Anti-Boglehead book recommendations?

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mudphudstud
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Anti-Boglehead book recommendations?

Post by mudphudstud »

To quote former SEC chairman Arthur Levitt (from the Foreword to The Clash of the Cultures: Investment vs. Speculation by Jack Bogle):
"One of the greatest threats to the strength of financial markets is groupthink. When...investors...all share the same assumptions...nod to the same broad arguments, and expect the same outcomes, the result is as predictable as it is disastrous."

In that spirit, I'm wondering if anyone can recommend some high-quality writing that lays out counterarguments to the Boglehead philosophy. Books or articles defending the merits and profitability of high-frequency trading, technical analysis, market timing, etc? I've seen a lot of how-to guides to help the individual investor prosper using these strategies, but I'm looking more for a thoughtful, reasoned, well-written academic/philosophical defense of these strategies in general against the passive indexing movement.

Thanks!

updated to provide reference for quote
Last edited by mudphudstud on Thu Jul 04, 2013 9:46 pm, edited 1 time in total.
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Re: Anti-Boglehead book recommendations?

Post by nisiprius »

(The "renowned financial luminary" mentioned by mudphudstud is former SEC chairman Arthur Levitt, and the quoted passage appears in his forward to The Clash of the Cultures: Investment vs. Speculation by John C. Bogle).
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Re: Anti-Boglehead book recommendations?

Post by wshang »

I have two thoughts for you.
1) This is a radio show which I used to listen,
http://thewiseinvestorgroup.com/WiseInv ... r-Show.htm
advocates owning an individual portfolio of stocks, generally large cap defensive with the idea that if you own enough, it will mimic an index and one gets to save the expense ratio and can manage taxes. While the group does run the show not only as a way of communicating with their customers, but also for attracting new clients.

2) A better suggestion: I think risk parity portfolios, such as the Permanent Portfolio which is not exactly Boglehead-ish is something which is endlessly debated around here, but the denizens reside over in http://gyroscopicinvesting.com or http://crawlingroad.com. You can read Harry Browne's classic book or Craig Rowland's book, The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy.
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Re: Anti-Boglehead book recommendations?

Post by SpaceCommander »

I might add Professor Jeremy Siegel's work. He's a Wharton academic and his book "The Future for Investors" outlines an investment philosophy that runs contrary to certain Boglehead themes. He advocates investing in dividend stocks and is especially good at explaining why dividends are far from irrelevant. Get a load of some of these zingers:

"Dividends are a critical factor driving investor returns" (9)
"Dividends matter a lot. Reinvesting dividends is the critical factor giving the edge to most winning stocks in the long run" (10, emphasis his)
"Dividends have been the overwhelming source of stockholder returns throughout time, and firms that have higher dividend yields have given better returns to investors." (126)
"Dividends are the crucial link between corporate profits and stock values." (128)
"A higher dividend yield is a ticket to higher returns." (139)
"When pessimism grips shareholders, those who stay with dividend-paying stocks are the big winners." (142)

Of course, he discusses the common arguments advanced on this board concerning tax efficiency, Buffet, Enron, buybacks, reinvested earnings and their affect on valuations, etc. In sum, it's an accessible work of academic finance that is engaging and thought-provoking. http://www.amazon.com/Future-Investors- ... +investors
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Re: Anti-Boglehead book recommendations?

Post by Alex Frakt »

The intelligent Investor by Benjamin Graham (link is to the version with Zweig's commentary). The classic work on fundamental analysis. If you want to try stock picking, this gives you a rational framework for your selections. As opposed to, say technical analysis.
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Re: Anti-Boglehead book recommendations?

Post by SimpleGift »

A few years ago, these two academic papers on active management generated quite a bit of interest:

Active Share and Mutual Fund Performance, Petajisto (2010; revised 2013)
How Active is Your Fund Manager? A New Measure That Predicts Performance, Cremers and Petajisto (2009)
Cremers & Petajisto wrote:We introduce a new measure of active portfolio management, Active Share, which represents the share of portfolio holdings that differ from the benchmark index holdings. We compute Active Share for domestic equity mutual funds from 1980 to 2003. We relate Active Share to fund characteristics such as size, expenses, and turnover in the cross-section, and we also examine its evolution over time. Active Share predicts fund performance: funds with the highest Active Share significantly outperform their benchmarks, both before and after expenses, and they exhibit strong performance persistence. Non-index funds with the lowest Active Share underperform their benchmarks.
At the time, Larry Swedroe provided a brief rebuttal: Does the Evidence Behind Active Share Hold Up?
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Re: Anti-Boglehead book recommendations?

Post by stlutz »

Mebane Faber on moving average systems: http://papers.ssrn.com/sol3/papers.cfm? ... _id=962461

Eric Falkenstein, The Missing Risk Premium: http://www.amazon.com/The-Missing-Risk- ... sk+premium. He questions the belief that higher risk=higher expected return.

Actually, looking at what's popped up so far, we've actually grappled with a lot of these ideas on Bogleheads over the years.
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Re: Anti-Boglehead book recommendations?

Post by nisiprius »

SpaceCommander wrote:I might add Professor Jeremy Siegel's work. He's a Wharton academic and his book "The Future for Investors" outlines an investment philosophy that runs contrary to certain Boglehead themes. He advocates investing in dividend stocks and is especially good at explaining why dividends are far from irrelevant. Get a load of some of these zingers:

"Dividends are a critical factor driving investor returns" (9)
"Dividends matter a lot. Reinvesting dividends is the critical factor giving the edge to most winning stocks in the long run" (10, emphasis his)
"Dividends have been the overwhelming source of stockholder returns throughout time, and firms that have higher dividend yields have given better returns to investors." (126)
"Dividends are the crucial link between corporate profits and stock values." (128)
"A higher dividend yield is a ticket to higher returns." (139)
"When pessimism grips shareholders, those who stay with dividend-paying stocks are the big winners." (142)

Of course, he discusses the common arguments advanced on this board concerning tax efficiency, Buffet, Enron, buybacks, reinvested earnings and their affect on valuations, etc. In sum, it's an accessible work of academic finance that is engaging and thought-provoking. http://www.amazon.com/Future-Investors- ... +investors
But I don't see how this is anti-Boglehead. I've just looked over Bogleheads Investment Philosophy and I don't see anything at all in there that requires total market investing. Any more than I see anything that requires the use of Vanguard funds. What I see is:

1 Develop a workable plan; 2 Invest early and often; 3 Never bear too much or too little risk; 4 Diversify; 5 Never try to time the market; 6 Use index funds when possible; 7 Keep Costs Low; 8 Minimize taxes 9 Invest with simplicity; and 10 Stay the course.

The only thing bearing on the question is "use index funds when possible," and there are numerous dividend-focussed index funds, including the Vanguard High Dividend Yield Index Fund (VHDYX).

Similarly, what do you see in Bogle's Twelve Pillars of Wisdom that would rule out a concentration on dividend stocks? He says things like "Rely heavily on index funds, and begin with the idea of a 50/50 bond/stock ratio, adjusting the ratio in accordance with your own financial profile," but nowhere does he say that you should only use total market funds. In fact, he says you should "paying careful attention to portfolio quality, in stock funds, bond funds, and money market funds alike," which allows plenty of scope for choosing a different selection than the cap-weighted total market.

Furthermore, of late, John C. Bogle has been making favorable statements about the possibility of relying more heavily on dividend stocks as a source of retirement income...
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Re: Anti-Boglehead book recommendations?

Post by White Coat Investor »

There is no reasonable "anti-boglehead" philosophy. If something else makes sense, it is then incorporated into the Boglehead philosophy. If Boglehead investing is smart investing, then the opposite is dumb investing. Do you really need to learn how to do that? All the books and papers cited above I read about here first. They're hardly anti-boglehead. Take the book from Ben Graham. As I recall, by the end of his life he was advocating for index funds. Same with Warren Buffett, one of the best active managers out there.
Last edited by White Coat Investor on Fri Jul 05, 2013 5:35 am, edited 1 time in total.
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Re: Anti-Boglehead book recommendations?

Post by Ranger »

http://www.amazon.com/Security-Analysis ... 0071448209

Valuation matters, not just staying the course.

I would add this for technical analysis timing model.

http://papers.ssrn.com/sol3/papers.cfm? ... _id=962461

http://papers.ssrn.com/sol3/papers.cfm? ... id=2129474

Selling derivatives (puts, OMG!) advocated by GMO. At the end of the paper. Also discusses TIPS valuations

http://www.gmo.com/websitecontent/GMO_Q ... 4Q2012.pdf.

Selling puts was first advocated in his earlier paper "New Options for Equity Investors"
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Re: Anti-Boglehead book recommendations?

Post by carolinaman »

Morningstar has written articles about active versus passive numerous times. Some present a reasonable argument for active investing. Generally, their position is not anti-boglehead, but that active can be a viable approach. A search of the M* site will produce lots of articles. Here is one with a series of articles in Sept 2011:

http://news.morningstar.com/articlenet/ ... ?id=390195
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Re: Anti-Boglehead book recommendations?

Post by dumbmoney »

"Worry-Free Investing" by Zvi Bodie

"Valuing Wall Street: Protecting Wealth in Turbulent Markets" and "Wall Street Revalued: Imperfect Markets and Inept Central Bankers" by Andrew Smithers
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.
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Re: Anti-Boglehead book recommendations?

Post by DaleMaley »

HG Carpenter wrote 3 books in the 1930s and 1940s. He switched around from active management, to basically index fund investing, then back to active management.

From my Amazon book review of one of the books........

http://tinyurl.com/k8zbcud
I heard about Carpenter from the Bogleheads internet forum. I first read Carpenter's 1934 book A Successful Investor's Letters to His Son. Although there are a few nuggets of investing knowledge which are still useful today, his focus is on beating the stock market averages using active management. See my Amazon book review for more details.

Next I read Carpenter's 1943 book Investment Timing by Formula Plans. When I started reading this book, I was shocked because in just 9 years Carpenter did a 180 degree switch in direction. Instead of emphasizing active management, he uses stock and bond indexes with rebalancing based upon market percentage changes! See my Amazon book review for more details. I still had this nagging thought that Carpenter could not have really given up on his active management roots.

Next I read his 1946 book This is Investment Management. His active management roots came back and he advocates active management of the stock portion of the portfolio. He also says that time-based rebalancing is another acceptable form of market timing (annually, quarterly, etc). For the active management of the stock portfolio, he advocates the same 3 steps he identifies in his 1934 Letters to his Son book.

-Understand the general trend of the stock market and where it is going. Also understand the general trend of all asset classes and use them as required.
-Figure out which of 30 industries will do the best
-Figure out which of the companies will do the best in those industries

Carpenter's Formula Plan (time-based version) is similar to today's common strategy of buying a diversified portfolio of low cost index funds and then rebalancing at some set frequency (annual rebalancing is often used). Many investors will rebalance annually if an asset class gets beyond +/- 5% of the target allocation. One can choose to rebalance more frequently, but taxes in taxable accounts can wipe out any increase in return from rebalancing.

It was interesting for me to read about this forerunner strategy from the 1940's which is now used by many 21st century investors.

Since the first publicly available index fund did not occur until 1976 with John Bogle's Vanguard Index 500 fund, an ordinary investor would have had great difficulty implementing a passive form of annual rebalancing back in the 1930's and 1940's.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
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Re: Anti-Boglehead book recommendations?

Post by Call_Me_Op »

I think it needs to be understood that being a Boglehead does not mean hanging on every word uttered by the honorable Jack Bogle, nor does it mean investing exactly as he recommends. It means recognizing that costs matter, the markets are efficient, and there is value in simplicity and perseverance.
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Re: Anti-Boglehead book recommendations?

Post by ruralavalon »

EmergDoc wrote:There is no reasonable "anti-boglehead" philosophy. If something else makes sense, it is then incorporated into the Boglehead philosophy. If Boglehead investing is smart investing, then the opposite is dumb investing. Do you really need to learn how to do that? All the books and papers cited above I read about here first. They're hardly anti-boglehead. Take the book from Ben Graham. As I recall, by the end of his life he was advocating for index funds. Same with Warren Buffett, one of the best active managers out there.
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Re: Anti-Boglehead book recommendations?

Post by Ranger »

mudphudstud wrote:To quote former SEC chairman Arthur Levitt (from the Foreword to The Clash of the Cultures: Investment vs. Speculation by Jack Bogle):
Books or articles defending the merits and profitability of high-frequency trading,
Not many great books in HFT area, This is a great thread from an HFT insider discussing how it works and its profitability.

http://www.elitetrader.com/vb/showthrea ... did=266552

P.S. Do not venture into the other areas of the forum, if you are a boglehead.
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Re: Anti-Boglehead book recommendations?

Post by SpaceCommander »

nisiprius wrote:But I don't see how this is anti-Boglehead. I've just looked over Bogleheads Investment Philosophy and I don't see anything at all in there that requires total market investing. Any more than I see anything that requires the use of Vanguard funds. What I see is:

1 Develop a workable plan; 2 Invest early and often; 3 Never bear too much or too little risk; 4 Diversify; 5 Never try to time the market; 6 Use index funds when possible; 7 Keep Costs Low; 8 Minimize taxes 9 Invest with simplicity; and 10 Stay the course.

The only thing bearing on the question is "use index funds when possible," and there are numerous dividend-focussed index funds, including the Vanguard High Dividend Yield Index Fund (VHDYX).

Similarly, what do you see in Bogle's Twelve Pillars of Wisdom that would rule out a concentration on dividend stocks? He says things like "Rely heavily on index funds, and begin with the idea of a 50/50 bond/stock ratio, adjusting the ratio in accordance with your own financial profile," but nowhere does he say that you should only use total market funds. In fact, he says you should "paying careful attention to portfolio quality, in stock funds, bond funds, and money market funds alike," which allows plenty of scope for choosing a different selection than the cap-weighted total market.

Furthermore, of late, John C. Bogle has been making favorable statements about the possibility of relying more heavily on dividend stocks as a source of retirement income...
Thanks for the clarification. It seems that whenever we discuss dividend investing on this board, the dividend minimization drumbeat seems loudest. It does seem, however, that Bogle himself strongly emphasizes total stock market investing. So a strong emphasis on dividend paying stocks does run counter to most of his counsel (recent favorable statements toward dividends notwithstanding).

If I was going to put forth Siegel as an "anti-Boglehead", perhaps I should have cited his warnings against index funds instead! Like this:

"The enormous poplularity of these index funds, particularly those tied to the S&P 500 Stock Index, may lower the future returns to investors..." :shock: (Stocks For the Long Run, 357)
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Re: Anti-Boglehead book recommendations?

Post by archbish99 »

SpaceCommander wrote:Thanks for the clarification. It seems that whenever we discuss dividend investing on this board, the dividend minimization drumbeat seems loudest. It does seem, however, that Bogle himself strongly emphasizes total stock market investing. So a strong emphasis on dividend paying stocks does run counter to most of his counsel (recent favorable statements toward dividends notwithstanding).
The main ground for dividends = bad is when you're holding things in a taxable account. In a taxable account, to minimize taxes you'd prefer capital appreciation only; or, failing that, 100% qualified dividends. In a tax-advantaged account, of course, none of that matters. But what really matters in the taxable account is after-tax return -- one could make a reasonable argument that they expect dividend stocks to offer enough excess return to outweigh the higher taxes. I don't know that to be true and am not assuming that it is, but it's not an irrational position.
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Re: Anti-Boglehead book recommendations?

Post by EyeYield »

Call_Me_Op wrote:I think it needs to be understood that being a Boglehead does not mean hanging on every word uttered by the honorable Jack Bogle, nor does it mean investing exactly as he recommends. It means recognizing that costs matter, the markets are efficient, and there is value in simplicity and perseverance.
I think Jack would agree. No two investors are exactly alike. Each has to do their DD to gather as much information as it applies to them and invest accordingly. Mr. Bogle does provide a general philosophy that helps keep us all focused on what's really important.
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Re: Anti-Boglehead book recommendations?

Post by technovelist »

EmergDoc wrote:There is no reasonable "anti-boglehead" philosophy. If something else makes sense, it is then incorporated into the Boglehead philosophy. If Boglehead investing is smart investing, then the opposite is dumb investing. Do you really need to learn how to do that? All the books and papers cited above I read about here first. They're hardly anti-boglehead. Take the book from Ben Graham. As I recall, by the end of his life he was advocating for index funds. Same with Warren Buffett, one of the best active managers out there.
Except for incorporating gold to lower portfolio variance, of course. :D
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Re: Anti-Boglehead book recommendations?

Post by pcsrini »

More Money Than God by Sebastian Mallaby http://www.amazon.com/More-Money-Than-G ... B003SNJZ3Y
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Re: Anti-Boglehead book recommendations?

Post by IlliniDave »

EyeYield wrote:
Call_Me_Op wrote:I think it needs to be understood that being a Boglehead does not mean hanging on every word uttered by the honorable Jack Bogle, nor does it mean investing exactly as he recommends. It means recognizing that costs matter, the markets are efficient, and there is value in simplicity and perseverance.
I think Jack would agree. No two investors are exactly alike. Each has to do their DD to gather as much information as it applies to them and invest accordingly. Mr. Bogle does provide a general philosophy that helps keep us all focused on what's really important.
Everybody knows nothing, but it can't be said that we don't know Jack.
Agree, and if you delve enough into Bogle you'll find many things contrary to the popular caricature of him. Every bit as dear to him as his first SP500 Index Trust is the active-managed Wellington Fund, so he's not anti-active management. He's very much a "dividends matter" guy, from the old school : anticipated future return = current dividend + dividend (or earnings) growth school. He recommends buying and holding the entire market, so he's got no bias for or against value stocks, nor for or against growth stocks. He encourages most people in the wider audience to keep it simple, is skeptical that there's a burning need to keep 10-12-fund portfolios. He presents evidence and his editorial comments, but in the end does no more than suggest the investor think things through carefully. Staying the course does not preclude modest tactical responses to the investing environment, "tilts", or rearranging the portfolio in the distribution stage.

Some things he's pretty firm on. There are definitely styles of active management he doesn't like: the high fee, high turnover variety. He likes index funds because they represent the antithesis of that management style, but he doesn't mandate index fund investing. He's definitely a proponent of long-term investing versus short term speculation. He's not a fan of the financially engineered quarterly profits game that feeds speculation and corporate executive compensation, and helps fund managers swell their AUM. He dislikes the conflict-of-interest inherent to most fund management firms (their job is to extract money from fund shareholders to enrich their own shareholders).

Like most people of appreciable intellect, there's more to the guy than the 4-minute interview clips.
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Re: Anti-Boglehead book recommendations?

Post by spotty_dog »

I love researching opposite ends of a spectrum in fields where opinions are strongly held and strongly polarized. I feel like I get a better big-picture view and make more well-rounded decisions. Here are some of the "opposite to Bogle" selections I've read.

"Smarter than the Street," Kaminsky. How to select a portfolio of ~20 stocks, know when to get in, and know when to get out. States that because of an impending (as of 2010) "lost decade" in the stock exchange, trying to get the market return is a loser's game -- you absolutely have to pick winners if you want to make anything at all in the long run.

"Buy High, Sell Higher: Why Buy-and-Hold is Dead," Terranova. How to pick winners and make money on common stocks.
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Re: Anti-Boglehead book recommendations?

Post by madbrain »

Lifecycle investing , Ayres and Nalebuff .

Ask markettimer what he thinks about it.
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Re: Anti-Boglehead book recommendations?

Post by Redstorm »

DaleMaley wrote:HG Carpenter wrote 3 books in the 1930s and 1940s. He switched around from active management, to basically index fund investing, then back to active management.

From my Amazon book review of one of the books........

http://tinyurl.com/k8zbcud
I heard about Carpenter from the Bogleheads internet forum. I first read Carpenter's 1934 book A Successful Investor's Letters to His Son. Although there are a few nuggets of investing knowledge which are still useful today, his focus is on beating the stock market averages using active management. See my Amazon book review for more details.

Next I read Carpenter's 1943 book Investment Timing by Formula Plans. When I started reading this book, I was shocked because in just 9 years Carpenter did a 180 degree switch in direction. Instead of emphasizing active management, he uses stock and bond indexes with rebalancing based upon market percentage changes! See my Amazon book review for more details. I still had this nagging thought that Carpenter could not have really given up on his active management roots.

Next I read his 1946 book This is Investment Management. His active management roots came back and he advocates active management of the stock portion of the portfolio. He also says that time-based rebalancing is another acceptable form of market timing (annually, quarterly, etc). For the active management of the stock portfolio, he advocates the same 3 steps he identifies in his 1934 Letters to his Son book.

-Understand the general trend of the stock market and where it is going. Also understand the general trend of all asset classes and use them as required.
-Figure out which of 30 industries will do the best
-Figure out which of the companies will do the best in those industries

Carpenter's Formula Plan (time-based version) is similar to today's common strategy of buying a diversified portfolio of low cost index funds and then rebalancing at some set frequency (annual rebalancing is often used). Many investors will rebalance annually if an asset class gets beyond +/- 5% of the target allocation. One can choose to rebalance more frequently, but taxes in taxable accounts can wipe out any increase in return from rebalancing.

It was interesting for me to read about this forerunner strategy from the 1940's which is now used by many 21st century investors.

Since the first publicly available index fund did not occur until 1976 with John Bogle's Vanguard Index 500 fund, an ordinary investor would have had great difficulty implementing a passive form of annual rebalancing back in the 1930's and 1940's.
Thanks DM just read your reviews on Amazon

Great synopsis as one of the books looks to be no longer available
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Re: Anti-Boglehead book recommendations?

Post by magneto »

'The All-Season Investor' by Martin Pring is a well written and persuasive book for altering Asset Alocations dependent on perceived position in market cycles for Bonds/Stocks/Cash. The sort of book a chartist might favour.

Back in the 1990s I tried to follow the methods and weightings suggested, but the snag I came up against was establishing where on earth in the market cycles were we at any particular moment in time. In the end I gave up and adopted Boglehead type approach.

Think it would be fair to describe the book as anti-boglehead.

For more information and current thinking see the Pring-Turner website.
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Re: Anti-Boglehead book recommendations?

Post by Goldfinger »

The Market Wizards series is excellent. (Author Jack Schwager personally interviews each trader.)

Market Wizards, 1988
The New Market Wizards, 1992
Stock Market Wizards, 2001

The books are so well written and entertaining that you'll find them hard to put down. Each chapter is devoted to the trading styles and history of the "super traders." Some familiar names - Jim Rogers, Ed Seykota, Michael Steinhardt, Michael Marcus, Marty Schwarz, Paul Tudor Jones, etc.

A few notable excerpts from the chapter on Ed Seykota:
Q: What is the most important advice you can give the average trader?
A: That he should find a superior trader to do his trading for him, and then go find something he really loves to do
Q: Why do so many traders fail in the marketplace?
A: For the same reason that most baby turtles fail to reach maturity: Many are called and few are chosen. Society works by the attraction of the many. As they are culled out, the good ones are left, and the others are released to go try something else until they find their calling. The same is true for other fields of pursuit.
Q: What can a losing trader do to transform himself into a winning trader?
A: A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.


I partially believed what I read in these 3 books for quite some time, but regard those guys as the exception and not the rule. The Boglehead philosophy, for me, is enough.

-Goldfinger
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Re: Anti-Boglehead book recommendations?

Post by BlueEars »

Larry Swedroe recommended this and I got it from the library: http://www.amazon.com/Physics-Wall-Stre ... all+street

Decent book that tells us about how some at least very academically smart people are applying research to run money. Way beyond moving average ideas but there are no formulas in the book. It's more a people story then a laying out of the actual math.
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Re: Anti-Boglehead book recommendations?

Post by 3504PIR »

Interesting idea. I'd recommend two books. First, find a good book on valuation. Nothing like being able to do your own homework and lift the "mystery" of equities. Secondly, I'd read Josh Peters book on dividend growth investing. Combined, the two will give you both the confidence and knowledge to really understand what our parents were doing (successfully) with their retirement money.

For the record, I fully endorse the BHs guide as well.
Scooter57
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Re: Anti-Boglehead book recommendations?

Post by Scooter57 »

It isn't a book, but if you want to get some insight into Graham-style valuation, there is an excellent series of posts on Seeking Alpha written by Chuck Carnivale which use his software tool, F.A.S.T. Graphs to illustrate the relationship between a company's different valuation metrics and its price over a period of 14 years. I would go back several months and read them all. You'll get a practical education in how people use valuation to assess the long term prospects of a stock

Last winter, I spent some time using the F.A.S.T. Graphs tool to evalutate the main holdings of various Vanguard funds (he provides a free trial and I then subscribed for a few months. It's only $9.99). It gave me a very good feeling for how the stock prices correlated to the underlying health of the businesses that dominated the indexes. Then, as an experiment, I bought small amounts of 4 apparently undervalued stocks based on valuation metrics and careful reading of the company's reports to determine what their business models were. So far they have out performed TSM. It is particularly educational to see how they vary from day to day and month to month compared to the indexes. They don't go lock step with them because they are diversified in terms of market cap, sector, etc.

Chuck's articles really help me understand more about the (loose) connection between stock performance and business performance. They also make me aware that you need to have much more real business experience than most investors have to use valuation intelligently. The PE is only a tiny part of what you'd have to consider. To really understand a company's long term prospects you have to be able to assess the company in total as a company, which is what Warren Buffett does. But to do that you have to have a CFO's understanding of the financials a company reports and a lot more understanding of the soft aspects of the business and the threats to its profitability that don't show up in numbers. For example, the fundamental for Apple look extremely good, but there are very good reasons why its stock is falling that have to do with the very short product cycles in technology and its perceived inability to continue to innovate the way it used to.

Few people here have that ability. I sure don't. But even so, understanding the relationship of earnings to price long term for the stocks that dominate the index funds you own can give you a pretty good idea of what to expect going forward.
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M_to_the_G
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Re: Anti-Boglehead book recommendations?

Post by M_to_the_G »

I recently read "The Most Important Thing" by Howard Marks (Chairman of Oaktree Capital Management), an unabashed advocate of active management. It's a good read. I'm still a Boglehead, but Marks' book is a good read and contains good explanations of investor psychology and risk-reward analysis.
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noyopacific
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Re: Anti-Boglehead book recommendations?

Post by noyopacific »

I've been thinking about this thread for several days. I think the OP (mudphudstud) is wise to look for opposing points of view. One of the underlying principles of many of the people here is probably some degree of belief in the Efficient Market Hypothesis EMH (or Theory, EMT.) There is quite a bit of debate out there on this subject. YouTube is a fine place to start.
If you start to become convinced that the market is inefficient, I'd invite you to come back and debate it here. I would caution you that much of the debate is based on an incorrectly defined version or misunderstanding of the hypothesis.

As to OP statements: "One of the greatest threats to the strength of financial markets is groupthink. When...investors...all share the same assumptions...nod to the same broad arguments, and expect the same outcomes, the result is as predictable as it is disastrous."
I'd love to see the day when the Boglehead approach were more widely adopted but I believe that we are destined to remain a small minority. One of the reasons we congregate here is that it is so difficult to find like-minded people in our daily lives.
The information contained herein, while not guaranteed by us, has been obtained from from sources which have not in the past proved particularly reliable.
Mill
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Re: Anti-Boglehead book recommendations?

Post by Mill »

I suggest "When Genious Failed" chronicling the rise and fall of 90's hedge fund Long Term Capital management.

The methods used by the hedge fund managers in the book are definately anti-Boglehead, and it worked very well for awhile.

But then they crashed and burned because they took too much risk (because their models predicted an impossible failure rate).

Reinforces the "Risk/Reward" pillar.
hoops777
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Re: Anti-Boglehead book recommendations?

Post by hoops777 »

One book that is very interesting and very anti-boglehead is The brainwashing of the American Investor by Steve Selengut.I would love to see him post on this site and see the ebb and flow.He buys only value stocks that meet a certain criteria and only when they have dropped a certain pct and takes profits when they rebound to a certain point.He combines them with about a 30 % allocation to income cef's.He makes a very convincing argument but it is a lot of work.He would be tarredand feathered here :happy
K.I.S.S........so easy to say so difficult to do.
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archbish99
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Re: Anti-Boglehead book recommendations?

Post by archbish99 »

hoops777 wrote:One book that is very interesting and very anti-boglehead is The brainwashing of the American Investor by Steve Selengut.I would love to see him post on this site and see the ebb and flow.He buys only value stocks that meet a certain criteria and only when they have dropped a certain pct and takes profits when they rebound to a certain point.He combines them with about a 30 % allocation to income cef's.He makes a very convincing argument but it is a lot of work.He would be tarredand feathered here :happy
Not necessarily. Most Bogleheads acknowledge that it's possible for some highly-skilled investors to beat the market, and nothing says he's not one of them. However:
  • The time it takes to demonstrate the difference between skill and luck is impractically long.
  • His method is likely not leveragable by the average investor in the amount of time the average investor has to devote without costs that would exceed the outperformance.
  • He's unlikely to outperform by as much as he would charge to manage my investments.
  • His system is likely to work less effectively the more assets he's attempting to apply it to.
So if it works for him, great! By purchasing undervalued stocks and driving up demand for them, he's part of the mechanism that makes prices efficient and index funds work for the rest of us.
I'm not a financial advisor, I just play one on the Internet.
golfallday
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Re: Anti-Boglehead book recommendations?

Post by golfallday »

Peter Lynch's, Beating the Street (1993)

Now that's an Anti-Boglehead title.
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