The first edition of The Economist Guide to Investment Strategy explained the fundamentals of investment risk, how to put together "keep-it-simple" investment strategies, and the need to guard against our own behavior leading to dreadful investment mistakes. The global crisis that erupted in 2008 exposed the flaws in many more complicated investment strategies.
The second edition starts with a new section on financial fraud and how investors can help to protect themselves against this "hearty perennial." It also includes a new section on risk profiling and discusses the role of risk tolerance questionnaires. In Chapter 3 data are provided pointing to underperformance of equities between 1978 and 2008. Against this background, there is a new Chapter 4—"Which should we do: buy-and-hold or time markets?" Chapter 5, which discusses the design of short-term and long-term strategies, includes a new section—"How safe is cash?"—and the discussion of bond ladders is extended to reflect issues of bond selection in the light of corporate credit risk and the financial difficulties of some US municipal authorities.
Part 2 has been updated extensively to reflect developments in the past four years and the impact of the financial crisis on credit instruments, hedge funds, private equity, and real estate.
The book concludes with a new chapter on investing in art and collectibles. It explores the argument that art prices "float aimlessly," discusses financial investment in art, and provides some reasons for expecting that a portfolio of art might perform well in the future.
Table of Contents
Part 1: The Big Picture
- Chapter 1: Setting the scene
- Chapter 2: Understand your behaviour
- Chapter 3: Market investment returns: will the markets make me rich?
- Chapter 4: Which should we do: buy-and-hold or time markets?
Chapter 5: The time horizon and the shape of strategy: keep it simple
- Short-term investment strategies
- Are you in it for the long term?
- Long-term investors
- “Safe havens”, benchmarking, risk-taking and long-term strategies
- Long-term pension savings and risk tolerance
- Long-term strategy: “imperfect information changes everything”
- Market timing: an unavoidable risk
- Some “keep-it-simple” concluding messages
Part 2: Implementing More Complicated Strategies
- Chapter 6: Setting the scene
Chapter 7: Equities
- Concentrated stock positions in private portfolios
- The restless shape of the equity market
- Stockmarket anomalies and the fundamental insight of the capital asset pricing model
- “Small cap” and “large cap”
- Don’t get carried away by your “style”
- Should cautious investors overweight value stocks?
- Equity dividends and cautious investors
- Home bias: how much international?
- To hedge or not to hedge international equities
- International equities and liquidity risk
- Chapter 8: Credit
Chapter 9: Hedge funds
- What are hedge funds?
- Alternative sources of systematic return and risk
- “Do hedge funds hedge?”
- The quality of hedge fund performance data
- What motivates hedge fund managers?
- Are hedge fund fees too high?
- The importance of skill in hedge fund returns
- Types of hedge fund strategy
- Hedge fund risk
- How much should you allocate to hedge funds?
- Questions to ask
- Chapter 10: Private equity: information-based investment returns
Chapter 11: Real estate
- What is real estate investing?
- What are the attractions of investing in real estate?
- Styles of real estate investing and opportunities for active management
- What is a property worth and how much return should you expect?
- Private and public markets for real estate
- International diversification of real estate investment
- Chapter 12: Art and collectibles
- Appendix 1: Glossary
- Appendix 2: Essential management information for investors
- Appendix 3: Trusting your adviser
- Appendix 4: Sources and recommended reading
- Title: Guide to Investment Strategy: How to Understand Markets, Risk, Rewards and Behaviour
- Release date: January 2010
- Publisher(s): Bloomberg Press
- ISBN: 9781576603420