Other Books by Jack D. Schwager
Prologue
Part One: Markets, Return and Risk
Chapter 1 Expert Advice: Comedy Central versus CNBC
The Elves Index
Paid Advice
Investment Insights
Chapter 2 The Deficient Market Hypothesis
The Efficient Market Hypothesis and Empirical Evidence
The Price Is Not Always Right
The Market Is Collapsing; Where Is the News?
The Disconnect between Fundamental Developments and Price Moves
Price Moves Determine Financial News
Is It Luck or Skill? Exhibit A: The Renaissance Medallion Track Record
The Flawed Premise of the Efficient Market Hypothesis: A Chess Analogy
Some Players Are Not Even Trying to Win
The Missing Ingredient
Right for the Wrong Reason: Why Markets Are Difficult to Beat
Diagnosing the Flaws of the Efficient Market Hypothesis
Why the Efficient Market Hypothesis Is Destined for Dustbin of Economic Theory
Investment Insights
Chapter 3 The Tyranny of Past Returns
S&P Performance in Years Following High- and Low- Return Periods
Implications of High- and Low-Return Periods on Longer-Term Investment Horizons
Is There a Benefit in Selecting the Best Sector?
Hedge Funds: Relative Performance of the Past Highest-Return Strategy
Why Do Past High Return Sectors and Strategy Styles Perform So Poorly?
Wait a Minute. Do We Mean to Imply…?
Investment Insights
Chapter 4 The Mismeasurement of Risk: Worse Than Nothing
Volatility as a Risk Measure
The Source of the Problem
Hidden Risk
Evaluating Hidden Risk
The Confusion between Volatility and Risk
The Problem with Value at Risk (VAR)
Asset Risk: Why Appearances May Be Deceiving or Price Matters
Investment Insights
Chapter 5 Why Volatility Is Not Just About Risk and the Case of Leveraged ETFs
Leveraged ETFs: What You Get May Not Be What You Expect
Investment Insights
Chapter 6 Track Record Pitfalls
Hidden Risk
The Data Relevance Pitfall
When Good Past Performance Is Bad
The Apples and Oranges Pitfall
Longer Track Records Could Be Less Relevant
Investment Insights
Chapter 7 Sense and Nonsense about Pro Forma Statistics
Investment Insights
Chapter 8 How to Evaluate Past Performance: Why Return Alone Is Meaningless
Risk-Adjusted Return Measures
Visual Performance Evaluation
Investment Insights
Chapter 9 Correlation: Facts and Fallacies
Correlation Defined
Correlation Shows Linear Relationships
The Coefficient of Determination (R2)
Spurious (“Nonsense”) Correlations
Misconceptions about Correlation
Focusing on the down Months
Correlation versus Beta
Investment Insights
Part Two: Hedge Funds as an Investment
Chapter 10 The Origin of Hedge Funds
Chapter 11 Hedge Funds 101
Differences between Hedge Funds and Mutual Funds
Types of Hedge Funds
Correlation with Equities
Chapter 12 Hedge Fund Investing: Perception and Reality
What Is a Conservative Investment?
The Rationale for Hedge Fund Investment
Advantages of Incorporating Hedge Funds in a Portfolio
The Special Case of Managed Futures
Single Fund Risk
Investment Insights
Chapter 13 Fear of Hedge Funds: It’s Only Human
A Parable
Fear of Hedge Funds
Chapter 14 The Paradox of Hedge Fund of Funds Undeperformance
Investment Insights
Chapter 15 The Leverage Fallacy
The Folly of Arbitrary Investment Rules
Leverage and Investor Preference
When Leverage Is Dangerous
Investment Insights
Chapter 16 Managed Accounts: An Investor Friendly Alternative to Funds
The Essential Difference between Managed Accounts and Funds
The Major Advantages of a Managed Account
Individual Managed Accounts Versus Indirect Managed Account Investment
Why Would Managers Agree to Managed Accounts?
Are There Strategies That Are Not Amenable to Managed Accounts?
Evaluating Four Common Objections to Managed Accounts
Investment Insights
Part Three: Portfolio Matters
Chapter 17 Diversification: Why 10 Is Not Enough
The Benefits of Diversification
Diversification: How Much Is Enough?
Randomness Risk
Idiosyncratic Risk
A Qualification
Investment Insights
Chapter 18 Diversification: When More Is Less
Investment Insights
Chapter 19 Robin Hood Investing
A New Test
Why Rebalancing Works
A Clarification
Investment Insights
Chapter 20 Is High Volatility Always Bad?
Investment Insights
Chapter 21 Portfolio Construction Principles: The Problem with Portfolio Optimization
Eight Principles of Portfolio Construction
Correlation Matrix
Going Beyond Correlation
Investment Insights
Epilogue 32 Investment Observations
Appendix A Options—Understanding the Basics
Appendix B Formulas for Risk-Adjusted Return Measures
Sharpe Ratio
Sortino Ratio
Symmetric Downside-Risk Sharpe Ratio
Gain-To-Pain Ratio (GPR)
MAR and Calmar Ratios
Tail Ratio
Return Retracement Ratio
Acknowledgments
About the Author
Index
