Customer Reviews

Investment Philosophies: Successful Investment Philosophies and the Greatest Investors Who Made Them Work

5 star:		(7)
4 star:		(3)
3 star:		(1)
2 star:		(0)
1 star:		(1)

 

 

Investment Philosophies is one of the best investment books I have read. It is both informative in the sense that it contains detailed information, and in that it proposes a theoretical framework for thinking about investing. My only complaint is that Damodaran did not cover more investment philosophies (he considers 7). However, that is not a big enough complaint to take away even a half a star let alone a full one.

The book is broken down into two segments. The first gives a primer in finance theory which is useful to those who are beginners as well as those with more intermediate knowledge. The first segement is essentially a mini-textbook on finance related to investments. It is extremely handy and very well laid out. The second segment of the book uses the tools developed in the first to analyze various investment philosophies. Damodaran bases nearly all his arguments on academic research. That is, he does not make any claims without backing them up.

There is little new information in this book, although there are results of a few very recent research projects. The value of this book is in the organization of information already available, and of course in the theoretical framework of the "investment philosophy" that he lays out. It is important to note that Damodaran's definition of investment philosophy is not without dispute. Most investmentment philosophies used in practice do not meet his criteria. So, he is really making an argument for looking at investment philosophies in a new way. It is my belief that this new way is superior to what is currently in use.

Investment Philosophies by Aswath Damodaran presents a balanced survey of the different approaches to investment, points out the strengths and weaknesses of each, and presents the results of numerous analyses that have been conducted to test the merits of the various approaches. The book is easy to read and far less mathematical than the author's magnum opus, Investment Valuation. The only flaw I can cite is the need for a more careful editing to remove several typographical errors.

Professor Damodaran starts Investment Philosophies with a brief overview of the concept of risk, valuation techniques, the impact of transaction costs and taxes, and the efficient market hypothesis. After presenting these background topics, the addresses the various philosophies individually:

1. Technical Analysis: Selection of investments based on their prior price patterns.
2. Value Investing: Identifying investments whose current price is low relative either to their intrinsic values or to similar investment opportunities.
3. Growth Investing: Identifying investments whose value is likely to grow more rapidly than alternatives.
4. Trading on News: Closely monitoring corporate announcements and attempting to react rapidly to take advantage of new information.
5. Arbitrage: Attempting to minimize risk by hedging one investment against another in a manner that leaves a small but highly probable profit.
6. Market Timing: Seeking to recognize when the market is overvalued or undervalued and moving one's investments accordingly.
7. Indexing: Concluding that none of the above techniques is likely to produce results that consistently beat such market indices as the S&P500 which can be tracked by numerous Index Funds.

One tidbit of wisdom that I especially appreciated was an explanation of how to evaluate return on equity (ROE) for companies with very little equity. In these cases, any positive return can result in an astronomical ROE. Professor Damodaran's solution is to use the ratio of (Price-to-Bookvalue) to ROE.

The title, Investment Philosophies, seems a bit too abstract to me and may put off some potential readers who would enjoy and benefit from reading it. The contents are sufficiently concrete to justify a title such as "A Comparison of Alternative Investment Strategies". If you are looking for an easy to read, non-mathematical approach to this subject, this book is definitely a five star selection. If you want a bit more technical depth, start with Investment Valuation, or use it as a reference while reading Investment Philosophies.

See also Professor Damodaran's website, damodaran.com, which contains a wealth of information from his books and classes at NYU.

This book is an excellent very basic introduction to Finance Theory as currently taught in business schools. It is also a well organised overview of a few different trading styles eg value vs technicals.
My reservation is that he leaves the reader with the impression that MPT is the only way of looking at markets and examines all trading styles within that framework. Thus he has only one philosophy and a list of techniques. In fact many of the investment greats have deep philosophical and methodological differences which are not acknowledged.
For example without any qualification, risk is defined as volatility. Despite having Buffett on the front cover there is no reference to the fact that Buffett completely disagrees with that definition and has contempt for the theories that are taught at Business Schools.

"Just a spoonful of color would have made the investment philosophies go down, in the most delightful way." To paraphrase nanny Mary Poppins' advice to add honey to nasty-tasting medicine, you may wish that this informative tome was more colorfully written, but you could not wish for a more solid dose of information. Aswath Damodaran backs up his explanations of investing philosophies with ample studies, detailed graphics and a website, even if you need to absorb the dense, detailed data in 15 minute chunks. This well-researched, solid book will be useful to individual investors, investment managers and anyone who wonders why various investment philosophies succeed and how (and at what risk) portfolio gains are made. The index investing chapter and the final summary are required reading for investors wondering how huge portfolios crashed after U.S. equities collapsed. We recommend this soup-to-nuts introduction to sophisticated investing. Your financial security could hinge on a good grasp of the issues it covers.

I felt a bit ripped off by this book because it only superficially covers the investor's whose pictures grace the cover. In fact, it's an ambitiously massive survey of conventional finance theory related to picking stocks. However, as a professional investor, I've read everything it covers in better detail elsewhere. As a gift for someone new to investing I'd recommend Browne's Little Book Of Value Investing because it is more accessable and entertaining. For more seasoned readers I'd recommend David Dreman's Contrarian Investment Strategy because it uses numerous empirical studies.

State of the art book on investment strategies. It's far kwown that there are a lot of books on investment topics: technical analysis, fundamentals, macroeconomic facts, bonds, etcetera. But it's the first one that shows several empirical studies about how markets really work and how they perform in different ways: does the day of the week provoke stock fluctuations? And what about IPOs?? Can we earn money with analysts? Which way? Anytime?

It's the first book in which I find this facts very well explained. Exceptional.

In this book Professor Damodaran has presented:

1) The thought processes that lie behind various investment strategies (i.e. postulates of how the market works)
2) Could the strategies have worked (retrospective analysis) and
3)Did they work (successes or lack thereof of individual investors and money managers who are out there trying to take advantage of Mr. Market in various ways).

Spend the time to understand the basics of valuation and its limitations and you might avoid common mistakes or at least be aware of the risks you are taking. Read this book to ground yourself in reality so you can properly evaluate the get- rich quick schemes that are out there. Prof Damodarans book is an excellent compilation of what you need to know before you start playing with your money.

Unfortunately, there are no short cuts to knowledge and wisdom but this comes close.

This book porvides a great combination of scientific research and practical tips for any serious investor who cares himself for his personal investments in any asset class. Because all available investment styles (timing, wealth investor, index tracking, ...) are explored in terms of risk and return and when combining this information with your personal attributes (age, goals of investing, risk aversion, ...) you can find your own serious investment principles. A must have for any serious private investor.

The best thing about the book is it does not offer shallow remedies like "get rich in 30 days" ot " how to become a millionaire", but offers a more academic assement of the philosophies followed by disciplined investors. He fits it nicely in to theoretical framework. I think Damodaran wants to show the relevance of the theoretical knowledge in the strategies folled by these investors.

Damodaran has written a useful but incomplete overview of what factors different investment philosophies emphasize and/or deemphasize.An example would be to compare-contrast value investors like Graham,Buffett,and Keynes with a growth investor like Lynch.The author is certainly correct to observe that,given the extremely short run time horizons(short run and short sighted)of practically all stock markets,it will be extremely difficult to emulate Buffett(or Keynes,who averaged a 13.2% return from 1926-1946 on his portfolio).It is correct to say that Buffett is a follower of Graham.However,he is also a follower of Keynes's long run approach that emphasized obviously relevant factors like company morale and leadership,cash flow,liquidity,market leadership,and market fundamentals in generel.This approach works best when it is realized that decision making is occurring under conditions of risk AND ELLSBERGIAN AMBIGUITY(KEYNESIAN UNCERTAINTY).A major defect in this book is the author's failure to clearly differentiate between risk and ambiguity(uncertainty).The standard probability approach discussed by the author is the mean-variance -normal probability distribution approach,with covariation thrown in for purposes of comparing more than one stock at a time.This approach assumes continuity,independence,linearity,etc.Benoit Mancelbrot has demonstrated that these properties are not evident in stock market price data over time.Ellsberg and Keynes demonstated that the evidence is generally not going to support any tractable distribution.Mandelbrot has identified the Cauchy distribution as being or having approximately the best fit to much of the price data.This distribution is correctly described by Mandelbrot as wild risk as opposed to the mild risk of the normal distribution.Buffett's great intuition allowed him to concentrate on logical factors that would carry the most weight in a world of ambiguity and wild risk.The business and finance departments teach one how to invest in a world of no ambiguity and mild risk.Buffett correctly criticizes such an approach because it is contrary to the facts of observation.The author needs to revise his chapter on risk and devote an entire chapter to Buffett.He might also choose to add a chapter on H Ross Perot's approach that appears to be a blend of Buffett's and Lynch's approach.Nothing written by the author demonstrates that the value and growth approaches are inherently contradictory.Both acknowledge the existence of substantial ambiguity.Decision making under ambiguity(uncertainty) is very different from decision making under risk.