Customer Reviews

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing

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I never thought I would see a book on the stock market that is believable, yet useful. Malkiel's book on Random Walk is accurate but according to that you can't do anything. Singal's book is aptly titled "Beyond the Random Walk". He seems to believe in market efficiency but says that there are times when the market or a few stocks are not correctly priced.

The book talks about these mispricings in a refreshingly simple language though it relies on amazing amount of research. Also has trading strategies that are useful.

I would recommend it.

The financial markets give investors a chance to make money when they work - and when they don't. When markets work efficiently they uncover the true value of an asset by pegging its fair price for informed buyers and sellers. When for a variety of reasons markets are inefficient they misprice assets. When the specific circumstances of that mispricing are recognized and persistent (viz. predictable) it is an anomaly. The regularity of anomalies offers investors, at least in theory, the opportunity to profit by taking a position that recognizes the temporary nature of the mispricing before it rights itself. These anomalies are the subject of Singal's study which takes its title from the updated 1970's classic exposition of the efficient market hypothesis by Princeton Economics professor Burton Malkiel.

This is a detailed look at ten market anomalies. Singal's goal is to move us well beyond descriptions and academic evidence and offer trading strategies intended to achieve an outsized market return. Each chapter summarizes key points and projects potential returns from implementing the outlined strategy. Additional market anomalies are briefly identified in the final chapter. As a bonus of sorts an appendix gives the most detailed explanation of short selling I have read.

From a practical standpoint some anomalous situations would appear to be more exploitable than others. Mergers between public companies occur with some frequency, so an understanding of how to play the merger premium paid by acquiring companies for their target is useful. Changes to the composition of the S&P 500 Index and their impact on stock prices occur with less frequency, but this is balanced by opportunities from the January and "New December Effect" (mark your calendars). From anecdotal observations, I am not convinced by the author's discussion of the Weekend Effect, and the chapter on International Investing seems like a fair argument for diversification rather than an anomaly. The so-called Value Line Enigma identified in the final chapter is perplexing to this reader, since the supposed outperformance of their recommended stocks runs directly counter to a similar study of mutual funds picked by Morningstar. An apples to oranges comparison to some, perhaps, but it is a sufficiently known study to warrant comment. A chapter dealing with currency forward rates will be beyond most non-professional investors. I would have liked to have heard more about spin-offs, the long-term overperformance of "independent" subsidiaries occasionally distributed to shareholders of a parent company. Singal identifies the simpler, "sharper" corporate mission as the reason. Actually, it may be strong sponsorship and generous, upfront management incentives which spark those returns.

The question remains, does this serious academic study offer practical trading strategies to investors bent on gain. The answer is that Singal has so many ideas packed into the book that investors will be influenced in the aggregate in their trading decisions. Not to be aware of these market biases exposes traders to more uncertainty and risk than may be necessary.

I was looking for information on timing mutual funds and stumbled on the site of this book: http://www.BeyondTheRandomWalk.com. I was so intrigued by the book that I ordered it. Not a bad book at all. It explained everything I wanted to know about mispricing of mutual fund NAVs in a very simple language. Amazing that these people (Singal and others) have known about it for almost 10 years -- and investors like me did not know. This is just one chapter in the book. There are ten anomalies he discusses. Worth a lot more than the $30 I paid for it.

After reading the January 2004 issue of Money magazine, this book was next on my reading list. The site www.beyondtherandomwalk.com is quite informative.

Table of contents:

Chapter 1: Market Efficiency and Anomalies
Chapter 2: January Effect and the New December Effect
Chapter 3: The Weekend Effect
Chapter 4: Short-term Price Drift
Chapter 5: Momentum in Industry Portfolios
Chapter 6: Mispricing of Mutual Funds
Chapter 7: Trading by Insiders
Chapter 8: Changes to the S&P 500 Index
Chapter 9: Merger Arbitrage
Chapter10: International Investing And The Home Bias
Chapter11: Forward Rate Bias
Chapter12: Understanding And Learning From Behavioral Finance
Chapter13: A Description Of Other Possible Mispricings

Pros: All of the anomalies seem to be based on real research, not just hot air. The trading strategies are clear and easy to implement. Singal is cautious in making recommendations. The summary table at the beginning of the book lets you choose what you want to read and use. Seems very credible. Easy to read and understand. Many, many new things all investors wish they knew.

Cons: Confusing title. More more description about each anomaly would have helped but may be the author did not want to make it into an encylopedia. The list of references helps for further exploration. Each anomaly has a discussion of about 25 pages, which is okay as a start.

Value: Excellent. Strongly recommended.

This is definetly one of the better written books on the subject. Singal presents several "market anomalies" and discusses strategies as to how to benefit from them. However, most of them have holding periods of a couple of days to a few weeks at the most. A long-term investor may not find the strategies mentioned here very useful. Of particular appeal to mid-to-long term investors may be the discussion on SP500 additions and deletions, and mutual fund pricing. It may offer some tips on when to committ additional funds to mutual funds. However, the increased pressure on market timers and related activities, increasing redemption fees, trading costs, tax implications and the sheer amount of time required to monitor the strategies, the techniques of the author provide for good academic discussion and not as much as practical "tips". Nevertheless, the market situations, suggested techniques, evidence and possible explanations, citations are well presented and logically organized. A must-read for traders and investors alike, though for different reasons.

I am a (successful) practitioner who has been exploiting mispricings in the market for more than 10 years - in bad times and good times.

This is an excellent book - readable, comprehensive, and up to date. It is not a fool's book but the ideal book for an intelligent person. It describes the risks associated with each strategy. I particularly like the strategy with Fidelity Select Funds.

I hope the book becomes popular so that it can be reissued every few years with new insights and new data.

The format in which this book was written is outstanding. Simply because I don't have an interest in all the chapters, and the way in which it was written allows me to read several chapters without reading the entire text. The anomalies are based on backtesting and research, and not just feel or emotion.
Singal shows that there are temporary mispricings in the market and offers suggestions how individuals can implement strategies to profit from them.

I don't think anybody is going to get rich implementing the ideas in this book. I do think people can do very well with ideas that this book will give you. There is no free lunch in finance, but knowing the basic principles and themes you can do reasonably well. For example, I've found ways to make money on his chapter 4, "short term price drift," though my toolbox would make the strat unrecognizable to someone who had only read his book. The chapter on merger arb is pretty good; add some models for the spread (or Boesky like "models") and you could do well on Risk Arb. Other stuff; momentum trades can work better than doing nothing. Add in some vol signals and the ability to hold cash, and I bet this works pretty well. If I ever get a 401k again, that's about all I can think of doing with it, so I probably will. Bias forward on FOREX -something I've been meaning to look at for a while now. I can think of reasons why it would be true anyhow. Definitely believe the NAV arb thing, though I bet it's pretty small and probably disappearing fast.

I don't remember if he characterized the risk involved (I didn't write anything about Sharpe in my notes anyhow); I suspect there is substantial risk in all of his strats. Certainly there is substantial risk in things like merger arb. Lots of what he describes does end up having a lot of human input also; for example, in the S&P index add strat, you had to do a human sort of which adds were meaningful. It's a pretty simple thing to do in principle, but it isn't what guys like me really want: which is a strat which is close to taking human subjectivity out of the loop. Certainly, this makes backtesting more meaningful; it is easy to be right when you already know the answer. There is also the issue (which I found out in the S&P strat) of the price of gathering data. One of the reasons such simple strats exist is the cost of gathering the information you need to implement them is fairly high compared to the payout. Would I be better off screen scraping all the live long day to implement some lousy subjective strat with a low Sharpe anyway? Or would I be better off getting a job at a Bank, making a lot of money, and buying bonds? Sounds flippant, but this is the source of lots of "arb" opportunities -including many of the ones in this book. Such strats may simply not be worth the arb's time.

Still, as a book which describes some basic, profitable trading strategies, Singal's book is a winner. You can use the basic ideas expounded here to have better ideas. For a new trader, there aren't many books like this you can get anything useful out of; Ernie Chan's book is the only one I can think of offhand.

I'm impressed with what a good job Vijay Singal has done. Beyond the Random Walk is very clear and thorough, turning what is normally overly academic research/text into easy to follow prose and investor-friendly instructions. I'm reading a library copy now, but want to have my own copy--a rarity for me.

Buy ' This book has unique advantages over its peers. It states things believed to be true. The anomalies that is describes are supported with careful research.

Hold ' You will want to keep this book on your reference shelf. It can be read several times, and has many gems in it. There are very few books that cover this material.

Outperform ' The book can be used to demonstrate correct ways to pursue the markets. If markets are not completely random, then use this book as your starting point.