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Capital Ideas

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Capital Ideas

The Improbable Origins of Modern Wall Street

Wiley,

15 min read
10 take-aways
Text available

What's inside?

Assemble the great economists to guide your stock portfolio: Keynes, Sharpe, Samuelson, Markowitz, Fama, Williams, Black.

Editorial Rating

8

Qualities

  • Innovative

Recommendation

To cover a heady topic – the origins of 20th-century financial and economic thought – Peter L. Bernstein has produced a personal, comprehensive overview of the people and ideas that shaped modern finance. Great ideas have their own lives and Bernstein shows how the intellectual paths to Wall Street intertwined wonderfully. As the head of an investment firm and the editor of a major scholarly financial journal, Bernstein was in the right place to follow the chief academic papers and meet many of their authors. He supplies the necessary anecdotes, personal contacts, background and experiences to make these academician’s ideas into interesting tales, though many of these concepts are very arcane. This is a great book for anyone who wants to know more about the theories and insights that propel modern capital markets. getAbstract considers it essential for serious finance students, corporate-finance professionals and dedicated investors who want to know what some of the field’s greatest minds have wrestled with over the years. Be forewarned: This book does not contain any easy-to-implement investment advice, but its ideas could be worth millions.

Summary

Revenge of the Nerds

The transformation of U.S. capital markets began in October 1974 after the end of the worst stock market decline since 1929. By the fall of 1974, equity prices had dropped 40% from their highs only a few years earlier. Higher inflation, due to an increase in oil prices, accompanied this market decline. In this environment, the cost of living increased 20% in only 16 months. During the same period, fixed-income investments suffered a 35% decline.

This severe emotional and financial shock, accompanied by the near bankruptcies of major cities (such as New York City) and corporations, provided a fertile ground for traditional investment professionals to consider new ideas. They came to realize that they needed new ways to manage money.

Their inspiration and their practical tools came from an unlikely area: academia. Scholars studying financial matters issued papers on risk management and other emerging concepts with investment applications. Most of these papers were highly mathematical. Few of their authors had practical investment experience, certainly not with million-dollar client portfolios. The professors came from a sphere where their thoughts...

About the Author

Peter L. Bernstein is a foremost financial writer and the author of bestsellers, including Against the Gods and The Power of Gold. He is the president of Peter L. Bernstein, Inc., an investment consulting firm, and a founding editor of the Journal of Investment Management.

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