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29 of 29 people found the following review helpful
on December 20, 2002
Modern portfolio theory (MPT) has an aggressive advocate in Larry E. Swedroe's RATIONAL INVESTING IN IRRATIONAL TIMES. Investors are advised to stick with index funds, tax managed funds, or exchange traded funds (ETF) and allocate across a range of asset classes. This investment strategy may be a little dull, Swedroe concedes, but his evidence for its soundness is compelling. This book is organized around 52 mistakes that investors make many of which might be avoided by adopting the author's strategy. Many of these mistakes are familiar to readers of the current crop of investment literature: Stay away from hedge funds, IPO's, market timing strategies, market gurus, yeserday's winners ("recency"), the misuse of margin, and high turnover portfolios. Recognize that many mistakes result from our own behavioral patterns including overconfidence in our skills, failing to sell our losers ("regret avoidance"), mistaking skill for luck, failing to rebalance over time to our basic plan, over-concentration in a company we think we know, etc. Much of this familiar territory. Where Swedroe distinguishes himself is in his relentless focus on a few key ideas that are logically developed and supported by recognized academic research. Financial markets are too efficient in their assimilation of new information for an active manager to consistently outperform a benchmark index. Lucky streaks are common but not proof to the contrary. News is by definition a surprise (viz., randomly occuring and unpredictable) and the evidence is strong that it is a "persistently important factor in stock performance". Active management will not anticipate the unexpected. Achieving "incremental advantage" over the market is therefore virtually impossible. Trading costs, tax issues, and the opportunity cost of having to hold cash in actively managed mutual funds are additional factors that make them structurally deficient. Separate studies by Mark Carhart and Russ Wermers support the underperformance of mutual funds relative to appropriate benchmarks. Meanwhile, the best way to reduce the portfolio risk of bad news in an uncertain world is to diversify. If your ouija board is warped, diversification might be a prudent strategy. The research of Fama and French, Ibbotson and Kaplan, and Brinson, Hood, and Beebower all reach a somewhat surprising conclusion: Far and away the most important factor in equity returns is not stock selection or timing. It is asset allocation based on market capitalization (size) and value (book to market, BtM). It is far more important to be in small cap value stocks or international growth than Industry Leader X over Competitor Y. Using indexed securities is an efficient way to deploy your assets to these broad asset categories. To be sure, Swedroe's argument for indexed securities over individual stocks and most actively managed mutual funds runs counter to an entrenched financial services establishment that is based on exclusive analyst recommendations, punditry, and televised stock news sizzle. Nonetheless every investor will profit by implementing some of the ideas in this book.
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17 of 17 people found the following review helpful
on October 10, 2002
weekly that in Lake Woebegone, all the children are above average. Likewise, all investors are above average with the ability to time the market and know which stocks / segments / classes are the next to take off. Isn't this just about true? Curiously, Larry Swedroe disagrees. Larry has written a series of three books, this one being the third. The focus is on passive investing, asset allocation, the fact that none of us are above average, and the fact that none of the experts are above average. (Those that appear above average are just part of the statistical distribution and could not be identified in advance.) As Larry works through this book, he highlights the many ways each of us have shot ourselves in the foot repeatedly through the years. If I had known these investment errors 20 years ago and if I had possessed the courage to overcome them without falter, I certainly would not be working today. The timing of this third book which focuses on the mistakes could not be better timed than during the worst bear market since the period around 1929. Larry shows you how to not make mistakes such as taking too much risk, not being diversified, the importance of fixed income assets in the portfolio, the importance of not chasing the hot sector, and the list goes on and on. Yes, some of our trading friends will become wealthy. Yes, some who use actively managed funds will do very well. But, Larry guides one down the path that is known to be superior to most managed programs given time and expenses. I highly recommend that this book is a must read for every investor, novice or expert. All will benefit from the wisdom contained therein.
John MacBain, Ph.D.
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11 of 11 people found the following review helpful
on July 4, 2002
If you are anything like me, those quarterly statements from your mutual fund company haven't looked too hot lately. Since misery loves company, I began lurking at the various forums on Morningstar's web site. Morningstar has several forums, and there are knowledgable folks on several of them. I was introduced to Larry Swedroe's books on the Vanguard Diehards Forum where several posters had made references to his books. Since they seemed to be rather knowledgable investors, I borrowed Larry's first two books from the library and read them. I learned much about efficient markets, risk, modern portfolio theory, asset allocation, investment plans, and developing a portfolio. Although the first two books were good, Rational Investing in Irrational Times is better for an ordinary bloke like me. It's not as theoretical as the other two and explains the mistakes investors make in simple terms. I really didn't have a proper perspective of risk until I read this book. The book helped me develop an investment plan that is the right one for my risk tolerance and goals. In that respect, it is a good book for those who invest in actively managed funds as well as those who invest in index funds. If you're not sure what I am talking about, you will after you've read the book.
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13 of 15 people found the following review helpful
In this, his latest (and in my opinion, greatest) book, Larry Swedroe provides investors with a solid road map for avoiding the common investment mistakes that make it difficult, if not impossible, for them to reach their financial goals.
On the Morningstar Vanguard Diehards Forum, we see posts on an almost daily basis from investors trying to recover from the very mistakes that Swedroe's book addresses.
Larry's fluid writing style makes for easy reading by both novice and experienced investors alike.
This book contains a wealth of solid information. It's a real gem, and should definitely be part of every investor's library.
...
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6 of 6 people found the following review helpful
on July 12, 2002
In Rational Investing in Irrational Times, Larry Swedroe builds upon the themes so well described in his first two books, facts and discussions that led undeniably to the virtues of passive investing. But here he adds an interesting and entertaining twist that looks at the psychology of investors to explain why it is that we -- all self-professed to be of "above average" intelligence -- can still make simple mistakes that can be devastating to our portfolios. The book divides the most common mistakes made by investors into easy-to-digest groupings, and is an enjoyable and informative read that still packs plenty of theory and practical advice for the most sophisticated investor. After reading Larry's first two books, I thought his subject matter was completely covered; to his credit, there's even more to be mined from this third effort, leading me to the same simple conclusion: If you invest in the markets, you need to read this book!
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7 of 8 people found the following review helpful
on June 1, 2002
In his latest gem, Rational Investing in Irrational Times, Larry Swedroe discusses the 52 most common mistakes by investors today. Using the most convincing academic research on behavioral finance/investment psychology, along with his expertise on asset allocation and the value premium, Mr. Swedroe guides the investor through the rough waters of today's investment environment.
Investors of all skill levels will benefit from the convincing case Larry Swedroe makes for properly diversifying your portfolio with low turnover, low cost passive investment options through either the use of index funds, ETF's, or other passive investment options. He also makes the most convincing case yet for the value premium, why it has been sustained and consistent, and why it is most likely to continue in the future.
While his two other excellent books, "The Only Guide to a Winning Investment Strategy You'll Ever Need," and "What Wall Street Doesn't Want You to Know" are not required reading for his latest book, they are both highly recommended.
Mr. Swedroe is the most accessible financial advisor on the Internet today, regularly posting on the Vanguard Diehards forum on Morningstar and Indexfunds.com. He is always gracious with his time and is quick to answer any questions posted for him. He is one of the very few advisors, including Richard Ferri and Bill Bernstein who really seem to care about the financial well being of investors.
Save your money spent toward financial publications and newsletters, and "invest it" in this incredible new book from Larry Swedroe.
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4 of 4 people found the following review helpful
on June 30, 2002
I enjoyed "Rational Investing" immensely, and have wholeheartedly recommended it to friends. After (my second) reading...plus after reading Wm. Bernstein's new "Four Pillars of Investing," and formerly reading your "What Wall Street Doesn�t Want You To Know� book, as well as Charles Ellis' books, and many if not all of the learning articles on [URL] and your [URL] archives, I've gravitated from being a partial index investor over past years to (just now) using passive index funds exclusively for my entire equity portfolio.
As a [retired] CFP and Masters in Wealth Management graduate, I truly appreciate the rarity of great investment sense that is presented in a readable and understandable fashion, and I've found no better source than your writings.
Congratulations, and another well deserved "well done"�
Thanks again for the wonderful and most helpful read.
Sincerely,
Dennis�
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3 of 3 people found the following review helpful
on July 2, 2002
Rational investing is the latest in a line of great books by Larry Swedroe. All three are and should be considered blueprints to financial stability and success. Rational investing details many common mistakes made by individuals in their investments, and gives advice on how to avoid them. This is a must read for anyone who invests.
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2 of 2 people found the following review helpful
on April 15, 2008
Okay, so the book is long and towards the end I already got the picture. However with 52 mistakes in the book (one for every week of the year), you are bound to find at least a few that you're prone to. Some of them might even surprise you, because it points to something you didn't think about.

One of the mistakes that stood out was # 29 "Do you confuse before-the-fact strategy with after-the-fact outcome?" Basically you might have pursued a good sound strategy, but because of the nature of chance, it did not work out for you. So you ditch the strategy and try something else. The fact that it did not work out (outcome) should not cause you to think the original strategy was not good.

The other important thing I learned is that great companies are not always great stocks (#19). And as the price rises, the risk premium falls, and low risk premiums give low future expected returns (#20). High priced stocks of great companies have a low risk premium, high price risk and are priced for perfection. Therefore if anything upsets the apple cart, they fall by more than just the business risk, they also fall because their risk premium just increased. Seems counterintuitive as most people assume that a great company has a great stock that should keep on going up, i.e. low risk premium is also means low price risk (which is not the case).
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2 of 2 people found the following review helpful
Larry has done it again! His third book nicely complements his earlier two books on modern portfolio theory and asset allocation, resulting in the "winning strategy." Even if you don't believe in the current research behind modern finances (modern portfolio theory), this book will benefit you since it covers classic investment errors made by both novice and veteran investors alike. If you do believe in "the winning strategy," then this book is a definite "must have!"
Unlike his earlier two books, the latest book covers behavioral finances and can be read in parts. In fact, the reader can read just one common investment error at a time.
Wonderful reference that belong's to every serious investor's bookshelf!
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