Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies (Financial Times Prentice Hall Books) by Aswath Damodaran

Product Details
Amazon Sales Rank: #250401 in Books
Published on: 2004-03-22
Number of items: 1
Binding: Paperback
539 pages
Editorial Reviews

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"The truth about 13 of today's most widely touted investment strategies.


10 powerful lessons for every investor
Overcoming the enduring myths about markets
High dividend stocks: better and safer than bonds--or not?
Cheap stocks: cheap for a reason?
Should you invest in quality? Momentum? The next big thing? Or what?

You've heard 'em. (Maybe even from your broker!) They're the ""can't lose"" investment stories that promise you a no-risk path to profits ¿


""Buy companies trading below book value.""
""Follow the momentum.""
""Buy stocks with low P/Es.""
""Stick with quality.""
""Buy after bad news.""
""Buy after good news.""
""Follow the insiders.""
""Do whatever Warren Buffett's doing.""

And on, and on, and on ¿


They sound good. But do they really work? You're about to find out.


In Investment Fables, one of the world's leading investment researchers runs the numbers on 13 of today's most widely touted strategies, objectively answering the questions your broker can't answer. Has it worked over the long term? Over the short term? If it made sense once, does it still make sense? Are the promised benefits a statistical mirage? Could it work, as one part of your investment strategy? What are the downsides¿and how can you mitigate them?


If you want to make smarter investment decisions, you'll find this book utterly indispensable."

From the Back Cover

The truth about 13 of today's most widely touted investment strategies.
10 powerful lessons for every investor
Overcoming the enduring myths about markets
High dividend stocks: better and safer than bonds--or not?
Cheap stocks: cheap for a reason?
Should you invest in quality? Momentum? The next big thing? Or what?

You've heard 'em. (Maybe even from your broker!) They're the "can't lose" investment stories that promise you a no-risk path to profits …
"Buy companies trading below book value."
"Follow the momentum."
"Buy stocks with low P/Es."
"Stick with quality."
"Buy after bad news."
"Buy after good news."
"Follow the insiders."
"Do whatever Warren Buffett's doing."

And on, and on, and on …

They sound good. But do they really work? You're about to find out.

In Investment Fables, one of the world's leading investment researchers runs the numbers on 13 of today's most widely touted strategies, objectively answering the questions your broker can't answer. Has it worked over the long term? Over the short term? If it made sense once, does it still make sense? Are the promised benefits a statistical mirage? Could it work, as one part of your investment strategy? What are the downsides—and how can you mitigate them?
If you want to make smarter investment decisions, you'll find this book utterly indispensable.

About the Author

Aswath Damodaran is Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation in the MBA program.

He has published widely in the field, for leading journals such as The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics, and The Review of Financial Studies.

He has also authored several books, including The Dark Side of Valuation (Financial Times Prentice Hall) and two books on corporate finance. With Peter Bernstein, he co-authored Investment Management.

He received the Stern School of Business Excellence in Teaching Award in 1988, 1991, 1992, 1999, and 2001. In 1994, he was profiled in Business Week as one of the top 12 U.S. business school professors.
Customer Reviews

Reality check for investors
This is a thick book, but it reads pretty easily. The main message is that there are no easy profits in the stock market. There's no profit without risk, and that means you can lose your money just as easily as make money. He starts each chapter with a "fable," a story of some gullible investor who follows one of the conventional strategies for stock profits (for example, buy low p/e stocks) and, after losing money, finds out it's not that simple. Rather than simply debunking all the traditional stock market investing strategies, he explores how much, if any, truth there is each one, and how you would need to practice that strategy in order to make money. For example, instead of simply screening for low p/e stocks, you would need to add other criteria in order to avoid the real losers. The strategies he investigates are
High dividend
Low P/E
Low Price to Book Value Ratio
Stable earnings
Superior management
Growth stocks
Contrarian
Small Caps and IPOs
Mergers and Acquisitions
Arbitrage
Momentum
Insiders and Experts
Market timing
Buy and Hold
All in all, it's well-written and interesting. The author is a professor, but he writes for a general audience.

The problem is that his whole approach here is in terms of CLASSES of stocks, rather than individual stocks. He assumes that investors find stocks using stock screening software only, while for most investors that is only a first step. Fro example, Damodarn assumes that contrarian investors buy a stock ONLY because it's gone down in price. But contrarian investors look for stocks which have been beaten down in price unfairly. They look at the whole company, its strengths, weaknesses, and potential for growth. Damodaran's comments mostly apply to mutual funds and asset classes (e.g. small growth). His argument is based on statistical performance of asset classes, but most stock investors buy invidual stocks based on a variety of criteria.

Well researched and balanced book
This book is a very accessible overview of finance research on most major investing strategies (or themes). The author introduces each chapter with a short story and then builds the case around each investing theme. The bottom line is that there is no investing "silver bullet" - which is probably intuitive, but often neglected in the search for a magical investing potion.

The major contribution of this book is to address each one of the investing themes (Low P/E, Low P/S etc.) in great depth and actually build model portfolios. Damodaran has comprehensive command of his material and presents concepts in a very readable manner. If you are looking for an in-depth treatment of investment strategies, this is a great book.

There is no "can't miss"investment strategy but....
Damodaran has written a valuable book that can certainly be described as an antidote to the various crazes that affects many stock market investors at some period in their lives.It is certainly true that the vast majority of stock market participants do not have the time,intuition, experience,temperment,and training to emulate Warren Buffett.Thus,in generel,the argument that one(one of the ten myths covered by the author)should do exactly what Buffett is doing,irrespective of any and all relevant differences between an average investor and Buffett, is flawed.There is ,however,one exception.That exception turns ,not on buying the stocks that Buffett(or Lynch or Soros)is buying,but on getting out of the market and selling if all of the three wise men(Soros,Lynch,Buffett) are getting out.Following them out of the market will not make you a lot,but it will save you a lot of losses.For example,between September, 1999 and March,2000,Soros,Buffett,and Lynch liquidated practically all of their stock market holdings in Nasdaq stocks,as well as much of their other stock holdings,the one major exception being Buffett's holdings of Coca-Cola. Market participants following this strategy,who got out by copying the three wise men, did not suffer any of the estimated 8-10 Trillion dollars in losses suffered by investors who continued to hold stocks based on the myth of " BUY AND HOLD AND then buy some more" after the inevitable dip gives way to another upward movement.The other major point that is missing from the author's overall perspective is that he still is not differentiating between conditions of risk(a mean -standard deviation-known probability distribution)and ambiguity(no accurate or reliable,unique, mean or standard deviation can be calculated).This lacuna is evident in all of the author's books in this field.The work of Keynes,Ellsberg,and Mandelbrot needs to be integrated into the main body of his analysis.