From the Bookshelf
Yale economics professor Robert Shiller both defends the financial sector and offers suggestions for how it can be improved in “Finance and the Good Society” (Princeton University Press, 2012).
If Shiller’s goal was to provoke thought and discussion, he has done so. He defends the roles of high-frequency traders and market makers, arguing that they bring expertise and create liquidity. He also argues that people place too much emphasis on measuring wealth by currency units (e.g., dollars in one’s bank account), when their focus should be what they can purchase with those dollars.
Shiller is known for his knowledge of asset price bubbles, and he continues his discussion of them in this book. He compares bubbles to “a social mental illness.” Shiller further warns that they are hard to identify because changes in price-earnings ratios don’t prove that bubbles exist.
This book is worth reading for its commentary on behavioral finance alone. It may anger some readers, but it does provide a different perspective on the financial markets and the characters who make it function on a daily basis.
Joshua Brown gives a skeptical, behind-the-scenes look at how stock ideas and investment products are sold to individual investors in “Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments” (McGraw-Hill, 2012).
The publisher of the blog The Reformed Broker relies heavily on his past experience, openly admitting, “As a retail broker, I spent a decade learning what not to do.” He goes into great detail about how brokers are compensated and why this often hurts investors’ long-term returns. He also reveals industry secrets about why men are sold to more often than women and how sales pitches are designed to either sell an investment or to get a prospective client to hang up the phone.
This book provides a great warning guide of what to look out for, as well as giving insight into how an adviser should act. It won’t make you a fan of Wall Street, but will help you identify aggressive sales tactics.