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165 of 185 people found the following review helpful:
1.0 out of 5 stars
Winning by assuming your readers are losers, November 1, 2001
"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 ½%. 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 ½% 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".
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by John Train
by Charles D. Ellis
