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18 of 19 people found the following review helpful:
3.0 out of 5 stars
A Beginner's Guide to Quantitative Stock Investing Methods, February 24, 2001
One of the great debates among academics about the stock market is whether the market is perfectly efficient or not. Does the market always price stocks correctly? Or does it make mistakes that investors can take advantage of?You may think that debate is no relevance to you. But if you believe there is no edge available to you, you would buy indexed mutual funds. If you thought there was an edge available to you, you would try to exploit it. This book argues for market inefficiency, and shows a number of strategies that professional investors use to make money from these inefficiencies. The author ties these strategies back to a Web site where routine screening occurs for these approaches. So you can have a screening list to consider, just like the professionals do. The author argues that individuals do have an edge. Although they pay more for brokerage commissions, they can trade in and out of illiquid situations and move the market less. He argues that this means you can outperform the indexes with these methods. If this book simply explained quantitative investing methods, I would have graded it as a five star book. I think the book is wrong in its conclusion that amateur investors will outperform the indexes with these strategies. I graded the book down accordingly. First, relatively few professionals use only quantitative techniques. Almost all combine quantitative screening (what is described here) with qualitative assessments. These professionals also use much more sophisticated screening than the methods described here. They have much better information than you do, even with the Web site to help you. Second, they can execute the quantitative strategies better than you can. They have professional traders and intelligent software "working" their trading positions. Are you as skilled as a professional trader? I don't think so (no disrespect intended). Third, they get preferred access to IPOs, which fatten their returns. Fourth, they use derivatives to enhance returns in ways that extend well beyond what is described here. Those gains are a significant part of the returns they get. Fifth, they pay attention all the time. You won't. And don't forget (as the author acknowledges) that professional money managers trail the market averages 90 plus percent of the time (before you look at tax efficiency and costs). Reading this book just reaffirmed for me that most people should put their stock money into low-cost indexed mutual funds. For a basic look at investing, start with Rich Dad, Poor Dad. For your stock investing, read John Bogle's Common Sense on Mutual Funds. If you decide you want to try a little stock picking, I suggest ChangeWave Investing. But be sure to read How to Buy Stocks by Louis Engel first. Before taking the advice anyone gives you about investing, try it on paper first. See how it works. If you are doing well after 6 months, keep going with the paper version. Most systems blow up within two years. Blow ups on paper are useful lessons, while blow ups in your portfolio are mistakes that can cost you a fortune. Whatever you decide to do, I hope you achieve your investment goals!
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