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Sunday, February 03, 2013

 

Market Sense and Nonsense by Jack D. Schwager - Book review



Market Sense and Nonsense

How the Markets Really Work (and How They Don't)


By: Jack D. Schwager

Published: November 6, 2012
Format: Hardcover, 343 pages
ISBN-10: 1118494563
ISBN-13: 978-1118494561
Publisher: John Wiley & Sons, Inc.











"The simple fact is that many widely held investment models and assumptions are simply wrong - that is, if we insist they work in the real world", writes recognized industry expert in futures and hedge funds, and co-portfolio manager for the ADM Investor Services Diversified Strategies Fund, Jack D. Schwager, in his eye opening and provocative book Market Sense and Nonsense: How the Markets Really Work (and How They Don't). The author describes the many myths, misconceptions, and mistaken assumptions that permeate conventional wisdom and accepted truths about investment, including the mistaken assumptions held by brokers, analysts, and investors.

Jack D. Achwager recognizes that there are incorrect and money losing beliefs, often mistaken as truths, that are shared by investors and their advisers. The author offers statistical and empirical evidence, in the form of real world data, that demonstrates how conventional wisdom very often fails the reality test. Investors all too often bring inaccurate and fallacious beliefs to their investment portfolios; usually with money losing results. Investment professionals, writes the author, often rely on insufficient and inappropriate data, flawed mathematical models, and mistaken and unfounded investment strategies.


Jack D. Schwager (photo left) understands that investors follow the advice of personal investment professionals and widely listened to media and newsletter experts. As a result,the author examined their track record for empirical evidence of their successes and failures. The author takes a clear eyed view of the recommendations of the experts, the most popular market theories, challenges posed by looking at past performance.

The author presents a wide ranging analysis of the markets, investment strategies, and market theory through a statistical and data based approach. Among the areas covered in this all encompassing study are:

* Expert advice
* The deficient market hypothesis
* The tyranny of past returns
* The mismeasurement of risk
* Why volatility is not just about risk
* Track record pitfalls
* Sense and nonsense about pro forma statistics
* How to evaluate past performance
* Correlation: Fact and fallacies

For me, the power of the book is how Jack D. Schwager combines a strong theoretical framework for examining the conventional wisdom of investing, with a strong statistics, graphics, and data based analysis of those widespread beliefs. The author poses and answers real world based questions about the assumptions made by investors, analysts, investment professionals, and well known experts. Jack Schwager puts each of their theories and ideas to the test, and makes many insightful discoveries.

First and foremost, the author dispenses with the outdated and inaccurate rational market hypothesis. He proves that concept to be fallacious and not based in reality. Jack Schwager presents a comprehensive overview and analysis of hedge funds, what they are, how they work, and both the risks and rewards associated with them. A really valuable section, within each of the book's chapters, is a brief but concise assessment of a particular market misconception. Overall, the author provides a powerful overview and analysis of the markets, investment, and how markets both work and fail in the real world of investments.

I highly recommend the comprehensive and data based book Market Sense and Nonsense: How the Markets Really Work (and How They Don't) by Jack D. Schwager, to anyone who is currently or considering making investments, investment advisers and professionals, and members of the media who are seeking a complete and concise guide to the realities of investment that cuts through the clutter and presents real world facts. This book will change forever the way you view the markets, your investments, hedge funds, and the advice offered by investment professionals and experts.

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