Market Sense and Nonsense: How the Markets Really Work
Author: Jack D. Schwager
Publisher: Wiley; 1 edition
Publication Date: 2012-11-06
Hardcover: 343 Pages
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
From the Author: “(Almost) Everything You Know About Investment Is Wrong”
When it comes to the markets, academics, professionals and novice investors have one thing in common: They all operate on assumptions that fail to hold up in the harsh light of reality. The following are a sampling of observations about how markets really work:
- The market is not always right. The best opportunities arise when the market is most wrong.
- Big price moves begin on fundamentals but end on emotion.
- Past returns are not future returns. Past returns can be very misleading if there are reasons to believe that future market conditions are likely to be significantly different from those that shaped past returns.
- The best-performing past investments often do worse than the worst-performing past investments in the future–and the future after all is where we all have to make our investment decisions.
- The best time to initiate long-term investments in equities is after extended periods of underperformance.
- Faulty risk measurement is worse than no risk measurement at all because it will lull investors into unwarranted complacency.
- Volatility is frequently a poor proxy for risk. Many low volatility investments have high risk, while some high volatility investments have well-controlled risk.
- The real risks are often invisible in the track record.
- High past returns sometimes reflect excessive risk-taking in a favorable market environment rather than manager skill.
- Return alone is a meaningless statistic because return can always be increased by increasing risk. Return/risk should be the primary performance metric.
- Leverage alone tells you nothing about risk. Risk is a function of both the underlying portfolio and leverage. Leveraged portfolios can often be lower risk than unleveraged portfolios–it depends on the assets in the portfolio.
Market Sense and Nonsense: How the Markets Really Work (and How They Don’t) (Hardcover)
Author: Jack D. Schwager
Book Price: USD 30.14
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