Bestselling author, Jack Schwager, challenges the assumptions at the core of investment theory and practice and exposes common investor mistakes, missteps, myths, and misreads
When it comes to investment models and theories of how markets work, convenience usually trumps reality. The simple fact is that many revered investment theories and market models are flatly wrong—that is, if we insist that they work in the real world. Unfounded assumptions, erroneous theories, unrealistic models, cognitive biases, emotional foibles, and unsubstantiated beliefs all combine to lead investors astray—professionals as well as novices. In this engaging new book, Jack Schwager, bestselling author of Market Wizards and The New Market Wizards, takes aim at the most perniciously pervasive academic precepts, money management canards, market myths and investor errors. Like so many ducks in a shooting gallery, Schwager picks them off, one at a time, revealing the truth about many of the fallacious assumptions, theories, and beliefs at the core of investment theory and practice.
A compilation of the most insidious, fundamental investment errors the author has observed over his long and distinguished career in the markets
Brings to light the fallacies underlying many widely held academic precepts, professional money management methodologies, and investment behaviors
A sobering dose of real-world insight for investment professionals and a highly readable source of information and guidance for general readers interested in investment, trading, and finance
Spans both traditional and alternative investment classes, covering both basic and advanced topics
As in his best-selling Market Wizard series, Schwager manages the trick of covering material that is pertinent to professionals, yet writing in a style that is clear and accessible to the layman
Table of Contents
Part One: Markets, Return, and Risk
- Chapter 1: Expert Advice
Chapter 2: The Deficient Market Hypothesis
- The Efficient Market Hypothesis and Empirical Evidence
- The Price Is Not Always Right
- The Market Is Collapsing; Where Is the News?
- The Disconnect between Fundamental Developments and Price Moves
- Price Moves Determine Financial News
- Is It Luck or Skill? Exhibit A: The Renaissance Medallion Track Record
- The Flawed Premise of the Efficient Market Hypothesis: A Chess Analogy
- Some Players Are Not Even Trying to Win
- The Missing Ingredient
- Right for the Wrong Reason: Why Markets Are Difficult to Beat
- Diagnosing the Flaws of the Efficient Market Hypothesis
- Why the Efficient Market Hypothesis Is Destined for the Dustbin of Economic Theory
- Investment Insights
Chapter 3: The Tyranny of Past Returns
- S&P Performance in Years Following High- and Low-Return Periods
- Implications of High- and Low-Return Periods on Longer-Term Investment Horizons
- Is There a Benefit in Selecting the Best Sector?
- Hedge Funds: Relative Performance of the Past Highest-Return Strategy
- Why Do Past High-Return Sectors and Strategy Styles Perform So Poorly?
- Wait a Minute. Do We Mean to Imply . . .?
- Investment Insights
- Chapter 4: The Mismeasurement of Risk
- Chapter 5: Why Volatility Is Not Just about Risk, and the Case of Leveraged ETFs
- Chapter 6: Track Record Pitfalls
- Chapter 7: Sense and Nonsense about Pro Forma Statistics
- Chapter 8: How to Evaluate Past Performance
- Chapter 9: Correlation: Facts and Fallacies
Part Two: Hedge Funds as an Investment
- Chapter 10: The Origin of Hedge Funds
- Chapter 11: Hedge Funds 101
- Chapter 12: Hedge Fund Investing: Perception and Reality
- Chapter 13: Fear of Hedge Funds: It’s Only Human
- Chapter 14: The Paradox of Hedge Fund of Funds Underperformance
- Chapter 15: The Leverage Fallacy
Chapter 16: Managed Accounts: An Investor-Friendly Alternative to Funds
- The Essential Difference between Managed Accounts and Funds
- The Major Advantages of a Managed Account
- Individual Managed Accounts versus Indirect Managed Account Investment
- Why Would Managers Agree to Managed Accounts?
- Are There Strategies That Are Not Amenable to Managed Accounts?
- Evaluating Four Common Objections to Managed Accounts
- Investment Insights
- Postscript to Part Two: Are Hedge Fund Returns a Mirage?
Part Three: Portfolio Matters
- Chapter 17: Diversification: Why 10 Is Not Enough
- Chapter 18: Diversification: When More Is Less
- Chapter 19: Robin Hood Investing
- Chapter 20: Is High Volatility Always Bad?
- Chapter 21: Portfolio Construction Principles
- Epilogue: 32 Investment Observations
- Appendix A: Options—Understanding the Basics
- Appendix B: Formulas for Risk-Adjusted Return Measures
- About the Author
- Title: Market Sense and Nonsense: How the Markets Really Work (and How They Don't)
- Release date: November 2012
- Publisher(s): Wiley
- ISBN: 9781118523162