Book Review > The Little Book of Stock Market Cycles

Author: HIRSCH, Jeffrey Publisher: John Wiley & Sons ISBN: 9781 1182 70110
Location: New Jersey US Price: 22.95 Reviewed by: Angelo Veschetti
BR LittleBookOfStockMarketCycles

General area book covers

The book provides the reader with an alternative to the typical buy and hold strategy for stock portfolios.  Writing under the premise “…that stock market cycles are not exact, they are as much an art form as a science”, Hirsch illustrates that while it is generally not possible to accurately and consistently predict stock market movements, it is possible to use statistically feasible, time-tested seasonal market timing strategies to help reduce the risk of owning a share portfolio.

The book is US-centric so Australian investors can immediately put the strategies to use for the US stock allocation of their portfolios.  But while not directly transferrable to the Australia stock market, the book will help Australian readers to create their own set of seasonal patterns to overlay their Australian share portfolios.

Specific issues

Hirsch explains the importance of understanding the various market phases (secular and cyclical bull and bear markets) noting that this is perhaps the singles biggest driver of portfolio returns.  So the saying goes, “A rising tide lifts all boats”.

In great detail he also espouses how human behavioural patterns (daily and annually), election cycles, seasons, regular market events (quarterly portfolio rebalancing, tax deadlines, futures/options expiry) and holidays (summer and Christmas) all drive seasonal patterns that influence markets.  His table of market performance for the year of each political election cycle and the statistical analyses that accompanies it unequivocally illustrates the existence of such patterns and their effect on the markets.

Perhaps the most important pattern Hirsch highlights is the impact of wars on the markets.  While the patterns made by the two Great Wars are clear, the various recent conflicts in which the US has engaged and continues to engage are not so defined.

The good and the bad

Hirsch surreptitiously alerts readers to the sheer nonsense of the phrase, “It’s time in the market not timing the market that matters”, by outlining his Best Six Months Switching Strategy.  This is a simple strategy which he claims will steadily build wealth over time with potentially half the risk of a buy and hold approach.  Any literature that helps debunk mythical gospel is certainly worth reading.

The volume of statistics in the book is a double-edged sword; statisticians will love them while the general reader will be put off.  They are easy enough to gloss over though without altering the message.

Favourite quote

“My super boom prediction made in May 2010 [is] that the Dow would reach 38,820 by 2025.”