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The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street

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Most Helpful Favorable Review

2 out of 2 people found this review helpful.

Thank You for Dispelling the Myth

I think it is a very important book for anybody involved in the active money management. I really enjoyed the book because it explains that the rational market theory started as a hypothesis or a scientific model that oversimplified reality. As the model became more p...
I think it is a very important book for anybody involved in the active money management. I really enjoyed the book because it explains that the rational market theory started as a hypothesis or a scientific model that oversimplified reality. As the model became more popular, many of its nuances and assumptions were lost. The rational market hypothesis became a theory.

One of my biggest philosophical difficulties with the efficient market theory is in the fact that it claims that it is not possible to beat the market over the long term. In the past, I was fortunate to work with several top-notch portfolio managers. These managers were able to beat the market over the long term. What separated them from other managers was that they had clear strategies for analyzing and trading stocks. Specifics of these strategies were not common in the industry. It took these managers years to develop their strategies. After they developed the strategies, these investors did not jump around to other strategies, even when prices of stocks in their portfolios were going down. Their innovation in developing their strategies and focus on using their strategies consistently allowed them to outperform the market dramatically over the long term.

Looking at achieving excellence from a wider perspective, I could not understand why people could excel in other endeavors (business, entertainment, sports, etc.) by applying their unique strategy, superior talent, hard work, or a combination thereof. However, according to the efficient market theory in investing one could beat the market in the long run only by chance. In my opinion, Lance Armstrong did not win Tour de France seven times just by chance; and neither did Warren Buffett put up his investment performance by pure luck. Both of them have relied on their long-term strategies and endurance in the face of difficulties to win in their respective fields.

Like in other areas of human pursuit, in investing it is difficult but not impossible for a person or a firm to reach excellence and beat competitors in the process. In my understanding, three necessary conditions for this include identifying a market niche in which one has very deep knowledge, developing a clear and consistent strategy to dominate the niche, and applying this strategy both in good and bad times.

Justin Fox, thank you for writing a stimulating and thought-provoking book!

posted by Vitaly_Veksler on December 11, 2009

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Most Helpful Critical Review

1 out of 4 people found this review helpful.

The Myth Behind The Myth of the Rational Market

A fairly well-written historical analysis of the 20th and early 21st century economy, and presents a persuasive case for increased government intervention in the economy. However, this case is made through omitting certain key pieces of information, and turning the focu...
A fairly well-written historical analysis of the 20th and early 21st century economy, and presents a persuasive case for increased government intervention in the economy. However, this case is made through omitting certain key pieces of information, and turning the focus away from the government--as many a liberal economists do when analyzing recessions. It also follows the outdated economics 1.0 models, by viewing the market as relatively static, while forgetting about innovation and the entrepreneur's key role in the market. I would recommend, rather than reading from the Harvard-MIT liberal economists or even the University of Chicago economists (although they are more enlightened than their east-coast counterparts), reading material from the Austrian school of economics--e.g. F.A. Hayek--as they predicted the recent international recession years before it took place. If you shed light on certain aspects of the economy--part of the focus of this book--you can see how the government seems to swoop in and save the entire country from the greed of the capitalists, giving the case for increased intervention. However, by viewing the whole picture, one can see how statism in the past has not only harmed our economy, but continues to harm the economies and standards of living for people all around the globe living in countries not as economically free as the US and Britain. On its surface, this book seems convincing; but by delving deeper, one can see the fallacies such arguments present (e.g. Keynesian economics and how many theories, such as the broken window theory, focus on the outcomes of certain people and the short-term while forgetting the effect on the entire economy or the long term.). This goes for all of history: if the author or historian focuses on one piece, his argument can always be a convincing one. Therefore, i recommend the following books, in hopes that you enlighten yourself and others around you (Patriot's history seems out of place, but it not so much debunks as it does adds a bigger picture than the neo-Marxist and limited focus of American History presented in People's History). Keep reading America!

posted by Rational_Economist on August 13, 2010

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  • Posted August 13, 2010

    I Also Recommend:

    The Myth Behind The Myth of the Rational Market

    A fairly well-written historical analysis of the 20th and early 21st century economy, and presents a persuasive case for increased government intervention in the economy. However, this case is made through omitting certain key pieces of information, and turning the focus away from the government--as many a liberal economists do when analyzing recessions. It also follows the outdated economics 1.0 models, by viewing the market as relatively static, while forgetting about innovation and the entrepreneur's key role in the market. I would recommend, rather than reading from the Harvard-MIT liberal economists or even the University of Chicago economists (although they are more enlightened than their east-coast counterparts), reading material from the Austrian school of economics--e.g. F.A. Hayek--as they predicted the recent international recession years before it took place. If you shed light on certain aspects of the economy--part of the focus of this book--you can see how the government seems to swoop in and save the entire country from the greed of the capitalists, giving the case for increased intervention. However, by viewing the whole picture, one can see how statism in the past has not only harmed our economy, but continues to harm the economies and standards of living for people all around the globe living in countries not as economically free as the US and Britain. On its surface, this book seems convincing; but by delving deeper, one can see the fallacies such arguments present (e.g. Keynesian economics and how many theories, such as the broken window theory, focus on the outcomes of certain people and the short-term while forgetting the effect on the entire economy or the long term.). This goes for all of history: if the author or historian focuses on one piece, his argument can always be a convincing one. Therefore, i recommend the following books, in hopes that you enlighten yourself and others around you (Patriot's history seems out of place, but it not so much debunks as it does adds a bigger picture than the neo-Marxist and limited focus of American History presented in People's History). Keep reading America!

    1 out of 4 people found this review helpful.

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  • Anonymous

    Posted August 24, 2014

    Dusty

    Name: Duster Sweeper<br> Age: eh... l dunno. Between one and two years. <br> Clan: <br> State of business here: <br> Appearance: sleek, silvery gray pelt with perky, gray ears. Tail is practically a fluffy rabbit attached to his bu<_>tt. Js.

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  • Anonymous

    Posted December 3, 2009

    No text was provided for this review.

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