Winning the Loser's Game: Timeless Strategies for Successful Investing [Hardcover]

Charles D. Ellis (Author)

Book Description

Publication Date: February 1, 1998 | Series: Winning the Loser's Game, 3rd ed

Previously published under the name of "Investment Policy", this title is intended to be simple, straightforward and concise. The challenge of investing is described, and reasons why most investors lose is suggested. Guidance on building an effective portfolio and formulating an investment program is offered.

Editorial Reviews

Review

"This is by far the best book on investment policy and management." ---Peter Drucker on earlier edition of Winning the Loser's Game --This text refers to an out of print or unavailable edition of this title.

From the Back Cover

Praise for Winning the Loser's Game:

"This is by far the best book on investment policy and management."­­Peter Drucker

"Ellis has written a liberating book about investiing. Many people view their estate planning as a dirty secret they don't even share openly with themselves. This book will enable you to face your money matters squarely, with intelligence and vision, and help you create a plan that will increase the security and freedom of your later years."­­Byron R. Wien, Morgan Stanley Dean Witter

"Ellis's earlier work was a 'must read' for professional portfolio managers. This clearly-written edition explores concepts essential to both institutional and individual investors. It is not a simplistic 'do-it-yourself' cookbook, but an elegant guide to investment truths and paradoxes."­­Abby Joseph Cohen, Stock Market Strategist and Managing Director, Goldman, Sachs & Co.

"Charles Ellis lays out a series of simple principles which, if followed consistently, auger for success. In a highly entertaining way, he also offers not only a sound philosophy for investing, but also for life."­­Charles I. Clough, Jr., Corporate Strategy and Research, Merrill Lynch

"...Radical in its simplicity, Investors­­institutional and otherwise­­will find this jolt to their cherished beliefs refreshing."­­Adam Smith, Adam Smith's Money World

"...How to make your capital win for you in today's more challenging investment climate."­­Eric Miller, Chief Investment Officer, Research Department, Donaldson, Lufkin & Jenrette

"An outstanding guide for the individual investor, full of sound and useful advice for making one's way through the confusing maze of our contemporary financial world."­­William E. Simon, Former Secretary of the Treasury

See all Editorial Reviews

Product Details

• Hardcover: 142 pages
• Publisher: McGraw-Hill Companies; 3rd edition (February 1, 1998)
• Language: English
• ISBN-10: 0070220107
• ISBN-13: 978-0070220102
• Product Dimensions: 8.9 x 6.2 x 0.9 inches
• Shipping Weight: 15.2 ounces
• Average Customer Review: 3.9 out of 5 stars  See all reviews (39 customer reviews)
• Amazon Best Sellers Rank: #1,175,756 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

113 of 120 people found the following review helpful

3.0 out of 5 stars Dissapointed...This should be an article, not a book February 22, 2003

By A Customer

Format:Hardcover

Actually all the information in this book can summarized into a short paragraph (read this and skip the book):

You can never beat the market so invest in index funds. In the long run Taxes and Inflation will erode your investments and only stocks can safeguard you against it, so invest in index funds which have low taxes. Think long term (20+) years. Short term you will lose money so invest in index funds and dont go checking the stock quotes every day, or even every year. And did i mention index funds :)

109 of 116 people found the following review helpful

5.0 out of 5 stars Avoid Stalled Thinking about Beating the Market July 3, 2000

By Donald Mitchell HALL OF FAMETOP 100 REVIEWERVINE™ VOICE

Format:Hardcover

This book is based on a famous article written by Mr. Ellis in 1975, "The Loser's Game," that showed why professional money managers are unable to beat the market averages in 90 percent of the cases. In fact, the harder they try, the more likely they are to lose by increasing trading costs and mistiming their trades. The first two editions of this book were aimed at providing solutions to that dilemma for professional money managers. Mr. Ellis provides consulting advice to such professional money managers, and is in a good position to know what he is talking about. This edition is aimed at the needs of the neophyte individual investor. It is especially timely as we near the end of 2 decades of almost continual bull markets for equities.

The beauty of this book is that it is simple and easy to understand. Ellis designed it for anyone who has a genuine interest in getting good investment results, is willing to develop an appreciation for market fundamental, and has the discipline to pick an approach and stick to it.

In various chapters, the book describes why professionals do so poorly, and how the individual can have the same problems if not careful.

The key points of the book are that you need to establish your long-term investment objectives in writing, and with the expert advice of professionals, determine a well-reasoned and realistic set of investment plans that can help you achieve your objectives. You should set your asset mix at the highest ratio of equities you can afford financially and emotionally for the long-term. However you do this, don't try to beat the market. That's a loser's game. He emphasizes not making mistakes, not losing money relative to the market, staying in the market, and realizing that your real problem is beating inflation rather than the market. In general, doing less will be doing more. Avoid speculations, shifting funds continuously, and paying too much attention to near-term performance.

A good companion book for this one is John Bogle's recent one, Common Sense on Mutual Funds, that articulates many of Ellis' points in more detail and more graphically. As a historical note, Bogle writes in his preface to Ellis' book that he was inspired by Ellis' original article to make Vanguard's first indexed mutual fund in 1975.

In thinking about the advice here, I'm not sure that everyone needs professional advice to come out in the right direction. If you decide that you primarily want to pursue indexed mutual funds, there is little need for advice, for example. But if you do opt for advice, be sure you watch out for vested interests in the person giving the advice.

Also, the book doesn't do enough to address the conflicted feelings that people have about money. If you don't address those, you won't carry through on your discipline. I suggest that you read any of the excellent books on that subject and do the exercises in them.

I also suggest you find the calmest, sanest person you know who is good with investments (but is not an investment professional) and ask them to review how you are doing annually. This will help you keep your discipline. A parent, spouse, or good friend could be an appropriate choice for this role. Share this book with them first, so they will know what you are trying to do. Then explains your ideas, and spell them out on paper. Chances are you will outdo what you would otherwise accomplish.

Good luck in outperforming inflation!

Donald Mitchell

Coauthor of The Irresistible Growth Enterprise and The 2,000 Percent Solution

([e-mail])

211 of 235 people found the following review helpful

1.0 out of 5 stars Winning by assuming your readers are losers November 1, 2001

By Michael Henry

Format:Hardcover

"Winning the Loser's Game" is a bit of a mess on several fronts. It primarily fails due to the ill conceived idea and sloppy execution of updating a book originally written for the institutional investor to also address the individual investor. In theory this should have been possible but neither Mr. Ellis nor his editors have invested the necessary effort to do a credible job. Advice for the individual investor is bolted on pretty much at random, with at times hilarious results. For example, the "Managing the Manager" chapter is filled with advice on setting a useful agenda for your quarterly meeting with your investment advisor organization (including criteria for deciding when to fire a portfolio manager!), and the role your investment committee should play in modifying your investment policy. In the same breath, Ellis also advises the individual investor in search of an investment vehicle to check with their employer's pension manager for the names of a few well respected mutual fund companies, for example, Vanguard and American Funds. In short, the entire chapter is for the institutional investor with the exception of this single paragraph on how to find a good mutual fund. Even at that, the advice is laughable. (I'm sure we are all on a first name basis with our employer's pension fund manager.....) This unsuccessful attempt to modify the book for the individual investor continues throughout. Even when Ellis directly discusses the individual investor we discover he is primarily concerned with that class of individual investor with "significant assets", that is, for investors who have retained advisors; not your garden variety working stiff saving for retirement. And certainly, Ellis's notion of a financial "end game" consists not in the asset allocation shifts necessary when approaching, and in retirement, to insure that limited resources last throughout retirement, but rather in deciding how to best allocate one's estate at death: e.g. establishing scholarships, funding the arts, avoiding estate taxes, etc.

Mr. Ellis's sloppy handling of data is inexcusable, particularly for someone in a profession that presupposes competence with numbers and accurate (preferably also lucid and cogent) presentation of data. In the book's preface Ellis profusely thanks his editor Dero Saunders, and notes that Mr. Saunders "expects to be remembered as the editor who could remove four lines from the Lord's Prayer without anyone noticing". There is substantial evidence that to create this impression Mr. Saunders (and Mr. Ellis) intended to rely more on their reader's lack of perception than on their editorial skill. The book includes many, many, errors that are, I assume, the result of haphazardly updating text and tables from previous editions. Very often the figures in the text do not match the data in the corresponding graph or table, and vice versa (e.g,. see pages 5, 10-11, 33-34, 40-41, etc.), but in some cases the errors are just due to sloppy writing and proof-reading. For example, on page 33 we learn that since 1901, annual investment returns have ranged from at best 4%(yikes!) to at worst minus37.4%. Neither number, in particular the 4% number (thankfully), match the figures in the corresponding table on the next page. However, on page 40 we learn that that "over the past 50 years the actual returns have been between a loss of 43 percent and a gain of 54 percent". The accompanying footnote unhelpfully informs us that these numbers are "normal" while the numbers on page 33-34 are adjusted for inflation. How a loss of 43 % becomes a loss of 37.4% after adjusting for inflation is a bit of mathematical mystery.

The preceding examples were simply oversights and negligence. However, on page 123 Ellis simply misuses his data as he asserts that "over the long, long term" common stocks have provided real returns of 4 ˝%. His version of the long, long, term is 1965 to 1994. (Then again, on page 42 he asserts the long term return for stocks is 6.1%, however, the data he references on page 41 computes to a 6.7% return, so I have no idea where he got the 6.1% number. Never mind....) I don't have any reason to doubt the 4 1/2 % return number for the particular 30yr period measured, and surely it would be a good thing to remind folks that it is very possible to have a significantly below average return over a lifetime of investing, but to represent 4 ˝% as the long term average real return for common stocks in the US is simply wrong. [For what it is worth, Ibbotson and Brinson assert 6.7% (1940-1990) and John Bogle asserts 7.2% (1926-1997).]

In my opinion, Mr. Ellis is simply milking his very good 1975 article in the Financial Analyst's Journal (as he reminds us, "it won the profession's highest award".). In "Winning the Loser's Game" he recycles his argument, bolsters it with sloppily assembled data, and provides poorly organized advice to the investor on how to act on his argument. Much of the advice is undoubtedly true, but nevertheless, the book is poorly organized, highly repetitive, and a real grab bag of financial aphorisms, lacking the structure and clarity to give the interested reader anything to think through on their own. But then, this is I suspect, the real problem. In Mr. Ellis's estimation the individual investor is not capable of managing his or her finances alone, and they are advised to spend $10,000 to $20,000 every ten years for investment counseling and estate planning.

If you are interested in a good treatment of market efficiency, the nature of risk, and a rational framework for estimating future returns, and the relationship of asset allocation to risk, you would be much better off with Burton Malkiel's "A Random Walk Down Wall Street" and William Bernstein's "The Intelligent Asset Allocator".