Customer Reviews

Outsmarting the Smart Money : Understand How Markets Really Work and Win the Wealth Game

5 star:		(6)
4 star:		(1)
3 star:		(0)
2 star:		(1)
1 star:		(1)

 

 

Doesn't this book sound like a battle plan for investment success, maybe one filled with value-based accounting lessons? It's not.

In fact, we are spared math, and we are not given practical counsel, either. That was what I looking for, as the title suggests. The title should be How Can The Smart Money Be So Dumb.

Instead, this is an interesting run-through of recent horror stories on Wall Street from the Internet bubble to IPO's to pro forma accounting and Enron. Behavioral finance is discussed here, but Why Smart People Make Big Money Mistakes by Gary Belsky and Thomas Gilovich is far superior.

Or read Buffett: The Making of an American Capitalist by Roger Lowenstein. Or John Neff On Investing instead.

Mr. Cunningham is one of the new wave of Buffett explainers. (Where were you people 15 years ago when there was money to be made buying Berkshire?) And why does someone so incisive, so downhome funny as Mr. Buffett need so much explanation?? (Try Cunningham's The Essays of Warren Buffett: Lessons for Corporate America or the Berkshire Hathaway annual report.)

Unfortunately, the author lets slip his idea of a five-year holding period for stocks. That may turn out to be good advice, but which stocks would he choose to hold? We have no idea. (Tech stocks, big winners 2 years ago, have crashed back down to their 1997 prices. And non-tech Walt Disney is well below its 1997 prices.)

I think Mr. Cunningham is an extremely brave and patient investor.

I read Cunningham's book based on the review in Barron's rounding up the best investment books of 2002. They were right. The book is a eye-opening intro to the psychology of investing, important to investors and market observers/regulators. (Cunningham's other books have more of the basics for investors--also very good books.)

In a perfect investment world the price of a stock embodies its value. And those who believe this 'efficient' market hypothesis will be buying index mutual funds certainly not this book. But those who dismiss this academic construct to profit from the inefficiencies evident in the market still run substantial risks not adequately addressed by most investment books. The minefield of risks that Cunningham guides us through is that the biases of others, the cause of those price vs. value anomalies, are also our own biases and can trigger money-losing investment decisions. Overconfidence and the "pattern seeking" bias to project short term trends into the future are just two examples, but they do so some of the worst damage. They lead to a dangerous reliance on margin borrowing and excessive trading activity. Also, recognize that companies make many of the same behavioral errors. It is the author's "smart" investor who can spot the folly of manic acquisitions by companies acting as if they were on steroids - grasping for growth at a fiscal cost. Cunningham dismisses technical analysis as "hokum" (Here he agrees with the proponents of an efficient market who maintain market movements cannot be predicted accurately). Stay away from IPO's, companies relying on pro-forma accounting, and sector funds. Read analyst reports with caution, but do study closely "management's discussion" of their business in the annual report. Be wary of stock buybacks, stock option programs, stock splits, spin-offs, secondary offerings, and performance-based incentive plans. Any of these programs can be abused and rise out of corporate hubris. Above all: Recognize your biases, your tolerance for risk, be objective, and have criteria to know when to sell your positions. A lot of territory is covered in this book with some of the best material appearing in Chapters 10 and 11. Cunningham builds a persuasive case for adopting a long term, value oriented investment philosophy which is least affected by these biases.

Makes you think. Straightforward points as to investing slip ups I've made and some I now know I better be on the look out for. The chapter on "Living with Emotions" is worth the price alone. It is the whole package--key points of dealing with our conflicting goals of (a) generating high returns and (b) sleeping well at night. I feel I'll be better able to do both, having read this delightful read.

What a great book! I am learning much. It is the starting point for understanding value investing. The section on the Austrian school of economics is big news. It places Hayek ("Road to Serfdom") in a historical context and shows the links between Hayek and the Austrians on the one hand and Graham and Fisher and their disciples on the other. Reading about the Austrian School and their theories of behavioral economics also shows links to current research into "complex adaptive systems" and "chaos theory" (subjects addressed in Cunningham's other books). None of these schools believes in the concept of "market equilibrium," which seems to be a pillar in the "efficient market theory"-- the price of a stock equals the value of a stock. The enormous implications of these points for investors-from selecting stocks to building a portfolio-round out this powerful book.

Awesome. Cunningham dissects the woes besetting corporate American using lucid, concrete examples, with boundless energy and enthusiasm, endorsed properly on the back cover by those who take behavioralism seriously, including Gary Belsky, who wrote the top-seller "Why Smart People Make Big Money Mistakes" (which is about general habits, not investment philosophy of which Cunningham writes) and Robert Hagstrom, prolific author (who writes about investment philosophy, and sometimes behavioralism). What an astonishing record Cunningham has developed as a writer and expert in invesetment theory and practice! A better title for this book would be Rational Investing in a Hair Brained Environment; the one chosen is unduly flashy for the seriousness of Cunningham's pursuits (he's a professor of law and business!).

The markets are run by people with emotions. Understanding how different market participants think and act cannot be overemphasized. Individual investors may think that they are at a disadvantage because they are competing against smart money managers with years of experience and education from top business schools. But, many people do not realize the advantages that they have over the big players. An individual investor does not have to worry about losing clients when the market turns negative one quarter. He or she can take a long-term view and not worry about losing a job. This book teaches readers about market psychology. I highly recommend this book to anyone involved in the capital market.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

Makes you think. Straightforward points as to investing slip ups I've made and some I now know I better be on the look out for. The chapter on "Living with Emotions" is worth the price alone. It is the whole package--key points of dealing with our conflicting goals of (a) generating high returns and (b) sleeping well at night. I feel I'll be better able to do both, thanks to perusing this delightful read.

Dont know whether the author had been too keen to show how good he wrote or to publish a new book or what, this book just lacked the substance to be useful on investment or trading. I doubt whether any reader of it can "understand how markets really work and win the wealth game" per book title by the very descriptive and insightless essays in unlinked chapters. I wonder why some referrals could praise it as an excellent Trading/Investment Psychology book. As a pro trader/CFA/trading book lover, I cant tell anything positive about it. So far I had rated less than five books of this category a one star as far as I remember, and this book is one of the minority.