Unexpected Returns: Understanding Secular Stock Market ... (ISBN 1879384620)

Investing in Stocks Starts Here:
Ed Easterling gets right to the matter at hand - what actually happens to individual investors and not what is supposed to happen given the vortex of hyporbole one finds in the financial media. Ed un-links actual corporate performance from stock price and shows that stock price has a life of its own. Citing nominal and inflation corrected GDP, for periods from the 60s up to the late 90s, Ed shows that while GDP grows fairly consistently, stock price is all over the place, largely driven by investor sentiment in response to inflation. The key point however, is not so much to game the system, but to understand that the financial services mantra that large cap stocks grow at average 12% per year and small caps grow at 14% per year over any sustained investment period, is not only unproven, but demonstrably proven wrong. Very simply, time alone doesn't do it. Ed's thesis is that there are three sources of return in a stock: stock price appreciation through actual corporate growth, dividends, and increase in P/E. During inflationary or deflationary periods, which are destabilizing, P/E will decline. During sustained periods of annual inflation of 3%, or slightly less, P/E will rise in response to perceived stability. Times are good, investors bid stocks up. It would be difficult in a sustained low-inflation environment to succeed as a relative return investor, because P/Es are near their tops. In such an environment, one must turn to absolute return investing and look for bargains. The book is well illustrated with historical charts and graphs to illustrate the concepts. In addition, Ed's websight, www.crestmontresearch.com provides updated charts. The mother of all charts however, is the "Stock Market Matrix." In this chart, you are invited to pick any historical date and investment span and see for yourself not what shoulda, woulda, coulda happened, but what actually did happen. The results are quite enlightening.

Very good book, with unconventional ideas:
This book brings fresh and unconventional ideas to the table. The author challenges the very popular buy and hold strategy, and presents a very good case on how using it in the next few years might not be very rewarding. His idea is that we are entering a secular bear market, similar to the one that occurred in the 60s-70s. A secular bear market is a long period (10-20 years) where the stock market doesn't perform very well. Although it might have its ups and downs, the buy and hold strategy in this environment leads to ... unexpected returns. As an example, buying and holding in the 60s with a 10-15 year time frame would lead to almost 0% returns. Other reviewers complain that if they listened to the author they would have missed the 2004-2007 bull market. But the author is really trying to say that if you stay invested at all times for the next 10-15 years, you might not gain as much as you are expecting. If, instead, you are trying to capitalize on bull markets, and selling in the bear markets, you're not buying and holding. Many books advocate the buy and hold strategy. I think everyone should at least read some books that challenge this idea, and this one is a very good place to start.

challenging but woth the effort:
I ordered this book after seeing Mr. Easterling on TV because he had reinforced some of my own thoughts and suspicions. Without a doubt the author makes a compelling case for why the U.S. stock and bond markets are likely to underperform for the foreseeable future. This is not an easy or fast read, but definately well worth the time of anyone who wants to understand the fundamentals so they can be better positioned for investing successfully.

Makes me embrace VOLATILITY....Simply I can not put it down:
As an MBA, I always assumed that markets give a fixed return (as we average the returns over a period). I never thought about volatility and economic conditions explicitly. I used to hate volatility as it makes the world uncertain. After reading this book I am embracing volatility and realized that you can make unexpected returns because of the volatility. I used some the techniques I learned in MBA (@Risk, Solver) to come up with financial models and PROBABILITY of returns. Simply I can not put it down.

Excellent Analysis!:
One of my favorites. I'd recommend this book for any novice investor or student of economics. Offers a unique approach to understanding the secular cycles without going into anything unusual such as the kondratieff wave theory. This book provides a good understanding of both, bull and bear markets with excellent supporting data and charts. You may not care for this book if you're overly optimistic or overly bearish.