In the introduction to his book, David Cohen gives us a quick dash through the great financial crises of history from the South-Sea bubble to the Japanese and Asian collapses of the 1990s.
One of the smaller blips in this fascinating snapshot is how Nathan Rothschild made a fortune from the battle of Waterloo. He knew the allies had won while the London stock market was awash with rumours of defeat and flight. He bought government stock at rock bottom prices and made a killing when it was realised that Napoleon had been defeated.
Rothschild prospered because of two factors: information that nobody else possessed, which demonstrated the need for preparation, and not underestimating the psychology of your rivals.
Cohen attempts to address what makes the market tick in his thoroughly engaging work, except he comes from a different angle.
Some have argued that logic and reason have no place in the market, which is a little frightening for those who have no input (i.e. the majority) but have to live with the consequences (slumps, job losses, higher taxes).
Cohen does not accept this view but neither does he subscribe to the view of John Meriweather and his Long Term Credit Fund, which developed a series of complex calculations to predict market prices and was a phenomenal success from 1987 to 1998.
However, the fall did come and the company went wallop, almost caused a world recession and led Alan Greenspan, who organised the rescue of Long Term Credit, to describe it as the "most terrifying period in international finance".
Cohen applies psychology to the market and we hurtle through some classic Freudisms about the illusion of control, the seduction of greed, the fear principle and on to more philosophical ideas such as those practised by Warren Buffet and Geroge Soros.
This is a fascinating book but one wonders how valid it is as a manual for making money as history is littered with those who have lost a fortune trying to tame the beast rather than saddling up and enjoying the ride.
Conn O Midheach comidheach@irish-times.ie
