Book Reviews, Value Investing

Book Review: Excess Returns

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:

  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.

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