Toward Rational Exuberance: The Evolution of the Modern Stock Market

To an unprecedented degree, the health of the American economy, and the financial well-being of the average American, is tied to the stock market. Toward Rational Exuberance tells the story of how the market came to be what it is today, providing an in-depth understanding of the theories that drive investor behavior, the vivid personalities who have dominated the stock market's turbulent history, and the processes by which the market has evolved to its present state -- elements essential to anyone seeking to understand the workings of the modern economy.

The stock market is big news now, influencing every aspect of the modern economy. Accepted wisdom has it that the market will provide retirement security for anyone willing to diligently save and invest.

Yet many people still alive can remember a very different time, when the stock market was little more than a primitive insider's game viewed by most Americans with skepticism and suspicion. In Toward Rational Exuberance, B. Mark Smith, a retired stock trader with nearly two decades of practical experience, tells the story of how this stunning transformation occurred. It is a fascinating story, involving colorful personalities, dramatic events, and revolutionary new ideas. In the course of the narrative, Smith traces the evolution of popular theories of stock market behavior, showing how they have become widely accepted over time and have greatly influenced the way the investing public views the market. But he also shows how some of these theories -- such as the notion that the market is often susceptible to speculative "bubbles" that will inevitably burst -- are based on faulty interpretations of market history that may lead investors to draw inaccurate conclusions about the market today.

The central thesis of Toward Rational Exuberance is that the modern stock market is the product of a dynamic evolutionary process; it is very different from what it was in the past. It cannot be measured simply by comparison with arbitrary historical standards, and its behavior cannot be predicted by extrapolating those standards into the future. It is only by understanding the process by which the modern market has been created that today's investor can begin to understand the market itself.