would provide more information on the “how” rather than the “what’. Perhaps it’s too much to ask.

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