Book Review: Excess Returns

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Book Review: Excess Returns
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Excess Returns: A comparative study of the methods of the world’s greatest investors

Suppose you wanted a comprehensive book on all of the ways that there are to get excess returns from the stock market as a type of value investor (as of year-end 2013), and you wanted it in one slim volume. This is that book. As with most desires there is the “be careful what you wish for, you just might get it” effect. This book is not immune.

At Aleph Blog, I try to write book reviews that always include what sort of reader might benefit from a given book. Because this book packs so much into such a small space, it is not a book for beginners unless they are prodigies. If you are a beginner, better to warm up with something like The Intelligent Investor, by Ben Graham. Beginners need time to see concepts described in greater detail, and more slowly.

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Though it is a book on value investing, it is expansive in what it considers value investing. It includes topics as varied as:

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  1. Behavioral Economics
  2. Market-timing from a valuation standpoint
  3. Growth at a reasonable price [GARP] investing
  4. Private investing
  5. Shorting
  6. Event-driven investing
  7. Barriers to considering investments that keep others from buying them at attractive prices
  8. Studying informed investors (insiders & 13F filings
  9. Catalysts that may unlock value
  10. Emerging markets
  11. Financial statements
  12. Competitive Analysis
  13. Analyzing Growth Potential
  14. Analyzing Management
  15. Valuation techniques
  16. Common mistakes; why most average investors go wrong
  17. Understanding different types of industries and companies
  18. Attitudes — Modesty, Patience & Independent Judgement
  19. And more…

In a book of around 300 pages, this is ambitious. It gives you one or two passes over important topics, so you are only getting a taste of the ideas involved. This is also predominantly a book on qualitative investing. Pure quantitative value investing doesn't get much play. Non-value anomalies don't get much coverage.

The other thing the book lacks is a way to pull it all together in a practical way. Yes, the last chapter tries to pull it all together, but given the breadth of the material, it gets pulled together in terms of the attitudes you need to do this right, but less of a “how do you structure an overall investment process to put these principles into practical action.” Providing more examples could have been useful, and really, the whole book could have benefited from that.

Excess returns - Additional Resources

Now, if you want a greater taste of the book without buying it, I've got a deal for you: this is a medium-sized slide presentation that summarizes the book. Pretty sweet, huh? It represents the book well, so if you are on the fence, I would look at it — after that you would know if you want to buy it.

Excess returns - Summary / Who Would Benefit from this Book

This is a good book if you understand qualitative value investing, but want to get an introduction to all the nuances that can go into it. If you want to buy it, you can buy it here: Excess Returns: A comparative study of the methods of the world's greatest investors.

Full disclosure: I received a copy from the author.

If you enter Amazon through my site, and you buy anything, I get a small commission. This is my main source of blog revenue. I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip. Book reviews take time, particularly with the reading, which most book reviewers don't do in full, and I typically do. (When I don't, I mention that I scanned the book. Also, I never use the data that the PR flacks send out.)

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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