99 of 110 people found the following review helpful
on October 9, 2011
"Jackass Investing" came to my attention through a recommendation by the author, Michael Dever. Normally, such a title would cause me to pass over the book. After reading many of the above reviews (highly recommended) I decided to buy and read the book. It is sufficiently challenging that it merits not only reading, but additional study. I applaud the book (and author) in that it challenges the reader to rethink many investing truisms.
When reading any type of investment book I want to come away with some suggestions I can put to use. Dever meets this standard with his "Composition of the Free Lunch Portfolio" at the end of the book. However, there are several hurdles when it comes to implementing the "Free Lunch" strategy, and prior reviewers failed to point out what I see are inherent problems for the small investor.
Beginning on page 263, where the example portfolio begins, we see two trading strategies crop up. They are: Piotroski Trading Strategy and CANSLIM Trading Strategy. To pull off these strategies, one needs access to a database similar to one provided by the American Association of Individual Investors (AAII). "Stock Investor Pro" is the database and the cost is $199 per year for AAII members. Write that down as one of the "Free Lunch" costs.
A little further down the page are two more trading strategies, the Market Trading and Sector Trading Strategies. These receive additional explanation on Dever's web site. One begins to pick up clues that "Free Lunch" is not a simple strategy. But wait, there are higher hurdles to jump.
Within the "Free Lunch" portfolio are two funds that will slow down the small investor. Three percent of the portfolio is recommended to be held in Frontier Markets using FRNMX. Unfortunately, FRNMX requires a $100,000 minimum to participate. Moving a little deeper into the "Free Lunch" portfolio one finds a Credit and Equity Arbitrage fund, ADANX. Six percent of the portfolio is recommended to be invested in this fund. ADANX, according to Morningstar, requires a cool one million dollars to participate and it carries a 1.50% expense ratio. There is nothing "free" about this fund.
There are additional trading strategies involving global currency, interest rates, energy, metals, and agricultural. To participate in a full-blown "Free Lunch" strategy also requires access to Trim Tabs data. I did not pursue the portfolio strategy sufficiently to determine the cost of this data. I assume it is non-trivial.
While "Jackass Investing" in an interesting read, this book is geared toward investors with multimillion dollar portfolios. Such investors are likely looking for top quartile hedge fund managers rather than trying to do it themselves using "Free Lunch" recommendations. As for the small investor (defined as something less than three to five million dollars), the complexity of the strategy and underlying costs will deter most readers.
51 of 55 people found the following review helpful
on July 21, 2011
In this informative, entertaining, and quick read, the author - Mike Dever, Founder, CEO & Director of Research of Brandywine Asset Management examines the misconceptions or "myths" of current investment theory and replaces it with what he describes as a "return driver" based methodology that results in both greater returns and lower risk.
I read the entire book on a recent flight from San Diego to Chicago to attend a business meeting. I wasn't planning on finishing it in one sitting but once I started I couldn't put it down. It was well written, concise, and I thoroughly enjoyed it.
A few weeks later I had the book with me again on a flight back from vacationing in Colorado. A fellow passenger noticed the provocative title and commented, "Jackass investing? All investing is jackass investing...nobody makes money investing." If this passenger had the benefit of knowledge contained in this book I believe he would come away with a different point of view and perhaps avoid creating what Dever calls a "poor-folio" - a poorly constructed portfolio, which is the main goal of the book.
Most investors, Dever believes, make decisions based not on rational facts but on myths and emotions. He exposes the truth behind those myths and provides a rational alternative to the conventional wisdom that permeates the financial industry.
The book is divided into 20 chapters in which Dever explores and debunks 20 different commonplace investment myths and their attendant unnecessary risks. The author's definition of 'jackass investing' is taking these unnecessary financial risks. He explains each myth by using numerous, studies, relevant facts, simple graphics, anecdotes, and great analogies. The author clearly shows that he knows what he's talking about and expresses his wisdom concisely. He explains things without assuming prior knowledge, but also without going into intricate detail.
The basic investment philosophy expressed is based on the premise that the most consistent and persistent returns across a variety of market conditions are best achieved by combining multiple uncorrelated trading strategies - each designed to profit from a logical, distinct "return driver" - into a truly diversified investment portfolio. A "return driver" is an underlying baseline condition that drives the price of a market. Identifying drivers shifts your portfolio from speculation to investing in the diversity across the drivers.
Although not a book focusing on commodities and futures, it does contain two chapters on these alternative investments: `Myth # 11: Commodity Trading is Risky' and `Myth #12: Futures Trading is Risky' in which he dispels those myths.
In today's economic climate, investment education is no longer an option. There are huge consequences of not recognizing and understanding the popular fallacies of investing. The bright side is that being armed with the information provided within these pages anyone can take advantage and profit from these myths. To assist you in doing so, the author has created a companion website that includes specific actions you can take to create a truly diversified portfolio.
Readers will find Dever's investment principles compelling and practical. I highly recommend it to both new and experienced investors.
45 of 49 people found the following review helpful
Michael Dever has hit so many nails on the head in this valuable and very readable JACKASS INVESTING that it will be snatched up by people who manage their own money with or without advisors. He offers common errors in investment strategies that are myths (20 of them to be precise) including such controversial topics such as 'Buy Low, Sell High', 'Stocks Provide an Intrinsic Return', 'Government Regulations Protect Investors', 'Commodity Trading is Risky', ''Trading is Gambling - Investing is safer', and so on - and for the informed reader this may sound like a list of Rule to Follow: wrong!
What Dever does - and this is where the majority of readers will find much needed enlightenment - is explain the process expressed in his 'myths' and in doing so he has provided one of the best Primers for those of us who know little and understand less about how the investment market/business operates. The terms he uses he explains in simple language, terms that daily become more prevalent in the media with the money market crisis bleeding to death globally. Probably several readings of this book will be necessary to fully take advantage form his sage advice. Not that it is a difficult read - quite the contrary: his verbiage is unfettered and is accompanied by helpful quotes, examples, graphs, and researched elements that practically assure that even those of us who have always considered the investment market foreign language ridden territory understood only by brokers and counselors will find light at the end of this once-threatening tunnel.
Dever is smart, witty, wise, and entertaining and has provided a book that should, for one, be required reading for college students not majoring in Economics - and of those of us who should have taken a couple of courses on the subject but didn't. Doubtless there will be many who peruse this book who don't even know about the Myths he debunks. Now read and get an education and learn about the fallacies and methods of placing your hard earned dollar to work for you. Grady Harp, July 11
22 of 23 people found the following review helpful
This is a long review, which I normally try to avoid. The reason is that this is a very good book, that is as dangerous as it is good. If you don't want to read the rest of this review, ignore my five stars and do not buy the book. If you don't like to read user manuals, you should stay away from chain saws and dynamite.
Next, I have to include a disclaimer. The author sent me this book free, asking for a review. He recommends both products and research from my firm. If you're a trusting soul who thinks my mentioning a possible conflict of interest guarantees the review is not biased, see the advice in the paragraph above. However, I sincerely believe this is my honest opinion, for whatever that's worth.
The good part of this book is the author knows exactly what he's talking about. He expresses important and little-known wisdom clearly. His knowledge is based on solid, long-term experience and deep thinking. He explains things carefully without assuming prior knowledge, but also without bogging the book down in definitions. The style is reminiscent of the . . .For Dummies books. Each of 20 chapters is structured as exploding a myth.
The bad part about this book is he leaves out three very important facts.
The first is that the biggest financial mistake most people make, by a wide margin, is to spend more money than they make. No clever investing can fix this. The second fact, and the second biggest mistake, is to fritter away savings on fees, expenses, taxes and silly schemes. Someone who avoids these two mistakes, who lives within her means on a sustainable budget and invests in low-cost, tax-efficient index mutual funds (like Vanguard Index Trust 500) is way ahead of the game. She is not the "jackass" the author claims. Perhaps her savings are so small that the benefit from the more sophisticated strategies detailed by this book are less than the cost of the time and effort to implement them. Perhaps she has a fine life with the returns provided by US equity markets and gets more profit and satisfaction devoting her energies to things other than her portfolio. Yes, she is giving up a lot of free lunches, but there is no law forcing people to eat every free lunch they are offered. Yes, she is undiversified, but that's also no crime.
The third and most important omitted fact is that the large majority of people who try to do better than our sensible but unimaginative investor above, fail. My guess is 75% fail because they do no homework and have no plan. Presumably that rules out readers of this book. But I think 75% of the remainder lack the discipline and skill required for successful trading. This book claims to have easy-to-follow advice. Maybe that should be true, certainly nothing in Jackass Investing requires advanced degrees or exceptional insight or courage. But empirically, most people cannot do it, however smart and brave they are and however hard they try. And even among the people who pass the first two tests, I think 75% fail because they lack the life attitudes and risk awareness necessary to avoid disaster. For every long-term successful trader, there are three who were long-term successful except for one blow-up, a blow-up that leaves them worse off than our index fund investor. The problem is emotional at least as often as strategic. That means you have about a 2% chance of benefiting from this book, or maybe 6% conditional upon having purchased it and read it carefully. Maybe that's as high as 25% given that you've read this far in my review. But even in that most optimistic light, the odds are against you.
My next comment is the book is written in a defiant, "everybody else is wrong" tone. The reader is constantly told how "pundits," "experts," and "media," "spew" self-serving nonsense. I have more respect for name-calling if you name the target. Jeremy Siegel and John Bogle are among the better-known proponents of the views the author criticizes. Although I think the author is basically correct, that does not mean these other writers are idiots. If he mentioned their books he would have to note that they address many of the issues he raises, and offer some arguments against the views in Jackass Investing. What the author in fact does is criticize idiots who read the cover flaps on books like Siegel's and Bogle's and take wildly oversimplified versions of their ideas as revealed truth.
On the other hand, humility and complexity would make this a book fewer people would read. Strong, simple, insulting writing can be energizing, like "It's the economy, stupid." It can focus the mind. Expected Returns is a far more comprehensive and accurate explanation of similar ideas, and has extensive references, but it is an intimidating read even for professionals. Jackass Investing will probably explode a lot more misconceptions than Expected Returns, and therefore be the beginning of wisdom for many readers. Unfortunately, the idea that everyone else is an idiot can be the end of learning. You can explain anything, so you explain nothing. Lost a lot of money in a "sure-fire" trade? The people on the other side were idiots. Everyone tell you that you're ruining your life with obsessive, money-losing trading? They're all idiots. Find a study that contradicts your views? It was written by idiots. Realizing that anyone else, however revered and credentialed, might be an idiot is the beginning of wisdom, because it starts you thinking for yourself, from scratch. Deciding that everyone else must be an idiot is the end of learning.
This spills over to the investing advice. There are basically two ways to make money, which for historical reasons are called "Beta" and "Alpha." In a Beta trade, you get paid by a willing counterparty for bearing a risk that arises in the economy. Someone has to take the risk of a new business, or of holding stocks of commodities in excess supply, or of holding negative stocks of commodities in shortage. The author repeatedly denies the existence of Beta trades, insisting there is no natural return premium for holding stocks or commodities or illiquid assets or anything else. (On the other hand, his actual portfolios are loaded with Beta exposures, he just refuses to call them that.) The sensible thing is to take a tiny slice of every Beta exposure you can, so you can earn the premium while diversifying away the majority of the risk.
In an Alpha trade, you extract profit from an unwilling counterparty for a risk created by trading, not from the economy. For example, certain assets get undervalued or overvalued for various reasons. If you buy the undervalued ones and short the overvalued ones, you make money from the people who created the distortions in the first place. Also, prices that just went up are likely to continue going up, and prices that just went down are likely to continue going down. If you trade on this knowledge, you make money from buyers and sellers who are slower to react. (It is even more attractive to combine these effects and buy undervalued things that are going up and short overvalued ones that are going down.) The nice thing about Alpha trading is there is an unlimited number of candidates, while the amount of Beta willingly offered is limited. The trouble is, unless you're as confident as the author of this book, you can never be completely sure you have Alpha, since there's someone on the other side who also thinks he has Alpha. Net, there is no Alpha.
For both Beta and Alpha trading, it is essential to understand the people on the other side of your trade. That allows you to structure the trade optimally and to find new opportunities. It helps you challenge trading ideas, and eliminate some mistakes. Most important, if you don't observe the people on the other side, the only way you find out the trade has stopped working is by losing money, sometimes more money than you made on the upside. Jackass Investing describes all trades as Alpha trades with idiots on the other side, idiots who are usually identified too sketchily to predict or even observe their behavior. Since they're idiots, you can't learn from them.
I have some miscellaneous minor gripes. There are some small but irritating misstatements. There is too little acknowledgment of the people who first developed these ideas. The book only describes the reasons for the strategies, to get specific recommendations you have to go to the author's website and register. Some of the side anecdotes seem pasted in, with little relevance to the points being made.
If you've read all that and still want to buy this book, I think you will be rewarded. In a quick and pleasant read, you will get the basic investment facts of life explained clearly and forcefully. If you use that to jettison old ideas and habits and start investigating alternatives, the book might make you a lot of money. If you use it to ridicule every other theory of investing, I predict it will cost you a lot of money. Become wiser or stop learning. The choice is yours.
21 of 22 people found the following review helpful
on July 1, 2011
Everyone knows that Wall Street is packaging products that are feature rich so we buy them ... but are not full of the features that will make you rich from investing. Mr. Dever demystifies the world of investing using straightforward math, logic, simple graphics and great analogies. I found the book entertaining as well as informative. Anyone of the twenty myths that he debunks are worth the price of the book. The book is written for the reader who wants to understand trading strategies and investment returns ... but you do not need a Phd in math to understand the myths or the debunking of the myths. I particularly liked his analysis of the myths of buy and hold, buy low/sell high, home country bias in equity investments, high correlations across countries, and fear of commodities.
22 of 24 people found the following review helpful
on November 11, 2011
Most people know little or nothing about investing their hard-earned money; either making ill-advised decisions on their own, or placing too much faith in so-called "expert" money managers to handle their portfolio. As the author, Michael Dever notes, with so much "jackass investing" going on, the typical portfolio frequently becomes a "poor-folio". Sound familiar?
Dever has been in the investment business for over a quarter of a century, but unlike so many other long-time investment professionals, actually knows what he's doing. With all that experience under his belt, Dever has compiled this valuable resource guide which will surely benefit any serious investor who follows his advice.
Since "conventional wisdom" is frequently misguided, Dever debunks twenty such investment myths inside this book. In the process, he suggests an alternate course of action with a much higher probability of success.
This is great stuff, written in an entertaining and very readable format; I highly recommend it to anyone trying to understand what successful investing is all about by avoiding the mistakes all those jackasses are making.
19 of 21 people found the following review helpful
on July 19, 2011
A solid book. 3.5 stars. And I'm a tough grader.
Jackass Investing is a very solid book for investors that is conceptually different from 99% of the investing books out there. It is worth reading for 80% of the DYI investors and most of the money managers -- nearly all of whom seem to advocate a cookie cutter buy-and-hold, index fund approach these days.
It is a book about a broader, more inclusive view of the asset allocation and investment decision making problem and process. It is grounded in over a decade of solid trading experience by the author and the claims it makes are supported by significant amounts of research. (However, some work will have to be done by the interested reader to dig this research up as the book mostly synthesizes findings for a lay audience in a largely non-academic way).
My opinion is that most basic investment books can be broken into a number of similar groups:
1. The orthodoxy. This is the efficient markets camp. It says that individuals can't hope to beat the market and if they try to do so, they will just underperform by management fees or 'timing' costs. This camp is about variations on Index investing, buy and hold and buy and hold with rebalance. There are a lot of solid books in this camp that advocate low cost, passive ETF's or funds and minimal rebalancing. However, most of the thousands of existing books out there all say basically the same thing. You have to set an allocation based on your 'risk tolerance' and then ride out the ups and downs. Returns are a reward for volatility. There is no other option they claim.
2. Value investing -- Graham, Buffett and stock selection books that 'teach' or advocate active equity selection methodologies for people who want to 'beat the market.'
3. History or psychology of the markets or great traders. Learn about the future by studying the past.
4. Trading system development books. These books are for 'quants' or want-to-be quants to build sophisticated or not-so-sophisticated trading systems and models.
Jackass investing is a very good 'gateway' book for people who want to think about options in addition to the above. It will not provide all the answers, but will point a curious and intellectually honest reader towards a lot of outside-the-box thinking and solid avenues to explore.
I know. In 2008, despite a solid business degree in finance, I set out to educate myself about the markets and how they really worked after watching my portfolio and those of people close to me suffer large drawdowns. I was convinced there was a better way. I began to learn about 'return drivers', non-correlated strategies, futures and hedge fund models and alternative investments. Over the next 3 years, I read 100's of academic papers on what works and what doesn't.
This book would have short-cut that learning process by at least 12-18 months.
Just one caveat, if you do seek out the alternatives that it recommends, make sure you understand the risks and return possibilities and all the costs involved with the options (from management fees to taxes). Some of the strategies it advocates I agree with intellectually, but they can also cost a lot and carry risks if you do not pick solid partners or get overaggressive in allocations. It may be the case that several of them only begin to really make sense for people with multi-million dollar portfolios.
Still, having said that, worth reading and a quick, fun read.
10 of 10 people found the following review helpful
on November 16, 2011
I just finished reading Jackass Investing for the second time just to make sure I didnt miss anything. The book discusses the 20 Myths we have been fed by Wall Street and the so called mainstream media experts.
Most of us have at one time or another felt that there is something wrong with all the supposed truths we have been taught in terms of investments but couldn't put our finger on it. Mr Dever's book not just puts words to these feelings but also gives the proofs of why these supposed truths are really just myths and actually dangerous myths for our pocketbooks. In addition he makes us feel that we can trust this mistrust we have in what Wall Street is feeding us and that we are not alone.
He makes it clear that diversification is the only long term approach to investing success but real diversification based on non-correlated assets and strategies as opposed to the usual suspects asset classes we have been taught which it turns out as we all discovered in 2008 were not diversified at all when that was most needed.
I really appreciated his explanation of why Bonds past performance may totally not be indicative of future performance and that in general past performance should not be taken as an indicator of future performance. He points out that if we can't justify why a strategy or asset should perform the same in the future that we should not be fooled by fantastic past performance results....
In the last chapter he gives a number of portfolios to choose from that are diversified both in assets and strategies. The reader has a choice of conservative, moderately aggressive and aggressive portfolios that have better returns than the S&P with half the worst drawdown of the S&P and after all drawdown (how much a portfolio drops from its latest high) is really the biggest concern in investing. Very high drawdowns cause people to trade in and out due to panic and do the wrong thing based on emotions. If the drawdown can be kept to a reasonable amount rationality can trump emotion which is neccessary for long term investment success.
The ability to use the last chapter's choices to create a real diversified portfolio without needing to hire an investment advisor means that this book will pay for itself in spades.....
8 of 8 people found the following review helpful
on May 8, 2012
Just as "Reminiscences of a Stock Operator" by Edwin Lefevre is considered a must read for any trader, in time, "Jackass Investing" will be considered a must read for any investor. Whether you are investing your own money or managing client assets, implementing the strategies in this book will help you increase your portfolio returns. Best of all, the author, Michael Dever, shows you how to increase returns while decreasing risk!
The author expertly dissects and debunks 20 investing myths including:
Stocks Provide an Intrinsic Return
"Passive" Investing Beats "Active" Investing
Stay Invested So You Don't Miss the Best Days
It's Bad to Chase Performance
Futures Trading is Risky
Commodity Trading is Risky
Lower Risk by Diversifying Across Asset Classes
Too Much Diversification Lowers Returns
In this book, we learn about The Free Lunch Portfolio. In the 30 years ending in 2010, this portfolio achieved an average annual return of 11.62% versus the S&P 500 return of 10.58%. Not only was the return higher, but the volatility experienced with the portfolio was 40% lower than that of the S&P 500.
I highly recommend this book for anyone looking to increase their portfolio returns and get on The Short Road To Retirement.
7 of 7 people found the following review helpful
on July 16, 2011
The front cover of Jackass Investing is adorned with images of hundred-dollar bills strewn about in haphazard fashion. The subtitle is "Don't do it. Profit from it." Inside, the content is structured not by chapters, but by "myths" that Michael Dever methodically busts one by one. He does this, he emphasizes time and time again, to save the reader from accumulating a "poor-folio." Even the design of the book's web site, [...], seems one small nudge away from that of a low-budget Ponzi scheme.
So one can forgive me, I hope, when I confess that these elements immediately recalled for me the overly-gesticulative, used-car salesman aura of Mad Money`s Jim Cramer. Dever, the founder of Brandywine Asset Management, is not gun-shy with his similes. But I soon learned not to conflate style with substance. Jackass Investing is a very useful book indeed, not least for the clear language Dever uses to rapidly rebut decades of conventional wisdom in the world of investments.
As a relative novice to active investing (I am, however, the proud owner of an E-Trade account and a quickly depleting "poor-folio" of international stocks), I would be hard-pressed to counter Dever's claims with fact-finding of my own. But that, in a sense, is what makes this book so compelling: the common-sense nature of each of his principles is immediately obvious to financiers and laymen alike.
Dever is especially harsh on the oft-cited philosophy of "buy-and-hold," a mantra often repeated by the chattering class on TV but which represents, in the author's words, "neither rocket science nor sound investment advice." Buy-and-hold is uniquely favorable to a bull market but not much else, and thus its usefulness to investors has "shriveled together with the values of their stock portfolios throughout the secular bear market that began in 2000."
Jackass Investing is singularly concerned with "return drivers," those forces pushing specific assets up in value. For much of the last several decades, both individual and institutional investors generally invested in stocks, bonds, and other assets based on the general upward trend of the market, without paying closer attention to the underlying problems. The price/earnings (P/E) ratio was usually increasing as well, signaling that investors were jumping on the bandwagon and were comfortable paying more for the same stock than they would have during a bearish run.
Dever opts instead for a novel trading strategy, one that is simultaneously intuitive and counter-cultural. He carefully explains why experts are not to be trusted, disavows readers of the myth that ratings agencies can protect them from bad investment strategy, and, perhaps most importantly, emphasizes that portfolio diversification is both absolutely vital and almost universally ignored.
"Portfolio diversification," Dever declares, "is the financial equivalent of magic." For years, diversifying one's holdings has usually been defined as taking positions "across multiple asset classes in order to diversify their risk." In reality, however, many stocks, bonds, and real estate assets are supported by similar return drivers, thus exposing themselves to "event risk." If the underlying stimulus factor changes or shifts, all holdings -- regardless of asset class -- could decrease sharply in value.
True diversification, then, means dipping one's toes into unfamiliar waters. Dever goes into great detail on home-team bias, the principle (unconscious or otherwise) by which investors stick to the familiar, better-known assets, leaving potentially high-value stocks and other financial instruments out of their planning with nary a second thought. "For example," Dever explains, "while the U.S. equity markets account for just over 30% of the total capitalization of all the world's equity markets, U.S. institutional investors allocate more than 50% of their money to U.S.-listed companies...Japanese institutions hold more than 80% of their money in Japanese companies, despite Japanese markets accounting for less than 9% of the world's capitalization." By shutting oneself out of foreign markets (or futures contracts, or commodities trading, or any other market conventionally deemed overly risky), one is severely limiting significant money-making opportunities.
Here's where Dever's approach becomes slightly ambiguous. As I see it, the continued existence of longstanding tropes such as buy-and-hold is due to the absence of a simple alternative. Fundamentally, Dever's ideas fall into that category. But while the ideas themselves may be easy to grasp, the execution requires a lot more work than its buy-and-hold counterpart. Whereas the latter can be accomplished simply by purchasing a collection of assets and virtually ignoring it thereafter, the former necessitates a more hands-on approach, in which thorough research, investigation, and asset selection all play major roles. Dever would argue that such background work is required for all forms of investing, and that failure to do so will inevitably result in sub-par returns. The question, then, is whether his approach excludes investors without much time on their hands.
I also would have preferred to see more examples of actual trading strategies presented in opposition to the myths Dever debunks in each section. For this he continually refers readers to his web site instead.
Jackass Investing, then, far surpassed my shallow initial judgments and provided clear insights into investing strategies that, as Michael Dever writes, "should not be controversial, but...will be." Hell, I even logged in to my E-Trade account a few chapters -- nay, myths -- in, sold off my under-performing BP stock, and loaded up on Renren, a Chinese social network. After all, if 1.3 billion people with rapidly increasing Internet access isn't a damn strong return driver, I just don't know what is.