In my review of
“Financial Bull Riding” by Roger McKinney
I posted on Amazon.co.uk, I gave the book Four Stars.
This means I think it is Good and Well Worth Reading.
Here is my book review.
Can You Use The Austrian Business Cycle Theory For Investing?
This is an interesting book but I intend to start with what I don’t like before explaining why I think it’s well worth reading for some people.
What I Don’t Like
1) It’s written around an analogy of bull riding at a rodeo. I found it more distracting than helpful but then, I know nothing about rodeos.
2) It assumes a level of knowledge of economics, finance and investment. It’s therefore not a book for beginners.
3) Its basic message is “buy low sell high”. I can’t argue with it but I didn’t need to read another book to convince me of the common sense.
4) It doesn’t have anything to say about the current crazy situation with QE and financial repression of interest rates. It’s hard to apply logic when everything is so manipulated.
What I Like
1) I’m deeply cynical of the financial services industry and how it’s always the right time to buy. Either “Prices are high, don’t miss out, you need to ride the upward momentum and don’t worry, this time is different.” or “Yes prices have crashed but that’s exactly why this is the right time to buy.” This book challenges the time in the market argument and the efficient market hypothesis. It argues in favour of timing your investments in shares and bonds.
2) It has a nice summary of economic history. This is a much neglected area and I speak as someone who did A level Economics between 76 and 76 and then a degree in Economics and Accounting between 78 and 81. At least then there was a separate degree in Economic History but I understand that it’s a topic that has disappeared from the curriculum in many places. This is a shame because there’s much to learn from a fair interpretation of history or even from comparing and contrasting two biased versions from the left and right political divide.
3) Austrian economics is neglected in many mainstream economics courses. I never did it and even when I was aware of it, it seemed to get muddled up with Milton Friedman’s monetarist views. This book puts a lot of emphasis on the Austrian Business Cycle Theory (ABCT) that explains how booms and busts occur.
I believe serious investors need to know about Austrian ideas but they need to be read critically. I find the logic very appealing. My problem is that people don’t do what they should do. While ABCT says businesses should switch from preferring labour to labour saving machines as the economy dips, I haven’t seen this happen in practice. Instead I’ve seen cutbacks in employees and capital expenditure when there are clear signs of recession and businesses then wait to invest until confidence is returned.
4) By combining sensible value based ideas (buy low, sell high) and insights from the Austrian Business Cycle Theory, the author comes up with three alternative investments approaches which take notice of timing issues. I’d slipped into the first in the mid 2000s when I found it difficult to be convinced by any arguments of good value. I suffered in the 2008 crash, just as I had in the 2000. In the last couple of years, I’ve moved to the second approach although not as aggressively as I could. The third approach is too much for me but it’s comforting to see my own thoughts echoed by a well researched book.
I recommend the book for any serious investor but I’m deeply worried by the current crazy situation. I believe the book deserves to be part of a much wider set of reading about economics and investment.
I also recommend the following:
Code Red: How to Protect Your Savings from the Coming Crisis
The Death of Money: The Coming Collapse of the International Monetary System
Life After Growth: How the global economy really works – and why 200 years of growth are over
The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy
There’s a lot going on at the moment and history may well show the years from 2008 to 2020 as some kind of monumental turning point. I suspect plenty of people, with the benefit of hindsight are going to ask “why did they do that and not this?”
Good luck with your investments.
It is available to buy from Amazon.co.uk and Amazon.com.
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