Customer Reviews

Managing Downside Risk in Financial Markets (Quantitative Finance)

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

 

 

Though the book is quite pricey, it delivers a wealth of information regarding various treatments of risk and return. This is not the stuff you find in most financial texts, such as outdated modern portfolio theory. In fact, the material is far beyond the old risk/return traditions of yore. Various authors each contribute a chapter including Sortino so one gets a wide range of views (I only found a few chapters irrelevant to my needs). However, the common theme throughout is, "It is high time to view risk/return in a more meaningful and practical light."

This text is not just for portfolio managers. Anyone involved in risk/return assessment will benefit from the material; though much of the book is intended for those with a mathematical slant. The material can easily be applied to discounted cash flow (DCF) financial modeling though this is not discussed in the text. In my opinion, it blows away VAR, Real Options, etc.

If you ever thought T-Bills were riskless assts, you need to read this book or be forever wrong. I also found a wealth of information on Sortino's website that complimented the text. Lastly, each chapter is chocked full of nice reference articles for those desiring to delve deeper into the multitude of ideas presented.

As a financial planner here in the midwest, I'm always looking to improve my business and the way I manage portfolios. For years I've always adhered to the capital asset pricing methods and Bill Sharpe's work in designing investment portfolios. So after looking for a better mousetrap, I found the Sortino Ratio. I was thinking this book -like many others in the investment realm- would be "dumbed-down" and written for a large scale audience----just the opposite. You better brush up on your math skills. It doesn't take you down a road of how to create/manage the risk in portfolios; it's really for large scale management. The formulas are on every other page. (I'm being facetious, but not too far fetched.) If you're a CFA or maybe a CIMA, you might want to have this on your shelf of reference materials; if you're the average planner dealing with mom and pop day-to-day issues, stick with Sharpe. (If you're a consumer looking to manage your portfolio using this book- you've got either way too much time on your hands or some real OCD issues.)(The CD included is somewhat worthless.) *I'm still going to try and develop portfolios using this method, but need a company like Morningstar to wrap it up in a software package.)

This book does a good job of describing the flaws with Modern Portfolio Theory (MPT) as well as the proposed solution resulting in Post-MPT (Ch 1 and 4). The Visual Basic software demonstrates Post-MPT risk analysis of a single asset. I would have rated it a 5 if the software had demonstrated Post-MPT asset allocation among multiple assets. As it stands I have a choice of EITHER reverse engineering the software/spreadsheet and adding multiple assets OR purchasing third party software.

Like 99% of all books written on the stock market, this one does very little to help the efforts of individual investors. Rather, it is more applicable to funds and money managers, who have much different investment needs and styles. Individual investors need to understand how to determine business risk rather than liquidity risk or beta, which is usually the only kind of risk fund managers look at. Individual investors need to learn technical analysis (which fund managers do not look at typically) and they need to understand market sentiment. Finally, individual investors need to learn how to determine relative valuation--no not valuation methods that analysts go by--most of those are useless and they never consider downside risk. These are the keys to managing risk. I gave the book an average rating only because teaching risk management (and I mean practical risk management) is a very difficult task that I am not sure can be accomplished in a single book. It most certainly cannot be taught in a 270 page book. Most likely, the high price is a reflection of the audience---fund managers who pay for these expensive books with funds made by fund companies for doing nothing more than buy-and-hold.