Book Review: Anatomy of the Bear

by: Max Zeledon

Two things stand out in Mr. Napier's narrative Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms (Harriman House Ltd., 304 pp. $39.95): it's dull and a bit too long for what he is trying to say.

Any historical narrative devoid of characters and drama equals boring. To have this much contempt for your readers in the digital age is either an act of arrogance or just pure indifference in my view. Financial markets offer plenty of high drama but Mr. Napier managed to extricate most of it to make room for an exhaustive amount of newspaper sources that were probably better suited for an appendix section.

It's not easy to write a good book on the stock market because it requires talent. Being well-versed in finance and economic history is not enough--it's merely fulfilling the minimum requirement.

Mr. Napier relies on four U.S. bear markets (1921, 1932, 1949 and 1982) to help readers determine what characteristics make up a market bottom. But I'm not so sure that writing a book based on 70,000 Wall Street Journal articles will help investors spot the next market bottom. Saying that the stock market moves from periods of overvaluation to periods of undervaluation is nothing new and using commodity prices as a leading bullish indicator is not a revelation either. Try building an investing strategy from that.

Napier certainly provides some insights about the past and shows us that there's nothing new under sun, but to assume this can somehow predict future market action is a dangerous proposition considering everything that we've gone through in recent years. I'm not sure we can take these type of narratives too seriously anymore. "It is the higher volume at higher levels that confirms the bear market is over," Mr. Napier tells us at the end of his book. In retrospect such statements are like a tarot card reading.

But what happens when the fundamentals and earnings Mr. Napier talks about seize to matter? Can you tell me equities are undervalued now by looking at market patterns of the past? Would you bet your money on it?

The past, of course, can be irrelevant and highly misleading. Today we're much more globalized and interconnected and far more dependent on automated computer programs. And lets not forget the hedge fund industry. These factors make markets much more volatile and unpredictable. Besides, each financial crisis introduces new elements that were unforeseen previously (e.g. credit default swaps).

The past Mr. Napier writes about was dominated by a handful of powerful players and it's too bad he decided to ignore them.