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The Actuary The magazine of the Institute & Faculty of Actuaries

Book review: Investment worries

Forecasting financial markets by Tony Plummer (paperback, 407 pages, Kogan Page, £29.95) is a heavyweight tome, which begins with some fascinating material about crowd behaviour. Think of internet stocks in the 1990s, or Dutch tulip bulbs or South Sea stocks in earlier eras. But who actually spots the irrational crowd behaviours before they peak?

After crowd behaviour, the book turns to looking at mathematics and, in particular, has a eulogy to the Golden Ratio (Fibonacci’s sequence). All sorts of market behaviours are supposed to exhibit the Golden Ratio, for example the degree of recovery after an initial fall from a stock market peak. I was unconvinced.

The book goes on to describe various cycles and then looks at ways of analysing them and using them to advantage in investment strategies. The Elliott wave principle takes up a fair amount of space. Difficult to understand as it is, we are advised that this forms the basis of many trading algorithms.

The book returns from its mathematics to psychology, but now of the individual. ‘Fear, fight or flight’ is associated with stock market behaviour and Plummer analyses personalities between instinctive, thoughtful and emotional types, rounding the book off neatly.

Worry-free investing by Zvi Bodie and Ian Sykes (hardback, 128 pages, FT Prentice Hall £19.99) takes a completely contrary approach, encouraging small savers to look at their risks and their needs with care. It essentially promotes the use of index-linked stocks, to take away the worry even if there are low rewards from taking low risks.

Set out as a primer for the layperson to use, I found the simple mathematics and over-simplified explanations about how annuities work a bit too fussy for my imagined layreader and a bit too simple for myself. However, the message comes through loud and clear, particularly as the book is peppered with examples of individuals doing the right or the wrong thing with their savings.

We all know people who struggle to make ends meet in their retirement years, only to leave a windfall for the taxman in their estate. And there are plenty of examples of people whose plans for their family education or that really special wedding have been thrown off course by stock market falls in the months leading up to the spending need arising. This book should certainly help people steer a sensible course.