Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies [Paperback]

Aswath Damodaran (Author)

Book Description

Publication Date: March 22, 2004 | ISBN-10: 0131403125 | ISBN-13: 978-0131403123 | Edition: 1

The truth about 13 of today's most widely touted investment strategies.

• 10 powerful lessons for every investor
• Overcoming the enduring myths about markets
• High dividend stocks: better and safer than bonds--or not?
• Cheap stocks: cheap for a reason?
• Should you invest in quality? Momentum? The next big thing? Or what?

You've heard 'em. (Maybe even from your broker!) They're the "can't lose" investment stories that promise you a no-risk path to profits …

• "Buy companies trading below book value."
• "Follow the momentum."
• "Buy stocks with low P/Es."
• "Stick with quality."
• "Buy after bad news."
• "Buy after good news."
• "Follow the insiders."
• "Do whatever Warren Buffett's doing."

And on, and on, and on …

They sound good. But do they really work? You're about to find out.

In Investment Fables, one of the world's leading investment researchers runs the numbers on 13 of today's most widely touted strategies, objectively answering the questions your broker can't answer. Has it worked over the long term? Over the short term? If it made sense once, does it still make sense? Are the promised benefits a statistical mirage? Could it work, as one part of your investment strategy? What are the downsides–and how can you mitigate them?

If you want to make smarter investment decisions, you'll find this book utterly indispensable.

Editorial Reviews

From the Back Cover

The truth about 13 of today's most widely touted investment strategies.

• 10 powerful lessons for every investor
• Overcoming the enduring myths about markets
• High dividend stocks: better and safer than bonds--or not?
• Cheap stocks: cheap for a reason?
• Should you invest in quality? Momentum? The next big thing? Or what?

You've heard 'em. (Maybe even from your broker!) They're the "can't lose" investment stories that promise you a no-risk path to profits …

"Buy companies trading below book value."

"Follow the momentum."

"Buy stocks with low P/Es."

"Stick with quality."

"Buy after bad news."

"Buy after good news."

"Follow the insiders."

"Do whatever Warren Buffett's doing."

And on, and on, and on …

They sound good. But do they really work? You're about to find out.

In Investment Fables, one of the world's leading investment researchers runs the numbers on 13 of today's most widely touted strategies, objectively answering the questions your broker can't answer. Has it worked over the long term? Over the short term? If it made sense once, does it still make sense? Are the promised benefits a statistical mirage? Could it work, as one part of your investment strategy? What are the downsides—and how can you mitigate them?

If you want to make smarter investment decisions, you'll find this book utterly indispensable.

About the Author

Aswath Damodaran is Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation in the MBA program.

He has published widely in the field, for leading journals such as The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics, and The Review of Financial Studies.

He has also authored several books, including The Dark Side of Valuation (Financial Times Prentice Hall) and two books on corporate finance. With Peter Bernstein, he co-authored Investment Management.

He received the Stern School of Business Excellence in Teaching Award in 1988, 1991, 1992, 1999, and 2001. In 1994, he was profiled in Business Week as one of the top 12 U.S. business school professors.

See all Editorial Reviews

Product Details

• Paperback: 539 pages
• Publisher: FT Press; 1 edition (March 22, 2004)
• Language: English
• ISBN-10: 0131403125
• ISBN-13: 978-0131403123
• Product Dimensions: 6.6 x 1.8 x 9.2 inches
• Shipping Weight: 1.8 pounds (View shipping rates and policies)
• Average Customer Review: 4.4 out of 5 stars  See all reviews (9 customer reviews)
• Amazon Best Sellers Rank: #404,351 in Books (See Top 100 in Books)

More About the Author

Aswath Damodaran is a professor of finance and David Margolis teaching fellow at the Stern School of Business at New York University. He teaches the corporate finance and equity valuation courses in the MBA program. He received his MBA and PhD from the University of California at Los Angeles. His research interests lie in valuation, portfolio management, and applied corporate finance. He has been published in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies. He has written three books on equity valuation (Damodaran on Valuation, Investment Valuation, and The Dark Side of Valuation) and two on corporate finance (Corporate Finance: Theory and Practice, Applied Corporate Finance: A User's Manual). He has coedited a book on investment management with Peter Bernstein (Investment Management) and has written a book on investment philosophies (Investment Philosophies). His newest book on portfolio management is titled Investment Fables and was published in 2004. He was a visiting lecturer at the University of California, Berkeley, from 1984 to 1986, where he received the Earl Cheit Outstanding Teaching Award in 1985. He has been at NYU since 1986 and received the Stern School of Business Excellence in Teaching Award (awarded by the graduating class) in 1988, 1991, 1992, 1999, 2001, and 2007, and was the youngest winner of the University-wide Distinguished Teaching Award (in 1990). He was profiled in Business Week as one of the top 12 business school professors in the United States in 1994.

Most Helpful Customer Reviews

21 of 22 people found the following review helpful

5.0 out of 5 stars Reality check for investors October 30, 2006

By Q

Format:Paperback

This is a thick book, but it reads pretty easily. The main message is that there are no easy profits in the stock market. There's no profit without risk, and that means you can lose your money just as easily as make money. He starts each chapter with a "fable," a story of some gullible investor who follows one of the conventional strategies for stock profits (for example, buy low p/e stocks) and, after losing money, finds out it's not that simple. Rather than simply debunking all the traditional stock market investing strategies, he explores how much, if any, truth there is each one, and how you would need to practice that strategy in order to make money. For example, instead of simply screening for low p/e stocks, you would need to add other criteria in order to avoid the real losers. The strategies he investigates are
High dividend
Low P/E
Low Price to Book Value Ratio
Stable earnings
Superior management
Growth stocks
Contrarian
Small Caps and IPOs
Mergers and Acquisitions
Arbitrage
Momentum
Insiders and Experts
Market timing
Buy and Hold
All in all, it's well-written and interesting. The author is a professor, but he writes for a general audience.

The problem is that his whole approach here is in terms of CLASSES of stocks, rather than individual stocks. He assumes that investors find stocks using stock screening software only, while for most investors that is only a first step. Fro example, Damodarn assumes that contrarian investors buy a stock ONLY because it's gone down in price. But contrarian investors look for stocks which have been beaten down in price unfairly. They look at the whole company, its strengths, weaknesses, and potential for growth. Damodaran's comments mostly apply to mutual funds and asset classes (e.g. small growth). His argument is based on statistical performance of asset classes, but most stock investors buy invidual stocks based on a variety of criteria.

8 of 9 people found the following review helpful

5.0 out of 5 stars Well researched and balanced book June 20, 2006

By Raj Tewari

Format:Paperback

This book is a very accessible overview of finance research on most major investing strategies (or themes). The author introduces each chapter with a short story and then builds the case around each investing theme. The bottom line is that there is no investing "silver bullet" - which is probably intuitive, but often neglected in the search for a magical investing potion.

The major contribution of this book is to address each one of the investing themes (Low P/E, Low P/S etc.) in great depth and actually build model portfolios. Damodaran has comprehensive command of his material and presents concepts in a very readable manner. If you are looking for an in-depth treatment of investment strategies, this is a great book.

25 of 33 people found the following review helpful

5.0 out of 5 stars Damodaran Succeeds Again April 6, 2004

By Steven Eggerton

Format:Paperback|Amazon Verified Purchase

I have every one of Damodaran's books, and they have all helped me greatly. This book is no exception. If you want to gain investment knowledge without the pain and losses most people suffer, read his books. Take a look at Damodaran's website also. The webcasts of his classes at NYU are fantastic.