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The Naked Portfolio Manager: Why Rules Trump Reason on Wall Street
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The book consists of four sections.
1. The Case for Statistical Decision Making
This section makes the case for deciding how to decide. You can either:
a) Analyze available information and reach a buy/sell conclusion based on experience, special knowledge, or intuition - in other words, judgment-based investing. One-of-a-kind decisions dependant on the expert characterize this approach. Or you can
b) Pick an algorithm and let the algorithm identify buy/sell conditions based on the available information - in other words, rule-based investing. Consistent, repeatable decisions independent of who uses the algorithm characterize this approach.
Bob Fischer makes an excellent case for the latter. He refers to rule-based, algorithmic decision making as Statistical Decision Making (SPM). NOTE: Don't worry about the math part - somehow Bob makes it all happen without resorting to lots of math and statistics.
Examples from a variety of disciplines illustrate the difference between clinical (judgment-based) decision making by experts and decision making using algorithms.
2. Common Thinking Errors
This section is worth the price of the book even if you decide not invest using SPM since the rule-based approach is applicable to any endeavor involving decision making. Other books on investing deal with behavioral finance but in my opinion, not as clearly as this book.Read more ›
This is my first book review. The book's author will be familiar to many Virginia chess players: a local USCF Life member who has attained the distinguished Life Master title. Yet, Bob will agree that his more prestigious titles are Certified Financial Planner and Multi-Millionaire. The Naked Portfolio Manager is not a chess book, but an excellent book about investing. This groundbreaking work is truly exceptional in how it discusses the similarities between chess thinking and investment decision-making. Does a discussion of an investment book deserve to be found within the pages of a chess magazine? Yes!
Bob presses home the point that the most successful investment technique is Statistical Prediction Methodology (SPM), versus a more traditional judgment method (TJM). Based on the statistical facts, a SPM will beat out a TJM every time. In other words, over a lifetime of investing, statistical prediction methods are clearly superior and will trounce judgment-based methods.
The key to statistical prediction methods is to ascertain the handful of rules required to reach a successful investment decision. Like zero and double-zero on a casino roulette wheel, the book will "show you how to tilt the odds in your favor just slightly. And while the edge this truth will give you is small and difficult to measure in the short term; over a lifetime of investing, the advantage it will give you can have a very meaningful impact on your ability to accumulate wealth."
Bob quickly comes right to the point, succinctly stating on page 5: "The first decision should be not to buy stocks or pick managers, but to select a winning strategy and a method of implementing that strategy.Read more ›
The author encourages an investment approach based upon mathematical modeling, which he calls Statistical Prediction Methodology. He suggests that investments should not be "picked," but that the investor instead should select a winning investment strategy and methodology for implementing that strategy.
He describes in detail how decisions based on an individual's judgment, knowledge or expertise can actually sabotage investment returns, even where this is no preconceived bias. He gives examples of how this happens due to critical thinking errors.
This book will serve as a terrific guide for investors in today's economic climate, which demands wise investment decision-making.
A well organized, down to earth and convincing read.
Most Recent Customer Reviews
I've made most of the mistakes in thinking covered in the book. It is nice to be able to "label" them so I can more effectively communicate with myself and others. Read morePublished on September 29, 2013 by Amazon Customer
Bob's book is enjoyable to read and he explains the concept of statistical prediction methods in terms that an investment illiterate such as myself can understand. Read morePublished on April 6, 2010 by D. Hofmann
I was interested in reading "The Naked Portfolio Manager" because I wanted to learn about investing and different methods that are used from a financial advisor's perspective. Read morePublished on February 2, 2010 by Jennifer L. Slate
Bob Fischer has written a fascinating and well-written book. The Naked Portfolio Manager is a down-to-earth foray into statistical prediction methods used in picking stocks. Read morePublished on January 8, 2010 by J. B. Wight