I sometimes call it “the race to the bottom.”  During a time where most nations are feeling economically weak, some decide to weaken their currency, so that their exporters can do better, which supposedly preserves jobs in export industries.

Producers have concentrated interests, and lobby well.  The interests of consumers are diffuse, and don’t gain favor from governments kowtowing to producers, who also find more effective ways of rewarding political friends.

If we were intelligent, we would know this is a loser of a battle, and we would realize that this simply leads to inflation globally.  Better to sit it out, ignore the debasement, and realize it will eventually burn out.  Unlike the current Federal Reserve, don’t add to the debasement, it just adds fuel to the global inflationary fire.

This book starts with a currency war-gaming scenario.  In the game, the author pursues a course where on one of the non-US teams decides to link their currency to gold.  Initially derided, they end up as one of the victors at the end of the game, even though no one else follows them.

The book continues with an examination of three eras where currencies were at war: 1) prior to the Great Depression until we leave the internal gold standard, 2) the inflationary guns and butter late ’60s to mid ’80s, encompassing the period where the US goes off the gold standard entirely, and global currencies float.  We go through a period of high inflation after that, followed by an extreme rise in interest rates. 3) The book examines the present time, where every nation wants to devalue, so that it exporters are not harmed.

If we left the gold standard to get stability, we did not get it.  If we left the gold standard to benefit the global or US economies, the benefit has not appeared.

But, from chapters 7 through 10, the book muddles.  It talks about a wide variety of ideas loosely related to the main thesis, but proving little one way or another.  The book does not build toward its conclusion in chapter 11, where it suggests a return to a gold standard.

A gold standard exists to preserve purchasing power, and takes power out of the hands of governments that want to favor one set of parties over another, whether favoring savers or investors, producers or consumers.  It takes many questions out of the hands of the government, and reduces the need for an expensive central bank filled with PhDs in Economics who really have no idea how economies work, because they are mathematicians, and don’t get the broader societal ramifications of what their policies encourage.

I enjoyed this book, and would recommend it. The book isn’t linear to its goal, but you will learn a lot along the way, even if it is circuitous.

Quibbles

Already given.

Who would benefit from this book:   This book is for those frustrated with the way that our government are handling monetary affairs, and are looking for a better way.  If you want to, you can buy it here: Currency Wars: The Making of the Next Global Crisis (Portfolio).

Full disclosure: The publisher asked me if I would like the book.  I said yes, and they sent me a copy.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Most books that I don’t ask for are lousy.  This one isn’t, and I love the title, because it indicates the long hard slog that it is to persevere in investing. IT IS A BUSINESS!!  Without hard work it will not yield good results.  Indomitable means persistence, and a lack of persistence will give a bad result.

Steven Sears has been a columnist for Barron’s for many years.  He has read a lot of analyses, and written a lot of columns.  In this book he attempts to explain why many investors are the dumb money that clever investors profit from.  Or, why many investors get sucked dry by brokers, funds with high loads, other illiquid investments, etc.

There is a constant in investing and it frustrates me, because I try to educate retail investors.  People panic as a crisis unfolds, and they sell near the bottom.  Conversely, people buy as a trend nears its peak, because they conclude that they have missed out.

What would it take to educate these people, which are many among us?  Losses for one.  Second, a willingness to read historical finance, which few will do, because it doesn’t seem relevant.  If you will not learn from history, you will not learn.

As is sometimes said, “Wise men learn from the errors of others.  Average men learn from their own errors.  Dumb men never learn.”

Financial markets have more than their share of average and dumb men.  They get fleeced, and rapidly.  That dichotomy is key to investment markets.  Think about it — if you were going into a war, would you spend more to make sure you had the best armaments?  I think you would.  If so, why do you go virtually undefended in contention against Wall Street?

There are two ways to do this.  First, go passive and index.  Safe, reasonable, good.  Second, do a lot of research and find managers that eat their own cooking (like me), and invest with those that have a good long-term track record.  They should be managers with fixed principles regardless of the environment.

What it gets right

More data does not mean things are better.  For most people more data confuses them.  Giving long explanations in prospectuses is a hindrance for most, not an aid.  Maybe there should be a law that says, “Prospectuses can only be 1000 words long.  If you can’t get the risks in that amount of words, you deserve to be sued.”

It takes three years for the average investor to note that the trend has changed.  Is there any surprise then about “dumb money?”  Would it get any better if we told them this?

Quibbles

Ted Benna was a benefits consultant, not a tax consultant (P.5). Maybe they were the same back then.

Regarding Diogenes, he was a skeptic, and did not believe that there were any honest men.  That’s not a bad way to view Wall Street, butthat was not the sense I got from this book.

The author makes a lot out of calender anomalies, bu most of the research I have reviewed does not support them.

He makes a lot of the ISM, but if you aggregate his numbers, they seem higher than market returns have been over the the last 80+ years.  I find the data questionable.  Maybe he didn’t correctly describe what he cited, or maybe those he cited deceived him.

If you can discern consumer spending trends in advance of the market, you will do well, but can you do it?  This is a non-insight.

At the end of the book, page 195, he asks for new relative measures of risk.  If only it were that simple.  We all wish we had those.  They change over time, and asset classes may shift in relative riskiness due to overvaluation.  Oh to have bought bonds in 1987, and in 2000. Oh, to have bought equities in 1982, 1995 and 2003.

Who would benefit from this book: If you ae willing to be patient and following long-term strategies (like me) you might benefit from this book.  It is only meant for those willing to take a long-term view, because it tends to work.  If you want to, you can buy it here: The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.

Full disclosure: This book was sent to me without me asking for it.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Do you want to make money in the short run? Beat the markets? This could be the book for you.

I am a longer-term investor, but  this book looks at a lot of strategies that are commonly understood by traders, and finds that the traders are wrong.

What are we talking about?  For the most part the book indicates that momentum strategies fail in the short run.  That’s not as radical as it sounds because the academic literature documents a short term reversal effect (one month) for stocks that are moving dramatically.

But this book shows the effect in many ways, looking at:

• Changes vs 5 & 10-day highs/lows
• When markets make higher highs or lower lows over three days
• Days up or down in a row
• Market Breadth
• Large move up or down
• Number of 52-week highs versus lows

When these factors are strong, the market tends to be weak in the short run.

Then there are these factors:

• Volume
• Put/Call ratio

They have little effect on future returns in the short run.  But what does have effect in the short run?

• VIX
• RSI(2)
• Low Vol beats High Vol

High VIX relative to trend indicates a short-term rally, as does a low RSI(2) score.  As for the low volatility, it takes a different approach, segmenting the market by historical  volatility, and no surprise, low volatility wins.

At the end the book tries to draw all of the ideas into a trading strategy, but I have no idea how good it is, because I have no idea how many strategies they tested before announcing the one that fit the past the best.

This is an audacious book, but what would be needed to make this a great book is not what happens over the next five days, but what happens over the next year.  Capital does not recycle annually, much less weekly.

Most strategies that involve a lot of trading fail; this book may fall into that bucket.

Quibbles

Graph 3-7 is blank.

This is a very short book, with many graphs and tables taking up 80% of the book.  That can be a weakness or strength, depending on your point of view.

Who would benefit from this book: Those who want to improve their trading of the markets in the very short run would benefit from this book.  If you want to, you can buy it here: How Markets Really Work: Quantitative Guide to Stock Market Behavior (Bloomberg Financial).

Full disclosure: The publisher asked me if I wanted the book, so I asked for the book and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Before I start this evening’s book review, I would like to ask a favor of my readers.  If you like my reviews, maybe you can say that they are helpful at Amazon.  I rank in the 2000s at present, which was a challenge to get to, because not many reviewers of finance, investing, and economics books get to levels like that.  So, to the degree that you like my reviews, and have extra time to do this, I appreciate it.  If not, no worries — I’ve well exceeded my expectations; I appreciate that you read me.

I have never taken a course in accounting.  But I have had to do accounting for most of my working life, including doing financial reporting inside life insurers, which is the most complex industry for accounting. I have even opined on 10+ financial accounting standards over time.  And Aleph Blog is a leading accounting website as a user of accounting. (Dubious distinction, I know, but when you are a blogger, you take what you can get. )

As a value investor, I have taken a skeptical view toward the accounting of the companies that I invest in.  Cash entries can be trusted; accrual entries are less trustworthy in proportion to the length of time and uncertainty to the collection of cash.

This book relates accounting principles to value investing principles, and it is uncanny as to how they overlap.  It also attempts to connect it to Modern Portfolio Theory [MPT] concepts where it makes sense, but with less success. (No surprise, because value investing has a decent theory behind it and MPT doesn’t.)

The cornerstone of this book is return on net operating assets [RNOA].  The idea is to split the company in two, and separate operating results from financing results.  Give little value to financing results, which are likely no repeatable, and give significant value to operating results.

Note: this means that there is no way of evaluating financial companies under this rubric, but that’s a common problem.  Financial companies are a bag of accruals; value is difficult to discern.  That is why I spend most of my time analyzing the management teams of financial companies to see if they are conservative or not.

The book offers two measures of accounting quality, the Q-score and the S-score.  You would have to do more digging to make these practical, but at least you get some direction in the matter.

There are two simple prizes that the book gives to readers:

1) Profit results mean-revert; don’t trust strong or weak current ROEs. (or RNOAs)

2) Stocks with low P/Es and P/Bs do well.  Each works well, but they work better together.  Maybe if Ben Graham were still alive, he would not have been dismissive of his life’s work at the end, value works.  It’s an ugly brain dead strategy, but it works.

Quibbles

None.

Who would benefit from this book: Those who want to improve their perception of investment value would benefit from this book.  If you want to, you can buy it here: Accounting for Value (Columbia Business School Publishing).

Full disclosure: The publisher asked me if I wanted the book, so I asked for the book and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

How does one write a review for a book when it has been praised by Jack Bogle, Jeremy Grantham, Joel Greenblatt, Seth Klarman, and Warren Buffett?  I am a midget among giants.  I can’t write this, but I am going to try.

Being a teensy part of the investment fraternity that calls itself value investors, I do have some perspective on this book.  The joke of sorts is that there are many things that are “the most important thing.”  But I think the point of the author is that what is most important shifts, depending on the market environment.

But all of “the most important things” can be boiled down to four main concepts:

• Margin of Safety
• Buy it Cheap; Valuation
• Contrarianism
• Think beyond the initial effects to secondary effects.  Think holistically.

By margin of safety, there are many things implied — a strong balance sheet, strong cash flows, conservative accounting, and/or protected market position.  The important thing is to prevent a large loss.  If you can prevent large losses, the gains will come eventually.

Buying it cheap is also a simple concept, though hard to implement well.  What metric to use?  Price to Earnings, Cash Flow, Book, Free Cash Flow, EBITDA?  Where to look in the capital structure for value?  The equity may be too risky, but maybe the preferred stock or bonds might be interesting.

Contrarianism means looking for what others rely on that may not work, and investing against it, whether positively or negatively.  It can’t be mere opinion; the other side has to be invested, and relying on their hypothesis to succeed.  That is the situation where investing contrary to the consensus can succeed.

Thinking holistically comes from being a bright student whether in the sciences or the liberal arts.  It comes from being a life-long learner, and applying oneself to the problem until it yields at least a hint of an answer.  Where it doesn’t, cutting losses pays off.

I recommend this book to all who aspire after value investing.

Quibbles

None.

Who would benefit from this book: All value investors, and those who want to be value investors can benefit from this book.  Those that want to understand how the economy really works will benefit as well.  If you want to, you can buy it here: The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing).

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

This is two books in one, and very well done.  The main part of the book explains risk and uncertainty in general terms, such that most people can understand it.  But for those that can deal with complex math, the latter part of the book offers a lot of additional firepower.

Risk is a tough subject because history only vaguely informs you as to how bad things can get.  Past is not prologue.  There are two possibilities, the past contains and event that was so horrible that it can never happen again, or, the past does not tell you how bad things can be.

Market observers took the first view, that the Great Depression could not repeat.  As a result, few prepared for a situation where there was too much debt, and insufficient ability to service it.

The subtitle of the book is rightly “Uncertainty at the Core of Finance.” Not risk, but uncertainty.  The distinct is important, because risks are things that we know some things about the possible economic outcomes, and can control them to a degree.  Uncertainty is where we don’t really understand the dimensions of the outcomes, and have little if any control.

There is fundamental uncertainty to the simplest aspect of finance, money.  Money seems stable enough in the short-run, but every now and then it fails due to hyperinflation, or the slow steady failure in the store of value sense of moderate inflation over long periods.

Wealth itself is uncertain.  Even if you own it free and clear, there’s no way to tell what it will be exchangeable for next year, much less further out.  There are a lot of people who thought they knew what their homes were worth 5-7 years ago that are decidedly disappointed.

Government debt is uncertain, as governments think they can always roll it over, but political and other obstacles can lead to a refusal to pay when debt service becomes high relative to tax revenues.

Banking is uncertain, mainly because of borrowing short to lend long.  If banks limited themselves to facilitating transactions, a lot of the uncertainty would go away.  Banks would be a lot smaller, less profitable, and there would be fewer of them, and the economy would be more stable.  (Entities with longer liability structures, like pension plans, endowments, and life insurers would become the new source of lending. More would be financed through equity.)

Credit is uncertain.  During boom times, corporate bonds behave independently, and diversification evens out results.  As a result, corporate credit seems safer than it really is, and marginal ideas get to borrow.  During bust times, far more corporate debt defaults than would be expected — there’s almost no such thing as an average year.  It’s either feast or famine.

There are things that can be done to try to mitigate uncertainty: credit ratings, or any scoring system for assets, lending at a more senior level, and Value-at-Risk.  Also using more robust assumptions on possible outcomes, which would lead to smaller position sizes, less leverage, or more cash.

The book has a real strength in showing how the the assumption of normally-distributed risks fails dramatically in many cases, and offers alternatives that would work better.  Trouble is, once you realize how volatile the world really is, a lot of strategies either don’t work, or need to be scaled back.

The book praises actuaries as risk managers, with their ethic codes and stress tests, as opposed to quants with Value-at-Risk and no ethics code.  Banks and Wall Street would be better off in the long run hiring actuaries, who think about risk more holistically, and getting rid of the quants in their risk control departments.  Same for the regulators who evaluate banks.

There are other controversial ideas here: is it possible that the strong economic growth of the past is an anomaly?  Is it possible that growth for nations, and the world as a whole follows S-curves, like products and companies?

This is an ambitious book, and I like it a lot because it is willing to cross boundaries and apply the principles in one  area to another that seemingly should not receive it.  I liked it a lot, and would recommend it to many.

Quibbles

On page 17, he thinks of currency as a put option, but I think of it as 0% overnight commercial paper.  On page 37, he confuses Moses and Joseph, having Moses predict the 7 good followed by 7 bad years, when it was Joseph who did that.

Who would benefit from this book: Every financial regulator should have this book.  Every academic burdened by the lies of Modern Portfolio Theory should get this book.  Anyone who fancies himself to be a risk manager should have this book.  Finally, if you want to understand why financial markets are inherently uncertain, this book will teach you well.  If you want to, you can buy it here: Pandora’s Risk: Uncertainty at the Core of Finance (Columbia Business School Publishing).

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Do you want to read an entertaining book about risk and insurance?  Right, I know that it is not likely that anyone could do that, but this book succeeds at the the task.  How does it do that?

1) It approaches the topic without using a lot of math.

2) It introduces you to the practical problems that anyone would face in trying to insure against any catastrophe.

3) It offers an entertaining story at the end of each chapter, some of which build off of prior stories.  The stories have farfetched elements to them, but they illustrate the main points that the chapter has made, while making you laugh.

The author gives no hints to his views on religion, but uses the concept of “acts of God,” to describe events which are out of our control, and thus need risk pooling (insurance), to contrast with “acts of man,” which potentially are controllable, though often not practical to do so.  Insurance may still have a role there, but there will be many more terms and conditions in the insurance contract.

One dominant theme of the book is how one estimates likelihood in the absence of a large amount of data.  Do you:

a) take what little data you have, and calculate an estimate? or,

b) get expert opinion on the matter, and let the small amount of data modify the experts?

The book takes the second position.  I lean toward the first position, but am not dogmatic about it.

When you are done reading this book, you will likely have skepticism toward much economic, sociological, and biometric research, because their foundations are very weak.  Estimates made are not from repeatable processes.

This is a good book.  It takes some effort to read, because the concepts are dense, but the structure of the book lightens things up.

Quibbles

Math error on page 89 — 1.5 should be 1.25.

Who would benefit from this book: Those who want to understand insurance, probability, or research better would benefit from this book.  If you want to, you can buy it here: Acts of God and Man: Ruminations on Risk and Insurance (Columbia Business School Publishing).

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Joe Mysak is one of the true experts in the municipal bond markets, journalist or not.  He has covered municipal bonds at Bloomberg since 1999, and has covered municipals since 1981.  I have read his work for over 12 years, and I have been impressed.

So when he writes an encyclopedia of Municipal Bonds, it’s gonna be dull, right?  There are entries that are short to define simple but important concepts, but the glory of the book are the long articles, because they describe how the municipal market evolved its structure.

It’s not a dull book, if you want to understand how the Muni market came into existence, and how it acts today.

The long articles are the best, and they include:

• The Arkansas Default in 1933
• Auction-rate securities
• Bell California pay scandal
• Chapter 9
• Convention Centers (stop the madness)
• Default (and why it is different for munis)
• Escrowed to Maturity
• Garbage bonds
• The Implosion at Heartland
• House Museums
• How Initiatives and Referendums Could and Could not affect muni financing.
• Muni bond insurance — a topic I have often criticized.
• Jefferson County, Alabama
• Pension bonds, particularly those of New Jersey
• Orange County’s default
• Pension obligations, and their effect on munis
• Moody’s changing their ratings for munis in 2010.
• The effects of derivatives on naive municipal executives, who thought the got it.
• Tobacco bonds.
• Tourist attractions (bad bets for muni bond financing)
• Yield-burning. (using the tax-exemption to earn arbitrage profits of some kind.)

It is the controversies and legal cases of the bond market that have had the most impact on how the market behaves today, and that is how the book covers its topics.

I learned a lot from reading this, and most muni investors would learn still more.  This book is well written, and explains the issues in detail, without resorting to unnecessary verbiage.

Quibbles

None.

Who would benefit from this book: Most investors in muni bonds would benefit from this book.  If you want to, you can buy it here: Encyclopedia of Municipal Bonds: A Reference Guide to Market Events, Structures, Dynamics, and Investment Knowledge (Bloomberg Financial).

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

In 2003 a financial gun was put to my head, telling me to relocate or be severed.  I took severance because of all the ties my family had to the area.  I landed at a hedge fund near me, one well enough run to be immune to the criticisms of this book.

The first thing you have to understand is that corporate form is not a factor in performance.  It does not matter whether you manage a mutual fund, unit investment trust, hedge fund — what matters are your ideas, not the legal form you inhabit.

But, some of the problems with hedge funds, as a opposed to open-end mutual funds, is that:

1) Many hedge funds go out of business, and as they do, their bad performance is not recorded, and sometimes lost.

2) Hedge funds with good performance give the databases their early performance.  Bad early performance does not get reported.

3) The activity of investors chasing trends is more pronounced in hedge funds than in mutual funds, with a loss of returns of 5% in hedge funds, versus 3% in mutual funds.  This is all due to greater volatility.

4) Double alpha is generally not achievable, because most managers good at longs are not good at shorts, and vice-versa.  Going long and short are different skill sets.

The Author has a lot of experience with hedge funds, having invested with them for many years.  He knows the foibles, the pitfalls, and most of the factors that lead to subpar results.  Above all, he understands that there is no magic to hedge funds.  Just because you call you investment fund a hedge fund does not mean you will deliver market-beating results.

Aside from the book some of the works the book cites are valuable, particularly the work by Dichev and Yu, which deals with how hedge funds do well when they are small and do badly when they are big.  Trend chasing always leads to bad results, and institutional investors are not immune.

Quibbles

None.

Who would benefit from this book: Most investors would benefit from this book.  Particularly those that advise institutional clients and high net worth individuals would benefit. If you want to, you can buy it here: The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True.

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

I previously reviewed the First Edition.  Now it is time for the Fourth Edition.  Rather than do a teardown, I think it would be more useful if I explained how the book can best be used.  Here goes:

There has been a lot of research done on stock returns, the results of which have encouraged investment in:

• Cheap stocks relative to book value, earnings, sales, EBITDA, FCF, etc.
• Stocks with strong price momentum.
• Stocks with strong earnings quality.

And such is true of this book.  And so, I encourage investors to focus on earnings quality, cheapness, and maybe, momentum, which hasn’t done so well of late.  (Probably too many following it.)

Now, the wrong way to use the book is to look at the highest returning strategy of the past, and follow it.  Since they test so many strategies, the one at the top is an accident of the historical period it covered.  Far better to be more humble and use a strategy that borrows from many successful strategies.  In doing that, there is less chance of amplifying the noise of the past.

Quibbles

The danger of this book is data-mining.  The deeper you dig to find what would have worked best in the past, the more you mirror the idiosyncrasies of the past, which does not then reveal the long-term principles that generally work, over intermediate-term periods.

Far better to stick with “pretty good” methods that never reach the top, but usually work.  Don’t be concern about hitting home runs, as much as getting on base regularly.  I say this because it works well for me and my clients.

Who would benefit from this book: Most investors would benefit from this book, if they are careful not to grab for the “brass ring” and imitate the strategy that has worked best in the past.  If you want to, you can buy it here: What Works on Wall Street.

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

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