The New Finance: Overreaction, Complexity and Uniqueness [Paperback]

I followed a fundamental investing strategy for the past 10 years and have been frustrated many times by the market's seeming disregard for value. At times I entered positions only to have the underlying continue to irrationally drop further and longer than I could have imagined. When the market did recognize value in one of these positions I was faced with the decision of when to exit, @ fair value? fair value + 10%? ride momentum?

Haugen provides some of the best explanations (using empirical data) as to what is occurring in the market and how overreaction continues to drive the valuation of equities. Finally the underlying forces that lead people to pursue momentum and technical strategies are much clearer, possibly even exposed. His explanations of reversion to mean are excellent and a very useful tool to the investor.

My only frustration was the limited information provided on 'The Real Determinants of Expected Stock Returns'. Haugen cites 70 factors and provides the top 15. If you want to know more you'll have to have very deep pockets and use his investor service which is likely out of reach for most all readers (even though he states only independent investors can successfully follow his strategy). I didn't really expect him to provide a system for playing the market - if he had I would not have bought the book - but a deeper treatment on the determinants would have made the book much more valuable. I felt that there was somewhat a conflict of interest between the author and the author's investor service - however I am grateful that he chose to publish rather than keep all of the value locked up in his service.

In the end Haugen makes the case for better understanding behavioral finance to improve ones insight into the market. Unfortunately, this rather emerging field provides only more questions. I imagine many fans of technical trading would find this book interesting but would not change their strategy if only because the 'light is better' under the technical trading area. As a fundamental investor I gained insights that will help me avoid some of my weakest decisions ( especially buying emerging value too soon). Having spent several years developing experience in fundamental analysis I have more guidance in constructing a strategy that is time and cycle driven.

The book is worth rereading several times. I can imagine that the 12 chapters aligned nicely to a semester of lectures from when Haugen taught his university classes. Each chapter is challenging enough to send the reader off reading another book just to better understand that chapter. I suspect when I finish my second reading I will look back and find this review to have missed key points.

There is a lot of schlock out there in investment writing, this is a rare gem of empirical based analysis and insightful writing that is (just about) understandable by a non-academic investor.

This books presents conclusive evidence that the market is highly inefficient. The New Finance presents a golden opportunity to investing and a pioneering ivestment model that has delivered for the past 15 years. Haugen presents the arguments in a thrilling and brilliant way. I love this book and higly recomend it.

Haugen's New Finance offers a value-biased review of modern investment management research. The book leaves the reader with a tangible if not implementable example of a value-oriented quantitative investment strategy.

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