Sunday, 15 June 2014

Market Sense and Nonsense (Jack D. Schwager)

This book was written by Schwager who is also the author of the Market Wizards series. This book is a standalone book. Topics involve (overturning) commonly held beliefs such as the efficient market hypothesis, ideas about risk measurement, performance evaluation of funds and correlation. The second half of the book concerns hedge funds with respect to the ideas discussed in the first half, including impressions of the hedge fund industry, the use of leverage and risk evaluation. The third part covers volatility and portfolio diversification. This is not an exhaustive list of the topics the book covers.

As with his professional history and previous books, this book has a very academic tone. There are numbers and tables littered throughout the book and parts may get boring or difficult to read. Thankfully, there is a summary at the end of each chapter to round up what the reader should take away. For those not familiar with concepts such as the Sharpe ratio and other risk measurement methods, the second part of the book can be particularly tough to read. However, Schwager's discussions are thorough and mostly backed up with figures. He has comprehensively covered each section well, with appendices and footnotes explaining concepts for those who are not familiar with the subject at hand.

What is the value to investors or traders of this book? I feel that that there is some value but not too much if you are not even familiar with basic concepts of risk or are not keen to further analyse your investment or trading performance.This book, in my opinion, is more suited for intermediate to advanced traders/ investors, although it was probably written for everyone in mind. For a beginner, the book may be too academic and the concepts too obscure to be applicable. For those with more experience and the proper tools, the first and third sections would be very useful as the author has given much food for thought. An example would be challenging the idea of the ideal diversification number in a portfolio or about the correlation within one's portfolio and how one should manage individual investments versus the entire portfolio. This book is also useful to those looking to break into the hedge fund or PE industry as it provides a good overview without being too in-depth. Don't get me wrong, this is a great book and  I have been looking for one like this for a while, but it is not for everyone.

Found in NLB: Yes

Recommended: No (Because the topics contained are rather advanced, otherwise, a good read)