The Conceptual Foundations of Investing

The Conceptual Foundations of Investing

by Bradford Cornell, Shaun Cornell, Andrew Cornell
Released October 2018
Publisher(s): Wiley
ISBN: 9781119516293

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Book description

The need-to-know essentials of investing

This book explains the conceptual foundations of investing to improve investor performance. There are a host of investment mistakes that can be avoided by such an understanding. One example involves the trade-off between risk and return. The trade-off seems to imply that if you bear more risk you will have higher long-run average returns. That conclusion is false. It is possible to bear a great deal of risk and get no benefit in terms of higher average return.

Understanding the conceptual foundations of finance makes it clear why this is so and, thereby, helps an investor avoid bearing uncompensated risks. Another choice every investor has to make is between active versus passive investing. Making that choice wisely requires understanding the conceptual foundations of investing.

•    Instructs investors willing to take the time to learn all of the concepts in layman’s terms

•    Teaches concepts without overwhelming readers with math

•    Helps you strengthen your portfolio

•    Shows you the fundamental concepts of active investing

The Conceptual Foundations of Investing is ultimately for investors looking to understand the science behind successful investing.

Table of contents

  1. COVER
  2. PREFACE
  3. 1 RETURNS
    1. STOCKS, BONDS, AND BILLS
    2. RETURN MATHEMATICS
    3. VOLATILITY
    4. AVERAGE RETURNS
    5. USING RETURNS TO TEST INVESTMENT THEORIES
    6. RETURNS AND STOCK MARKET HISTORY
    7. CONCEPTUAL FOUNDATION 1
    8. NOTES
  4. 2 THE ECONOMIC STRUCTURE OF INVESTMENT MARKETS
    1. THE ARITHMETIC OF FINANCIAL MARKETS
    2. THE EFFICIENT MARKET HYPOTHESIS
    3. INFORMATIONAL VERSUS FUNDAMENTAL MARKET EFFICIENCY
    4. THE EFFICIENT MARKET HYPOTHESIS AND SHARPE'S ARITHMETIC
    5. WHO ARE YOUR COUNTERPARTIES?
    6. ENOUGH OF THE THEORY, WHAT ABOUT RESULTS?
    7. CONCEPTUAL FOUNDATION 2
    8. NOTES
  5. 3 BONDS AND INFLATION
    1. TREASURY BILLS AND TREASURY BONDS
    2. INTEREST RATES AND INFLATION
    3. BOND YIELDS AND BOND RETURNS
    4. TREASURY INFLATION PROTECTED SECURITIES (TIPS)
    5. CORPORATE BONDS AND CREDIT RISK
    6. PROMISED YIELDS VERSUS EXPECTED YIELDS
    7. THE ROLE OF DIVERSIFICATION IN BOND INVESTING
    8. SUPERIOR RETURNS FROM LOW-GRADE BOND INVESTING
    9. CONCEPTUAL FOUNDATION 3
    10. NOTES
  6. 4 RISK AND RETURN
    1. RISK AVERSION AND RISK PREMIUMS
    2. THE EQUITY MARKET RISK PREMIUM
    3. APPLYING THE CAPM
    4. APPLYING THE CAPM TO SECURITIES OTHER THAN STOCKS
    5. DISCOUNT RATES FOR EQUITY CASH FLOWS
    6. LIQUIDITY AND EXPECTED RETURNS
    7. CONCEPTUAL FOUNDATION 4
    8. NOTES
  7. 5 FUNDAMENTAL ANALYSIS AND VALUATION
    1. BUBBLES
    2. FUNDAMENTAL VALUATION
    3. FREE OR “DIVIDENDABLE” CASH FLOW
    4. THE CONSTANT GROWTH MODEL
    5. A MORE REALISTIC MODEL
    6. WARREN BUFFETT'S “SECRET” TO INVESTING
    7. A DETAILED EXAMPLE: TESLA
    8. HOW THE MARKET SETS STOCK PRICES
    9. FUNDAMENTAL INVESTING AND DIVERSIFICATION
    10. FINDING MISPRICED STOCKS
    11. WHAT TO DO IF MISPRICING GETS “WORSE”
    12. HOW DO YOU TELL IF THE MARKET IS “EXPENSIVE?”
    13. THE SOCIAL BENEFITS OF FUNDAMENTAL INVESTMENT ANALYSIS
    14. CONCEPTUAL FOUNDATION 5
    15. NOTES
  8. 6 TRANSACTION COSTS, FEES, AND TAXES
    1. TRANSACTION COSTS
    2. MANAGED INVESTMENT FUNDS AND FEES
    3. TAXES
    4. CONCEPTUAL FOUNDATION 6
    5. NOTES
  9. 7 CAN HISTORY BE TRUSTED?
    1. DATA MINING
    2. NON-STATIONARITY
    3. MODEL SPECIFICATION
    4. INTERACTION
    5. SMART BETA AND FACTOR PREMIUMS
    6. ASSESSING INVESTMENT MANAGEMENT PERFORMANCE
    7. PRESIDENTIAL POLITICS AND THE STOCK MARKET
    8. CONCEPTUAL FOUNDATION 7
    9. NOTES
  10. 8 CAN BEHAVIORAL ANOMALIES BE EXPLOITED?
    1. A TAXONOMY OF POTENTIAL INVESTOR BIASES
    2. COGNITIVE ERRORS
    3. EMOTIONAL BIASES
    4. BEHAVIORAL FINANCE AND MARKET PRICING
    5. INDIVIDUALS VERSUS ORGANIZATIONS
    6. DOES IT MATTER WHY SECURITIES ARE MISPRICED?
    7. THE ROLE OF BEHAVIORAL BIASES IN AN EFFICIENT MARKET
    8. CONCEPTUAL FOUNDATION 8
  11. 9 ALTERNATIVE INVESTMENTS
    1. LIQUIDITY
    2. INFORMATION
    3. PROPERTY RIGHTS
    4. NECESSARY MANAGEMENT
    5. MEASURING RISK AND RETURN
    6. REITs
    7. DEVELOPING COUNTRY FUNDS
    8. PRIVATE EQUITY FIRMS
    9. FUNDS THAT MATCH COMMODITY AND OTHER INDEXES
    10. DERIVATIVES
    11. THE EXOTICS
    12. CONCEPTUAL FOUNDATION 9
    13. NOTES
  12. 10 INVESTMENT SUGGESTIONS AND POSTSCRIPT
    1. A DIVERSIFIED PASSIVE STRATEGY
    2. AN ACTIVE STRATEGY
    3. USING ACTIVE INVESTMENT MANAGERS
    4. AN “ENHANCED” PASSIVE STRATEGY
    5. CONCLUSION
    6. POSTSCRIPT FEBRUARY 2018
  13. INDEX
  14. END USER LICENSE AGREEMENT

Product information

  • Title: The Conceptual Foundations of Investing
  • Author(s): Bradford Cornell, Shaun Cornell, Andrew Cornell
  • Release date: October 2018
  • Publisher(s): Wiley
  • ISBN: 9781119516293