Wednesday, October 12, 2016

Triumph of the Optimists

Triumph of the Optimists is one of the driest books I've ever read. It felt like a reference textbook, and with that asking price, I'm sure it was intended as such. (Amazing how this industry is able to charge whatever it wants for a book simply as a result of a book becoming required for a course as stipulated by a professor, who is sometimes the author!)

And yet its content is very interesting. The book goes through one hundred years of stock market returns in a number of countries, and documents the results in a large collection of tables, graphs, charts and text. To me, it provided a good hint of which countries have may be the most shareholder friendly. Perhaps the outperforming countries have some sort formula that increases shareholder value (rule of law, property rights, a culture of entrepreneurship etc.) and so these returns may serve as a relative guide going forward, or perhaps not.

I didn't find the authors' discussions to add much value, however. Their definition of risk is volatility, which made a lot of their conclusions meaningless to me. They also spend a lot of time trying to discover a single number to serve as an equity risk premium, which I view as a rather fruitless exercise. Finally, I'm almost a couple of decades late reading this thing, as the measurement period stops in the year 2000.

Overall, however, it's an informative read, if only for the investor to get a good idea of what real returns in the past have looked like for bonds and stocks, as they are perhaps the best guide to what one can expect going forward.


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