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Book Summary: The Wall Street Waltz

The Wall Street Waltz
by Ken Fisher

Published in 2008 (original edition published in 1987)
John Wiley & Sons

Quick Description:
Coffee-table book of interesting, often hard-to-find, historical charts

My Rating: 74%
(anything over 25% is worth considering; over 50% is recommended; over 90% is highly recommended)

Ken Fisher seems to be somewhat controversial, with some critical of his investing strategies and hard-sell of his advisory and brokerage services. Whatever the case may be, he has done a good job with this book. Originally published in 1987, this updated coffee-table book contains 90 charts, along with (mostly) his original commentary. Unfortunately, only a few charts have been updated; nearly all of them are the original charts, with many plotting data up to the early 1980's only. Overall, I would recommend this book as a fun reference book for casual or amateur investors. After owning it for several months, I find myself flipping through it pages, either to visualize some hard-to-find data, or as a fun read.

Historical Charts They Are

Let me go over what this book is, and isn't.

This is a coffee-table reference book of charts and hence doesn't contain any narrative or deep analysis of the time period. The book contains 90 charts with a page of description for each chart.

This is definitely not the book if you are looking for some up-to-date chart plotting data all the way to 2008. Instead, one should consider this book only if they are interested in historical charts. I suspect professionals will find the book less useful since they may have access to academic/specialized books or some data source like a Bloomberg terminal which can plot these charts. If you don't work in the industry or are an amateur investor, which is what I am, you may find this book benefitial. It would be almost impossible or very expensive for me to gather a diverse set of charts as this book has done.

Time Warp to 1987

Initially I found it annoying and kind of lame, but I found myself liking it after a while. What I am referring to, is the fact that most of the commentary is from the original 1987 edition (before the stock market crash of 1987.) Many pages have a small text bubble with a few sentences updating the situation, but that's about it. It is clearly an attempt to re-publish the book without putting much effort into it. But it actually works well in my opinion.

However, one annoying thing about Fisher's updated comment is that he harps too much on the fact that the Dow Jones Industrial Average (aka DJIA or Dow) is broken. The vast majority of the US stock charts are based on the DJIA and literally every page with an updated comment box repeats how bad the DJIA is. Yes, the fact that it is price-weighted and only contains 30 stocks, can be misleading. Nevertheless, I think many of the observations and conclusions wouldn't change even if you used another index. The peaks and troughs of Dow, instead of say S&P 500, differs but the investing environment doesn't change in most cases.

Given how the book is mostly historical charts, the commentary, written in 1987, has a historical feel to it as well. I don't think this detracts from the book, although it is important to realize how high valuations in the 90's rose, compared to any period before that (the original commentary will also be devoid the technology bubble that was to develop in the 90's.) The author's opinions have radically changed in some cases yet I find it interesting to read what he thought back in 1987. I do not consider Ken Fisher to be a great investor but it's still interesting to see his brief new thoughts versus the original. It seems that Fisher originally, in 1987, was concerned about the market given its seemingly high valuations compared to the past. Yet, in the updated comment (published before the crash of 2008) he dismisses the valuation measures as not meaningful given what has happened in the last 20 years. I suspect he is going to change his view in the future and come to the realization that valuations in the last 20 years were abnormal and the distant past, with some adjustments, is likely to be more representative of reality.

Useful for Macro Investors

Someone with an interest in stock markets may find some of the historical charts fascinating. The charts range from one depicting the railroad bubble in the 1800's to one showing 300+ years of interest rates in Britain. All sorts of subject matter are plotted, with some debunking conventional wisdom while others introduce more questions than anything. There are charts of women's fashion cycle--some may recall the saying that hemlines fall during recessions and rise during booms--and even a chart of sunspots.

Macro investors, as well as those that believe in cycles (such as some Austrian Economics followers and long-term trend traders,) will find this book interesting. Other type of investors probably won't find much to their liking in this book. There are no investing methodologies, strategies, or techniques. Most the charts in the book pertain to share prices, interest rates, or economic measurements from the 1800's and first half of the 1900's. Although the world is not what it was back then, I personally feel that one can learn from history.

Charts You Say?

I have scanned some interesting charts below. This will give an indication of what is contained in this book. The scan isn't perfect but hope you like them. I plan to use a few of the charts in future posts and discuss them in detail. I compressed the images but have kept the resolution high so click on the chart if you want to read the details. Hopefully this won't violate any copyrights (if anything, it promotes the book.) All charts retain their copyrights and belong to their rightful owners (contact the copyright owner if you need to use them for commercial purposes.)

200-year Gold Price (US$ per ounce)

Goldbugs rejoice! Here is your favourite chart: 200 years of the illustrious, shiny, precious, metal known as gold ;) This is an example of a chart that is useful yet shows a shortcoming of the book. The log chart above plots American gold prices in the last 200 years. Unfortunately, like many other charts in this book, it only goes up to 1981 and hence misses out on the collapse of the gold price between 1980 and 2000.

The world was on various hard currency standards in the past so gold did not rise much in the first hundread years. If anything, gold simply preserved the purchasing power and never made one wealthy. Once USA went to a fiat currency, you can see the devaluation of the currency (rise in gold) in the last 30 years.

Although it's hard to tell from this chart, since the collapse gold in the 80's and 90's is missing as well as returns from other assets, gold likely underperforms other assets such as stocks, bonds, and real estate. The problem with gold is that it earns no income. So, in the first 100 years, when gold was roughly flat, it would have preserved its purchasing power but even if stocks, bonds, or real estate stayed flat, their earnings (dividends, share buybacks, interest, rent) would have provided superior returns.

Super-long-term Wholesale Commodity Prices

The above chart essentially shows whole commodity prices during the entire American history. As is generally the case, do keep in mind that there are many ways of measuring a particular item, and different methods and indexes may yield somewhat different results. Also, keep in mind that the popular commodities now are not the same as what they were a hundread years ago (e.g. whale oil, leather, etc.) Again, it's unfortunate that the chart doesn't go up to 2000 and doesn't show the collapse of prices.

What is plotted is wholesale prices, rather than retail prices, but it is likely to be similar in the long run (businesses will tend to pass wholesale inflation onto the consumer.) As you can see, commodities tend to be extremely cyclical, with massive ascents, followed by equally massive collapses. Historically, as the chart tries to point out, commodities have risen during war. The present rise in commodity prices (2000 to 2007) doesn't seem to have been due to a war (unless you consider the Iraqi war, which wasn't much of a war, to be significant.) Instead, the present rise seems to be based on increased demand from emerging markets.

Commodity bulls need to keep this chart in mind (preferably extended to 2000) and realize that commodities have always been cyclical. Although many seem to think that this isn't the case due to emerging markets such as China, India and Brazil, they often forget that Europe, Japan, and USA were emerging after WWII. We also had similar emerging markets in the 1800's. China may be a big emerging market but USA in the 1800's was too. Yet even with this rising country called United States of America, commodities were cyclical back then.

There is one thing, statistically-speaking, that is on the side of commodity bulls. This chart clearly shows that commodities rise for about 20 years (full cycle ranges from around 30 years to 56 years.) So, if history were to be repeat to a large degree, it may be possible for commodities to rise further. Given how the current commodity bull market started around 1998 (botton in oil,) we have had a 10 year bull market. The question is whether it will last another 10 years or have we seen the end of it?

British Interest Rates in the Very Long Term

This is the longest interest rate chart I have seen. It plost the British long-term rates for the last 239 years, up to 1970. Rates rose near the end of the chart and into the 70's due to high inflation (arising from policy mistakes, war in the middle east, etc.) Presently, British rates have fallen due to the deflationary bust in housing.

The important thing I notice is that, in the very long run, rates have stayed between 3% to 5% for the most part. Britain was on the gold standard in various periods (deflation more common under hard currencies) but, even then, the range has been very narrow.

South Seas Bubble

This chart depicts the infamous South Seas bubble. The shares of South Sea Company rose a little more than 5x within one year! It is one of the largest stock market bubbles in human history. I'll probably write this up in a future post.

Could Have Been Better

This book could have been so much better if it were updated to the present and included some new charts. Some of the long-term valuation charts seem to be missing a big chunk of the story, given how the post-1987 world isn't shown. More importantly perhaps, it would have been nice if there were charts of the technology bubble, which the reader could compare against the railroad bubble. It's kind of amazing to realize that the investing landscape in the last 20 years, since the original edition, has been so different. The lack of updated charts misses out on this story.

The book is also printed on "cheap" paper with very little colour (seems like a maximum of 3 colours.) Although it's fine for reference purposes, it isn't quite like the high-quality coffee-table books on travel, photography, or the like.

Final Word

Having said all that, I still recommend this book--not a high recommendation, but more middle of the road--given how it brings together various historical charts, many of them likely impossible for the non-professional to access. The inclusion of several important charts, including the South Sea Bubble and the Railroad boom, makes it worthy enough for a consideration.


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