Book Review
Dateline: 09/18/99
To the passengers of the good ship Dowtanic it seems like clear sailing ahead, but, warn authors Jonathan Chevreau and Stephen Gadsden, there is an iceberg looming ahead and the iceberg is Y2K.
Their new book, Krash: How Y2K Could Sink the Stock Market and What Canadians Can Do About It, is the latest in a series of Y2K books that have been flooding the market for the last year. But it is the first and only book that I've seen that covers the subject from a Canadian perspective.
Although it may not seem like it when reading the book, Chevreau and Gadsden are actually long run stock market bulls. They believe in the traditional notion of "stocks for the long run". But as they note in their conclusion to the book, "not at any price and certainly not when the risk outweighs the reward".
Both authors are well known in the Canadian investment community. Gadsden is a Toronto-based certified financial planner and the author of several books including Retire Rich. Chevreau is a popular financial columnist with the National Post and the author of The Wealthy Boomer and co-author of Smart Funds.
The book is divided into two parts. The first section could well stand on its own as an excellent introduction to stock markets and investing. It gives a brief history of stock market variability, explains how stock markets work, and covers various investment styles including technical analysis and fundamental analysis.
It goes over the pros and cons of passive investment management vs. proactive management. Although such a luminary as the Wizard of Omaha himself, Warren Buffett, promotes the passive or buy and hold style of investment, they show that, in theory at least, an active style can lead to greater returns.
Even such a superior mutual fund as AIC Advantage has had volatile and severe drops in value. Getting into and out of that fund at the right times would have dramatically improved performance.
The authors discuss various risk management methods including dollar cost averaging, options, segregated funds, and asset allocation.
But it is the second section of the book that gets down to the nitty-gritty, the theme of the book, that the stock market today is greatly overvalued and that Y2K is the pin that will burst the balloon.
The authors do not consider themselves to be apocalyptics who see Y2K as the end of the world as we know it. But they do consider the Y2K problem to be a serious one that is being inadequately addressed. They believe that the media is being negligent in not critically investigating reports from government and industry of Y2K compliance. They believe that spin doctors are painting an unjustifiably rosy picture of the situation.
Using extensive evidence from Y2K pundits on the Internet, they argue that there is a good likelihood of disruptions, business failures, and a stock market crash.
But here's the rub -even if Y2K turns out to be a non-event, they argue that investor perception of the possibility of these events will lead to a crash anyway.
Although there are many arguments that market timing is a mug's game, they argue that this confluence of events - an over inflated market and the Y2K bug - raise the odds considerably that there will be a market collapse within the next six months.
They present a number of alternatives for investors to cope with and perhaps even profit from the coming debacle they see ahead. These range from the simple expedient of converting all equities to cash, to riskier gambits such as short selling, put options and precious metals.
Agree with them or not, this is a well-written, cogently argued book. Their arguments are not to be dismissed lightly.
For my part, I have already converted some of my more problematic holdings into cash. And my investments include a couple of blue chip gold mining companies and an oil exploration company, all of which may do very well in a general market downturn. I'm keeping a close eye on the market, but for now I am still keeping a foot in.
Jonathan Chevreau has kindly agreed to answer reader's questions on our bulletin boards. If we can work out a mutually convenient time, he'll also participate in a live chat at a later date.
Krash Forum - Post your questions or comments for Jonathan Chevreau here!
Economic bubble alive and well for another year - In this Sept. 4th column in the National Post, Jonathan Chevreau points out similarities between the markets of 1929 and 1999.
Your guide to monitoring Y2K - Chevreau lists some websites to follow for Y2K news in this Sept. 7th Post column.
Y2K Canada Net Links - My extensive collection of Y2K net links, including both proponents and skeptics of Y2K trouble ahead.
Rip Van Winkle's doing just fine - Chevreau argues in this Sept. 17th Post article that his fears about Y2K don't contradict his buy and hold Rip Van Winkle portfolio.
Bear Necessities - My collection of Net Links to websites about bear markets.
Previous Book Reviews - This is my seventh book review for Investing: Canada. Be sure to check out the others!
Investing: Canada Bookstore - Many of my recommended books can be ordered through our affiliation with Borders.com. Unfortunately, Krash is not one of them. Check out Chapters for that one.
Comments? Suggestions? Why not post them on our Bulletin Board or email me.
E-mail me!
09/13/99 - Internet
Update: Stox.com Profiled
Along with our Movers & Shakers list and updates to our
Internet indices, we profile Stox.com.
09/10/99 - Bear
Hunting Season
October approaches and some folks are getting edgy. Are we
heading for another October debacle like 1929 and 1987?
09/08//99 - Treasure
on Your Bookshelf
Got some dusty tomes on your bookshelf? They may be worth some
cool cash!
09/06/99 - Internet
Update: Travelbyus.com Profiled
Along with our Movers & Shakers list and updates to our
Internet indices, we profile Travelbyus.com.
Note: The author is a financial journalist and not a professional investment advisor. Information contained here should not be construed as investment advice.
Live Chat: Check out our live Chat Room for entertaining and informative live discussion with other investors on your topic of choice. I've designated certain times for certain discussions, but most of the time it is an open free-for-all. You can chat publicly with everyone in the room or privately one-on-one with someone. If you find the Chat Room empty when you visit, try again later or make arrangements with a friend to meet there at a pre-determined time. (You don't have to discuss investing so if you want to have a live chat with your Aunt Matilda in Moose Jaw, that's okay too!)