O'Reilly logo

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Guide To Investment Strategy: How to understand markets, risk, rewards and behaviour, Second Edition

Book Description

The global financial crisis that erupted in 2008 exposed the flaws in many investment strategies. This book explores the controversies that surround the management of wealth and provides guidance on how to construct investment strategies that are appropriate for each investor. With its detailed analysis, supported by data and anecdotes, it is above all a practical guide. It shows how the insights of behavioural analysis are widely reflected in investor behaviour, while emphasising the importance of basing investment strategy on the principles of traditional finance. And it takes into account new research into behavioural and traditional finance which has created new understandings of what investors want to achieve and investors’ customary mistakes. Part one considers the basics of investor objectives, behaviour, risk and investment allocation in terms of stocks, bonds and cash. Part two considers the things on which investors, their advisers and investment managers spend most of their time - the choice of money manager, bonds, equities, hedge fund strategies, private equity and real estate.

Table of Contents

  1. Cover
    1. Dedication
  2. Acknowledgements
  3. Foreword
  4. Introduction: taking stock
  5. The big picture
    1. 1 Setting the scene
      1. Financial fraud: “a hardy perennial”
      2. Other catastrophic risk-taking
      3. Think about risk before it hits you
      4. How much risk can you tolerate?
      5. Know your niche
    2. 2 Understand your behaviour
      1. Insights from behavioural finance
      2. Investor biases
      3. Investor preferences
      4. Investment strategy and behavioural finance
      5. Parameter uncertainty and behavioural finance
      6. Traditional finance, behavioural finance and evolution
    3. 3 Market investment returns: will the markets make me rich?
      1. Sources of investment performance
      2. Safe havens that provide different kinds of shelter
      3. Which government bonds will perform best?
      4. What premium return should bond investors expect?
      5. The equity risk premium
      6. Equity risk: don’t bank on time diversifying risk
    4. 4 Which should we do: buy-and-hold or time markets?
      1. Model investment strategies
      2. Strongly held market views and the safe haven
      3. An appropriate role for strategy models
    5. 5 The time horizon and the shape of strategy: keep it simple
      1. Short-term investment strategies
      2. Are you in it for the long term?
      3. Long-term investors
      4. Long-term pension savings and risk tolerance
      5. Long-term strategy: “imperfect information changes everything”
      6. Market timing: an unavoidable risk
      7. Some “keep-it-simple” concluding messages
  6. Implementing more complicated strategies
    1. 6 Setting the scene
      1. A health warning: liquidity risk
      2. Behavioural finance, market efficiency and arbitrage opportunities
      3. Barriers to arbitrage
      4. Institutional wealth and private wealth: taxation
    2. 7 Equities
      1. Concentrated stock positions in private portfolios
      2. The restless shape of the equity market
      3. Stockmarket anomalies and the fundamental insight of the capital asset pricing model
      4. “Small cap” and “large cap”
      5. Don’t get carried away by your “style”
      6. Should cautious investors overweight value stocks?
      7. Equity dividends and cautious investors
      8. Home bias: how much international?
      9. To hedge or not to hedge international equities
      10. International equities and liquidity risk
    3. 8 Credit
      1. Credit quality and the role of credit-rating agencies
      2. Portfolio diversification and credit risk
      3. Securitisation, modern ways to invest in bond markets and the credit crunch
      4. Asset-backed securities and collateralised debt obligations
      5. International bonds and currency hedging
    4. 9 Hedge funds
      1. What are hedge funds?
      2. Alternative sources of systematic return and risk
      3. “Do hedge funds hedge?”
      4. The quality of hedge fund performance data
      5. What motivates hedge fund managers?
      6. Are hedge fund fees too high?
      7. The importance of skill in hedge fund returns
      8. Types of hedge fund strategy
      9. Hedge fund risk
      10. How much should you allocate to hedge funds?
      11. Questions to ask
    5. 10 Private equity: information-based investment returns
      1. What is private equity?
      2. Private equity market risk
      3. Listed private equity
      4. Private equity portfolios
      5. Private equity returns
    6. 11 Real estate
      1. What is real estate investing?
      2. What are the attractions of investing in real estate?
      3. Styles of real estate investing and opportunities for active management
      4. What is a property worth and how much return should you expect?
      5. Private and public markets for real estate
      6. International diversification of real estate investment
    7. 12 Art and collectibles
      1. Drivers of art market prices
      2. Investing in art
      3. Other investments of passion
    8. Appendix 1 Glossary
    9. Appendix 2 Essential management information for investors
      1. Performance measurement and monitoring for good and bad volatility
      2. Summary risk information
    10. Appendix 3 Trusting your adviser
    11. Appendix 4 Sources and recommended reading
      1. Part 1 The big picture
      2. Part 2 Implementing more complicated strategies
      3. Other useful sources
    12. Notes on sources