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Rational Investing in Irrational Times: How to Avoid the Costly Mistakes Even Smart People Make Today Hardcover – June 17, 2002
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From Publishers Weekly
Swedroe, a principal in the firm of Buckingham Asset Management and author of What Wall Street Doesn't Want You to Know, believes that many investors listen to the "experts" instead of doing their own homework when they're choosing investments. People thus make costly mistakes that could have been avoided if they had understood the rules of investing. According to Swedroe, that means understanding that following the herd (e.g., investing in dot-com or tech stocks) and relying on the experts portfolio or mutual fund managers is not the right strategy for most individual investors. "The only way to take control over the risk and expected returns of a portfolio is to use index funds, ETFs [exchange traded funds], or passively managed funds as the building blocks of a portfolio," he says. Swedroe obviously knows this subject well; the book is full of citations of academic studies related to investor behavior and statistics about stock market performance. He also includes a thorough glossary. However, the title and subtitle are somewhat misleading browsers picking up the book may expect nuggets of practical advice on how to keep their money safe in unpredictable markets and economic downturns. This advice is here, but it's buried among pages of references to studies and statistical data. Swedroe's belief that the investment community misleads the average Joe is appealing. Regrettably, his message is overwhelmed by unnecessary data and references that diminish its usefulness.
Copyright 2002 Cahners Business Information, Inc.
From Library Journal
Investment professional Swedroe here presents and analyzes 52 common investing mistakes. For example, he lists the ninth mistake as "Do you avoid admitting your investment mistakes?" He explains that many investors will not sell a losing investment because doing so would admit error in making the original purchase. Through the device of the 52 mistakes, Swedroe analytically explores the psychology and mechanics of investing in innovative ways, e.g., he contends that short-term bonds are more effective for portfolio diversification than the customary long-term bonds. As in his previous What Wall Street Doesn't Want You To Know, Swedroe persuasively argues in favor of passive investing, using index mutual funds as the most effective long-term investment strategy. In this he agrees with luminaries like John Bogle (Bogle on Mutual Funds) and Burton Malkiel (A Random Walk Down Wall Street). Like those books, Swedroe's excellent work should be in all public libraries and in academic libraries with investment collections. Lawrence R. Maxted, Gannon Univ. Lib., Erie, PA
Copyright 2002 Reed Business Information, Inc.
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Top Customer Reviews
One of the mistakes that stood out was # 29 "Do you confuse before-the-fact strategy with after-the-fact outcome?" Basically you might have pursued a good sound strategy, but because of the nature of chance, it did not work out for you. So you ditch the strategy and try something else. The fact that it did not work out (outcome) should not cause you to think the original strategy was not good.
The other important thing I learned is that great companies are not always great stocks (#19). And as the price rises, the risk premium falls, and low risk premiums give low future expected returns (#20). High priced stocks of great companies have a low risk premium, high price risk and are priced for perfection. Therefore if anything upsets the apple cart, they fall by more than just the business risk, they also fall because their risk premium just increased. Seems counterintuitive as most people assume that a great company has a great stock that should keep on going up, i.e. low risk premium is also means low price risk (which is not the case).
One thing I really liked about this book was the organization of the book. You can read the book part by part, focusing on one common investment mistake at a time, unlike the first two earlier books focusing on Modern Portfolio Theory and passive asset allocation investment strategy.
Mr. Swedroe has done it again, writing a classic in the making! I'm sure his mother would be very proud of him.
Unlike his earlier two books, the latest book covers behavioral finances and can be read in parts. In fact, the reader can read just one common investment error at a time.
Wonderful reference that belong's to every serious investor's bookshelf!