The Big Investment Lie

Table of Contents

1. Cover Page
2. Title Page
3. Copyright Page
4. Preface
5. Introduction: Excuse Me, Is This the “Real” World?
6. PART I HOW MUCH YOU PAY
   1. 1 The Beardstown Ladies versus the Professionals
      1. The Big Investment Lie
   2. 2 The Extraordinarily High Cost of Investment Advice
      1. The Amazing History of Brokerage Fees
      2. “I’ve Never Been Able to Get More Than $3,000 from That Account”
   3. 3 The Outer Limits: Hedge Fund Fees
      1. Let’s Do the Math
      2. The Highest-Paid Business in the World
   4. 4 Taxes Down the Drain
      1. Getting to the Meat
      2. The Dereliction of Duty of Money Managers
      3. Tax Avoidance Strategy in Investing
      4. The Bottom Line: Tallying Up the Costs
   5. 5 Why Do We Give Golden Crumbs to Rich People?
      1. Behavioral Economics
      2. How to Get Rich
      3. Golden Crumbs
7. PART II HOW LITTLE YOU GET
   1. 6 Why Investment Professionals Can’t Predict Markets
      1. Active and Passive Management
      2. The Myth of Centralized Information
      3. Endless Variations
      4. Theories Explaining the Unpredictability of Market Performance
   2. 7 The Abject Failure of Professional Advisors and Managers
      1. The Unpredictability of Market-Beating Performance
      2. The Academic Research Record
   3. 8 The Market Can Turn on a Dime
      1. Market Price Movements Fit These Models
      2. The Random Walk Model
      3. There Are No Trends
      4. Let’s Change Our Verb Tenses When Speaking of Investment Markets
      5. The Market Always Turns on a Dime
      6. At Long Last Itô Comes into His Own
      7. Many Processes Are Approximately Random, but None Is Perfectly Random
      8. The Inevitable Small Depar tures from Randomness
      9. But Is It Worth the Cost?
   4. 9 The Claims of Money Managers: “Smoking Our Brand Prevents Cancer”
      1. How to Prevent Cancer, Fumarian Style
      2. The Booming Big Bertha Industry
      3. The Fumarian Data-Mining Miracle
      4. The Vast Tobacco-Consulting Complex
      5. We’re Not in Fumaria Anymore
      6. The Investment Industry’s Entourage Sprawls Like Fumarian Tobacco
   5. 10 Idle, Greedy Hands and Too Much Data Do the Devil’s Work
      1. The Saga of Seagull Unlimited
      2. The Story of Ralph
      3. What They’re All Doing
      4. How the Real Professionals Would Do It
      5. The Very Fumarian Moral of the Story
   6. 11 The Simple Rules of Nobel Prize Winners
      1. Markowitz’s Theory: Don’t Put All Your Eggs in One Basket
   7. 12 There’s No Such Thing as a Free Lunch
      1. The More You Leverage, the Riskier It Is
      2. Sharpe’s Insight
      3. The Greeks
      4. So Here’s What You Should Do
   8. 13 Investment Genius or the Thousandth Coin?
      1. The Thumbnail Histories of Peter Lynch and Warren Buffett
      2. Was It Predictable?
      3. The Statistical Analysis
      4. Anyone Could Do It
8. PART III HOW YOU ARE SOLD
   1. 14 Effective Pitches to Sell the Big Lie
      1. Now I’m the Manager
      2. The Sales Business of Investment Services
      3. The Asset Allocation Scam
   2. 15 How Investors Delude Themselves
      1. Tweaking the Neuron at a Conference
      2. Stimulating the Neuron and Starving to Death
      3. The Donahue Story
      4. The Original Ponzi Scheme
   3. 16 How Hedge Funds Operate and Are Sold
      1. The Investment Reserved for “Sophisticated” Investors
      2. A Typical Hedge Fund Story: Long-Term Capital Management
      3. It’s the Story of Every Hedge Fund
      4. Why People Buy into Them
   4. 17 How Consultants and Money Managers Sell to Institutional Investors
      1. Picking a Money Manager
      2. Principal–Agent Theory Applied to Institutional Investors
      3. A Lavish Hedge Fund Conference
   5. 18 Derivatives: The Good, the Bad, and the Ugly
      1. Using Derivatives to Hedge against Currency Exchange Risk
      2. TIGRs and CATs, Oh, My!
      3. Hedging with Options against a Fall in the Stock Market
      4. Are Derivatives Dangerous?
      5. The Black-Scholes Formula
      6. The Many Pitfalls between Sales Reality and Real-World Reality
   6. 19 The Modern Slippery Slope of Business Ethics
      1. The Path of Deception
      2. The Faithlessness of the Modern Business Environment toward the Customer
      3. To Sum Up
9. Conclusion: The Ten New Commandments for Smart Investing
   1. The Basic Premise: You’re Building Wealth, Not Gambling
   2. How to Avoid Wasting Enormous Amounts of Money Gambling
   3. How to Build Wealth through Investing without Gambling
10. Notes
11. Glossary
12. Bibliography
13. Index
14. About the Author
15. About Berrett-Koehler Publishers
16. BE CONNECTED