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Excess Returns: A comparative study of the methods of the world's greatest investors by Frederik Vanhaverbeke

The Efficient Market Hypothesis – are markets efficient?

EMH claim: Market cannot be beaten as pricing is always and totally efficient

  1. Market beaters are random subjects who owe their “success” to luck
  2. There is no systematic method to beat the market

The common view of top investors on EMH:

[drizzle]The extreme efficient market theory is "bonkers". It was an intellectually consistent theory that enabled them to do pretty mathematics. So I understand its seductiveness to people with large mathematical gifts. It just had a difficulty in that the fundamental assumption did not tie properly to reality. The efficient market theory is obviously roughly right meaning that markets are quite efficient and it’s quite hard for anybody to beat the market by significant margins as a stock picker by just being intelligent and working in a disciplined way. The answer is that it’s pretty efficient and partly inefficient. - Charlie Munger

The Efficient Market Hypothesis – Challenge: Macro investing with George Soros and co.

George Soros: 1969 - 2009: 26.3% annually

George Soros + Jim Rogers: 1969 - 1980: Soros Fund x34 - S&P 500: 47%

George Soros solo: Outperformance continues

George Soros + Stanley Druckenmiller:

  • Outperformance continues
  • Druckenmiller = person who “broke the Bank of England” (not Soros)
  • Druckenmiller (Duquesne Fund): 37% annually over 12 years

George Soros solo (with son): Outperformance continues (e.g., return in 2008: +7%)

If markets are efficient, how can this string of outperformance be explained?

The Efficient Market Hypothesis – Challenge 3

Edward Thorp, Mathematics professor:

  • Derived the Black and Scholes option pricing model a few years before Black and Scholes but decided to keep it secret (to make money)
  • 1969 - 1988: return Princeton Newton Partners: 19.1% annually
  • Princeton Newton Partners: positive performance in 227 out of 230 months !!! - probability of this kind of consistency or better » 6.1E-46 (number of atoms on earth » 1E50)

Can this be explained by luck?

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The Efficient Market Hypothesis – Excess returns

Excess Returns: A comparative study of the methods of the world's greatest investors by Frederik Vanhaverbeke

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Excess Returns - Description

An analysis of the investment approach of the world's top investors, showing how to achieve market-beating returns It is possible to beat the market. Taking this as a starting point, Excess Returns sets out to explore how exactly the most famous investors in the world have done it, year after year, sometimes by huge margins. Excess Returns is not a superficial survey of what investors have said about what they do. Rather, Frederik Vanhaverbeke applies a forensic analysis to hundreds of books, articles, letters and speeches made by dozens of top investors over the last century and synthesises his findings into a definitive blueprint of how exactly these investment legends have gone about their work. Among the legends whose work has been studied are Warren Buffett, Benjamin Graham, Anthony Bolton, Peter Lynch, Charles Munger, Joel Greenblatt, Seth Klarman, David Einhorn, Daniel Loeb, Lou Simpson, Prem Watsa and many more. Among the revealing insights, you will learn of the striking similarities in the craft of great investors, crucial subtleties in their methods that are ignored by many, and the unconscious errors investors commonly make and how these are counter to successful investing. Special attention is given to two often overlooked areas: effective investment philosophy and investment intelligence. The investing essentials covered include: - Finding bargain shares - Making a quantitative and qualitative business analysis - Valuation methods - Investing throughout the business cycle - Timing buy and sell decisions - And much, much more! Excess Returns is full of timeless and practical insights, presented in a unique style, to help investors focus on the most promising opportunities and lead the way to beating the market.

Excess Returns - Review

"Using his style of forensic analysis, Frederik Vanhaverbeke creates a blueprint for investors made from hundreds of books, articles letters and speeches made by some of the globe s most well-known and successful investors." --Conor Shilling, Investor Today "The book is very structured and exhaustive...It contains a number of frameworks that puts the different analytical elements together ... This makes the book a valuable read for investors looking to improve their investment process. I also liked the chapters covering investment mistakes...A valuable read for investors looking to improve their investment process" -- Michael Wassermann, Strictly Financial "Newbie investors, as well as those individuals looking for critical insight into time-tested investing tactics, will profit from reading this book and implementing any number of its strategies...In particular, this book sheds light on the quantitative and quantitative-qualitative investment styles used by the most successful practitioners...The chapter on the most common buying and selling mistakes is especially pertinent to investors who have not had much success..." -- Les Masonon, Futures & Buy DON'T Hold "This is a fantastic book for both new and seasoned investors alike...While he writes in broad strokes, Vanhaverbeke gives you a very good foundation that you can use as you continue to study this field and apply what you learn. It is an excellent resource." -- Chet L, Taking Care of Biz

Excess Returns: A comparative study of the methods of the world's greatest investors by Frederik Vanhaverbeke

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