- Paperback: 360 pages
- Publisher: Wiley; 1 edition (June 20, 2005)
- Language: English
- ISBN-10: 0471731749
- ISBN-13: 978-0471731740
- Product Dimensions: 5.8 x 1.1 x 8.8 inches
- Shipping Weight: 1.1 pounds (View shipping rates and policies)
- Average Customer Review: 28 customer reviews
- Amazon Best Sellers Rank: #344,795 in Books (See Top 100 in Books)
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Capital Ideas: The Improbable Origins of Modern Wall Street 1st Edition
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From Library Journal
In a thorough, well-written work on the modern financial marketplace, Bernstein traces the merging of academic research with the curbstone techniques of Wall Street. Previously considered impractical pursuits, the concepts developed in "ivory towers" by various scholars and economists forced the marketplace to rethink its methods in light of events of this century. From early attempts at predicting market behavior and developing the concept of risk and portfolio management theories, these thinkers contributed a theoretical basis to capital markets, bridging the gap in understanding between insiders and outsiders. The text presupposes a knowledge of market and economic theory, but a well-informed reader will find this an interesting summary of the development of modern finance.
- Kenneth J. Cook, Melbourne, Fla.
Copyright 1991 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.
From Kirkus Reviews
A savvy appreciation of how a small band of disinterested academics has revolutionized the way Wall Street and its offshore counterparts manage the world's investment wealth. A securities-industry veteran and founding editor of The Journal of Portfolio Management, Bernstein provides a lively, lucid history of the scholarship that has helped advance institutional investing beyond the more-art-than-science stage. For openers, he focuses on an obscure French polymath whose turn-of-the-century doctoral thesis on the unpredictability of stock prices anticipated Einstein's work on relativity. Over the years, this Gallic ground- breaker was followed by other pioneers, including an English statistician who put paid to any notion that securities analysts can pick undervalued issues with any consistency, and an American astronomer whose main claim to financial fame was his discovery that stock prices move in random patterns. Eventually, a host of Nobel laureates in Economics (Harry Markowitz, Franco Modigliani, Paul Samuelson, James Tobin, etc.) contributed as well. As Bernstein makes clear, however, professional investors at bank trust departments, foundations, insurance companies, mutual funds, and elsewhere long resisted unconventional wisdom--in particular, that originating with ivory-tower theoreticians. Once the bear market of 1973-74 had wreaked its havoc, though, many of the recalcitrants conceded there just might be something in the idea of systematically controlling risk in the competition for above- average investment returns. At any rate, less than two decades later (with a big assist from powerful numbers-crunching computers), asset allocation, diversification, hedging, performance measurement, portfolio insurance, and allied techniques are norms, not novelties, in the management of large pools of money. While his text may prove a bit difficult for market tyros, Bernstein makes a fine job of tracing the town/gown links that are restructuring big-time investment strategy and practice. -- Copyright ©1991, Kirkus Associates, LP. All rights reserved. --This text refers to an out of print or unavailable edition of this title.
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By way of example:Piscaqua Research in a study covering the period 1987-96 found that only 10 out of 145 major pension funds, or just seven percent, out performed a portfolio consisting of a simple 60%/40% mix of the S&P 500 index and the Lehman Bond index respectively.
Or is it logical I ask for you to believe that you can predict which actively managed funds will out perform, or are you overconfident of your skills? If you are trying to find the great fund managers who will out perform in the future ask yourself: what am I going to do differently in terms of identifying the future winning fund managers, than did the pension plans and their advisors? And if you are not going to something different what logic is there in playing a game at which others with superior resources have consistently failed?
If you a really serious in finding an investment technique that will provide you with reasonable return with less risk I suggest the following little book. This is a little book that I have written and contains the essential of how to invest. Just click on the title to find the book. How to Make Money in the Stock Market-Buy 2,500 Different Stocks-Pay no Commission
As I started the book, the aim of "Capital Ideas: The Improbable Origins of Modern Wall Street" was not especially clear. I was expecting to see ideas about capital, an account of the origin of Wall Street in its modern state, and an argument for why this was improbable. I found none of these. What I did find could best be described as 'a history of academic theories about the stock market told in short stories, one to four paragraphs long'.
To give a balanced review, let me first list the positives:
- The book is well researched. The author read thousands of articles, interviewed around a hundred people mentioned in the book, and then corresponded extensively with dozens of them. The appendix labeled "Bibliography and Other Sources" is eleven pages long.
- The author mentions a broad number of ideas from the recent history of economics, finance, and market theory. While mentioning each person interviewed, he gives a short summary of their novel idea and approach.
- The book is readable. It consists mostly of short stories about an individual's contribution to understanding markets and trading. The stories are easy to read and (for the most part) well told.
Now my critiques:
- The author only gives you the briefest overview of most theories. For example, "Sharpe had developed an effective method for overcoming the difficulties inherent in the day-to-day application of Markowitz's theories of diversification and efficient portfolios" is the entire description of this theory. Despite all of the formulas alluded to, only the formula for the Black-Scholes model is written out (on page 228) - apparently to show that it was "not exactly designed for quick calculations". In this book, what was discovered is not as important as how it was discovered.
- The author includes seemingly trivial details. He tells us that Paul Samuelson's "father was a druggist who prospered as Gary [Indiana]'s steel mills roared through World War I" or Eugene Fama is a "tennis enthusiast". He obviously did a lot of research, but these facts do not contribute to a cohesive whole.
- The author stops in the middle of making a point in order to tell a different story. For anyone acquainted with the TV show 'The Simpsons', this book can read a lot like a Grandpa Simpson story: "One trick is to tell stories that don't go anywhere. Like the time I caught the ferry to Shelbyville."
- The author has a modernist, academic slant. He discounts most of the past (before WWII) with statements such as "the ancients left prediction ... to the Delphic oracle, or to those who could read entrails of animals" and "[t]oday investors are more keenly aware of risk ... than at any time in the past." He belittles those who don't follow the academic approach by statements such as "they have no idea of how to measure whether they are doing well". The author can certainly make an argument for his point of view, but I dislike the indifference with which he dismisses competing views.
I think this final critique is a major reason I was unsatisfied with book. The author thinks modern Wall Street originated in the "ivory tower", the academic theories of his "heroes" praised in this book. Even though I'm no expert, I think that the same Wall Street existed before the theories of Markowitz were formed, or the insights of Sharpe were published. I have no doubt that these ideas have influenced the growth and evolution of the stock market, but they did not create it. In the end, I'll have to look elsewhere for a story about the origin of Wall Street.
If you are (like me) trying to get an overview of how the stock market operates, or even how to invest, you'd give this book a two (out of five) star rating. If you are trying to learn about academic market theories, then this could be an unorthodox, yet entertaining, three-star reference book. And if you already know a lot about the market and economic theory and would like to hear stories about people who have influenced the market, you'd probably give this book four or five stars.
In all fairness, I'll take the average of the ratings from these different perspectives and give the book three stars. It was not what I expected, and although it took a while to figure out what the book was about, it was a decent read.
equation, the book loses x% of potential buyers.
Mr. Bernstein took no chances in this department, his book about modern finance theory, contains ONE equation.
And there is no attempt to explain the equation. It is presented in the spirit of: "these fellows must be geniuses,
look at this awful equation they invented."
Also, although the copyright is 2005, the book must have been written about 1991. At least I found nothing in it that I could identify
as later than 1991 or so.
Having said these things, I thought it presented a very light but readable introduction to the ideas of modern finance and the
professors who developed those ideas, mostly in the 1950s and 1960s.