Customer Reviews

The Inefficient Stock Market: What Pays Off and Why

5 star:		(3)
4 star:		(1)
3 star:		(1)
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1 star:		(1)

 

 

The Inefficient Stock Market is a nice slap in the face to Modern Finance. Getting my MBA, i was always turned off by Portfolio Management Theory because of the unrealistic assumptions made on the onset (such as everyone being rational and everyone holding an efficient market portfolio). Mr. Haugen provides a great analysis and statistical evidence to show that many of those critical assumptions are in fact wrong.

He also provides an investment strategy of sorts that outperforms the S&P 500. All hedge fund managers should read this book.

Most investors would benefit from reading this book. It is a good overview of what is known about market inefficiencies and how they can be exploited.

For those who find it too down-market, he also has a weighty tome called "Modern Investment Theory" which is more thorough and more academic in tone. As an example, it describes how to combine Markowicz's techniques with factor models to exploit the inefficiencies more effectively than the approach suggested in 'What works on Wall St' etc.

I think that CAMP, APT, etc aren't good for investors, but this book misleads them even more. There are several mistakes, and opposite data in various chapters.

Prof. Haugen does not show you how to beat the market by a little - he shows you how to beat it by a lot (I hope!).

The material is demanding but is understandable by the intelligent layperson, and is leavened by a very entertaining wit as Haugen does battle with the efficient market theorists.

One major school of investment and finance is that markets are so efficient, or, so random, that it is virtually impossible to consistently beat the market. (Remember that half are always above average, and exactly half are always below average.) Readers of "The Experts Pick:..." columns in business magazines or the Wall Street Journal may recognize that such national investment experts fail in their "best" stock pick about half the time, or, in the case of the WSJ, a "dartboard" (literally) performs about as well as half the experts. There is a school of Finance (folks with PhDs) who work on proving this is so. Inefficient Stock Market is a fairly complex work, with lots of graphs and tables, which shows that fairly complex models with dozens of factors may beat the market - by a few percentage points, sometimes. The author is indeed very knowledgeable and writes clearly (given his sophisticated material). But don't expect a "get rich quick" theory of investment. You know, the market is too efficient to allow that ! It's not really behavioral finance (except in his criticism of the status quo). It's something of a very sophisticated approach to "value investing", with the goal of securing a few extra percentage points of return over an index fund. Note: this is not a book for starters. You should know something about the stock market and investing for the whole point of this book to make sense. A book like Lebaron's "ULTIMATE INVESTOR" could give you some background knowledge for this book.

Ever since I finished my MBA in 1985, I have suspected that the stock market is volatile and inefficient. I have studied Markowitz, the CAPM, and other elegant mathemetical models of the market that indicate the market (ex. S&P 500) cannot be beaten. This book claims it can and I believe Haugen is really on to something big.

I have been a non-financial scientific and technical analyst for a company doing business primarily with the defense department for over twenty years and found the analysis techniques presented in the book to be completely rational and apparently based on a very sound statistical approach.

This is the most refreshing approach to reality investing I have yet read. I intend to read the other two books in the trilogy.

If you want to break out of the Modern Portfolio Theory mold, read it.