Guide to Investment Strategy: How to Understand Markets, Risk, Rewards and Behaviour, 2nd Edition
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1 Setting the scene.
Financial fraud: “a hardy perennial”.
Other catastrophic risk-taking.
Think about risk before it hits you.
How much risk can you tolerate?
Know your niche.
War chests and umbrellas.
Box Base currency.
2 Understand your behaviour.
Insights from behavioural finance.
Mental accounting and behavioural portfolio theory.
Investment strategy and behavioural finance.
Parameter uncertainty and behavioural finance.
Traditional finance, behavioural finance and evolution.
3 Market investment returns: will the markets make me rich?
Sources of investment performance.
Safe havens that provide different kinds of shelter.
Which government bonds will perform best?
Box Is the break-even inflation rate the market’s forecast?
What premium return should bond investors expect?
The equity risk premium.
Equity risk: don’t bank on time diversifying risk.
4 Which should we do: buy-and-hold or time markets?
Model investment strategies.
Strongly held market views and the safe haven.
Box Stockmarket bubbles.
An appropriate role for strategy models.
5 The time horizon and the shape of strategy: keep it simple.
Short-term investment strategies.
How safe is cash?
No all-seasons short-term strategy.
Box Do bonds provide insurance for short-term investors?
Are you in it for the long term?
Time horizon for private and institutional wealth.
Financial planning and the time horizon.
“Safe havens,” benchmarking, risk-taking and long-term strategies.
The danger of keeping things too simple.
Good and bad volatility.
Box Unexpected inflation: yet again the party pooper.
“Keep-it-simple” long-term asset allocation models.
Should long-term investors hold more equities?
Laddered government bonds: a useful safety-first portfolio.
Bond ladders, tax and creditworthiness: the case of US municipal Bonds.
Box The Orange County saga: what is a good-quality municipal bond?
What’s the catch in following a long-term strategy?
Long-term pension savings and risk tolerance.
Long-term strategy: “imperfect information changes everything”.
Market timing: an unavoidable risk.
Some “keep-it-simple” concluding messages.
Box The chance of a bad outcome may be higher than you think.
Part 2 Implementing more complicated strategies.
6 Setting the scene.
A health warning: liquidity risk.
Behavioural finance, market efficiency and arbitrage opportunities.
Barriers to arbitrage.
Fundamental risk and arbitrage.
Herd behaviour and arbitrage.
Implementation costs, market evolution and arbitrage.
Institutional wealth and private wealth: taxation.
Concentrated stock positions in private portfolios.
Corporate executive remuneration programmes.
The restless shape of the equity market.
Stockmarket anomalies and the fundamental insight of the capital asset pricing model.
“Small cap” and “large cap”.
Don’t get carried away by your “style”.
Box Value and growth managers.
Should cautious investors overweight value stocks?
Equity dividends and cautious investors.
Home bias: how much international?
To hedge or not to hedge international equities.
International equities and liquidity risk.
Credit quality and the role of credit-rating agencies.
Portfolio diversification and credit risk.
Box Local currency emerging-market debt.
Securitisation, modern ways to invest in bond markets and the credit crunch.
Box The role of mortgage-backed securities in meeting investment objectives.
Asset-backed securities and collateralised debt obligations.
International bonds and currency hedging .
What does it achieve?
What does it cost?
How easy is foreign exchange forecasting?
9 Hedge funds.
What are hedge funds?
Alternative sources of systematic return and risk.
“Do hedge funds hedge?”
The quality of hedge fund performance data.
What motivates hedge fund managers?
Are hedge fund fees too high?
The importance of skill in hedge fund returns.
Types of hedge fund strategy.
The size of the hedge fund market.
Global/macro Equity hedge, equity long/short and equity market neutral.
Short-selling or short-biased managers.
Long-only equity hedge funds.
Emerging-market hedge funds.
Fixed-income hedge funds: distressed debt.
Commodity trading advisers (or managed futures funds).
Hedge fund risk.
Madoff, hedge fund due diligence and regulation.
Illiquid hedge fund investments and long notice periods.
Lies, damn lies, and some hedge fund risk statistics.
“Perfect storms” and hedge fund risk.
Managing investor risk: the role of hedge funds of funds.
How much should you allocate to hedge funds?
Questions to ask.
Your hedge fund manager.
Your hedge fund adviser.
Your hedge fund of funds manager.
10 Private equity: information-based investment returns.
What is private equity?
Private equity market risk.
Listed private equity.
Private equity portfolios.
Private equity returns.
Box Private investments, successful transactions and biases in appraisal valuations.
11 Real estate.
What is real estate investing?
Box Using derivatives to gain real estate market exposure.
What are the attractions of investing in real estate?
Box Modern real estate indices and assessing the diversifying role of real estate.
Styles of real estate investing and opportunities for active management.
What is a property worth and how much return should you expect?
Government bond yields as the benchmark for real estate investing.
Tenant credit risk.
Private and public markets for real estate.
International diversification of real estate investment.
Currency risk and international real estate investing.
12 Art and collectibles.
Drivers of art market prices.
Box Art market indices.
Investing in art.
Other investments of passion.
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