Boombustology

The new, fully-updated edition of the respected guide to understanding financial extremes, evaluating investment opportunities, and identifying future bubbles

Now in its second edition, Boombustology is an authoritative, up-to-date guide on the history of booms, busts, and financial cycles. Engaging and accessible, this popular book helps investors, policymakers, and analysts navigate the radical uncertainty that plagues today’s uncertain investing and economic environment. Author Vikram Mansharamani, an experienced global equity investor and prominent Harvard University lecturer, presents his multi-disciplinary framework for identifying financial bubbles before they burst. Moving beyond the typical view of booms and busts as primarily economic occurrences, this innovative book offers a multidisciplinary approach that utilizes microeconomic, macroeconomic, psychological, political, and biological lenses to spot unsustainable dynamics. It gives the reader insights into the dynamics that cause soaring financial markets to crash. Cases studies range from the 17^th Century Dutch tulip mania to the more recent US housing collapse.

The numerous cross-currents driving today’s markets—trade wars, inverted yield curves, currency wars, economic slowdowns, dangerous debt dynamics, populism, nationalism, as well as the general uncertainties in the global economy—demand that investors, policymakers, and analysts be on the lookout for a forthcoming recession, market correction, or worse.

An essential resource for anyone interested in financial markets, the second edition of Boombustology:

• Adopts multiple lenses to understand the dynamics of booms, busts, bubbles, manias, crashes
• Utilizes the common characteristics of past bubbles to assist in identifying future financial extremes
• Presents a set of practical indicators that point to a financial bubble, enabling readers to gauge the likelihood of an unsustainable boom
• Offers two new chapters that analyze the long-term prospects for Indian markets and the distortions being caused by the passive investing boom
• Includes a new foreword by James Grant, legendary editor of Grant's Interest Rate Observer

A comprehensive exploration of how bubbles form and why they burst, Boombustology, 2^nd Edition is packed with a wealth of new and updated information for individual and institutional investors, academics, students, policymakers, risk-managers, and corporate managers alike.

Foreword

Foreword to the First Edition

Preface Is There a Bubble in Boom–Bust Books?

Acknowledgments

Introduction The Study of Financial Extremes: One-Armed Analysts, Secrets, and Mysteries

Part I Five Lenses

Chapter 1 Microeconomic Perspectives: To Equilibrium or Not?

Chapter 2 Macroeconomic Perspectives: The Impact of Debt, Deflation, and Mispriced Money on Asset Markets

Chapter 3 The Psychology Lens: Homo Economicus Meets Homo Sapiens

Chapter 4 Political Foundations: Evaluating Property Rights, Price Mechanisms, and Political Distortions

Chapter 5 Biological Frameworks: Epidemiology and Emergence

Part II Historical Case Studies

Chapter 6 Tulipomania: A Bubble in Seventeenth-Century Holland

Chapter 7 The Great Depression: From Roaring Twenties to Yawning Thirties

Chapter 8 The Japanese Boom and Bust: A Credit-Fueled Bubble Economy

Chapter 9 The Asian Financial Crisis: The Mirage of a Miracle

Chapter 10 The U.S. Housing Boom and Bust: The Homeowner’s Society Creates the People’s Panic

Chapter 11 China’s Credit-Fueled Investment Boom

Part III Looking Ahead

Chapter 12 Spotting Bubbles Before They Burst: A Method for Identifying Unsustainable Booms

Chapter 13 Boombustology in Action: Is India Next?

Conclusion Hedgehogs, Foxes, and the Dangers of Making Predictions

Addendum A Passive Investing Bubble?

About the Author

Index

VIKRAM MANSHARAMANI is an experienced global equity investor and a lecturer at Harvard University. Previously, he taught a seminar called "Financial Booms and Busts" to undergraduates at Yale University. Mansharamani has a PhD and MS from the MIT Sloan School of Management, an MS in political science from the MIT Security Studies Program, and a BA from Yale University. He lives in Lexington, Massachusetts.

The revised second edition of Boombustology is an important guide for understanding the history of various booms and busts and the cyclical nature of financial markets. In this updated edition of his popular book, noted academic Vikram Mansharamani outlines a multi-disciplinary framework for identifying financial bubbles before they burst. From the madness of the seventeenth century's tulip mania in Holland to the United States' crippling housing collapse in 2008, the book explores the elements that caused once soaring markets to come crashing down. Boombustology offers a robust framework that helps readers understand the dynamics that precede, fuel, and ultimately reverse financial market extremes. Perhaps most usefully, the book includes a set of indicators that readers can apply to identify future booms that may prove unsustainable.

The book is a comprehensive, information-packed exploration of how bubbles form as well as the causes and circumstances that lead to their demise. Mansharamani eschews the typical view of booms and busts as primarily economic phenomena and adopts a wide-ranging approach that embraces the lenses of microeconomics, macroeconomics, psychology, politics, and biology. The author summarizes his approach in a practical framework for identifying bubbles before they burst. He pinpoints the key indicators of a financial bubble so readers can themselves gauge the likelihood of being in the midst of an unsustainable boom. The author applies the framework to India's currently booming economy. He concludes that the Indian growth story may prove to be unsustainable and that starry-eyed investors should be wary. In addition, the book's addendum contains Mansharamani's thoughts on the highly distortive impact of passive investing. While not strictly an asset bubble, numerous factors indicate the global love affair with passive strategies may be creating highly unsustainable conditions that will prove challenging for investors to navigate when the mania dissipates.

Written in an engaging and accessible style, Boombustology can help investors, policymakers, and analysts better navigate today's turbulent economic environment.

PRAISE FOR BOOMBUSTOLOGY

"Today's markets are increasingly driven by geopolitics; trade, demographics, and natural resources. Context is everything. Boombustology provides an excellent framework for understanding the bigger picture." —PAUL SMITH, President and Chief Executive Officer, CFA Institute

"The financial meltdown that triggered the Great Recession has spawned dozens of books analyzing the violent mood swings of financial markets. What's different about Vikram Mansharamani's Boombustology is that it offers investors fresh insights and practical tools they can use to navigate through choppy markets. Readers will better understand the context of their decisions, and may even find they can harness the power of volatility itself to their advantage." —ROBERT L. REYNOLDS, President and Chief Executive Officer, Putnam Investments

"For decades, the world has oscillated between boom and bust as the siren songs of successive bubbles have grown louder, enticing more investors towards the rocks. By drawing on a series of lessons learned from several great manias, Vikram Mansharamani does a masterful job of giving us a framework to identify these bubbles and, importantly, steer a safe passage through increasingly dangerous waters." —GRANT WILLIAMS, Co-Founder, Real Vision Group

"The Second Edition of Boombustology is that timeless and discerning primer on assets in all their forms from Bitcoin to gold to real estate and paper currency and how they converge on the economic bubbles of our time.'' —MATTHEW WINKLER, Co-Founder and Editor-in-Chief Emeritus, Bloomberg News

"As we move further from the last crisis, a whole generation of new investors has very little perspective on market cycles. Boombustology uses economics, market structure, and unique cultural behaviors to provide vivid explanations of classic bubbles that have occurred around the world and through the ages. The historical context Mansharamani provides is extremely valuable, particularly for investors struggling through this QE-infused, low interest rate environment. I hope the brilliant young people I meet in the investment business take the time to read this book. It has the potential to save them much pain (and money)." —RICK SLOCUM, Chief Investment Officer, Harvard Management Company