World Famous Comics: The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines
The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines
By: Christopher L. Jones Publisher: Wiley Average Rating: Binding: Hardcover Label: Wiley Number of Items: 1 Number of Pages: 364 Publication Date: May 02, 2008
Product Description: The Intelligent Portfolio draws upon the extensive insights of Financial Engines—a leading provider of investment advisory and management services founded by Nobel Prize-winning economist William F. Sharpe—to reveal the time-tested institutional investing techniques that you can use to help improve your investment performance. Throughout these pages, Financial Engines’ CIO, Christopher Jones, uses state-of-the-art simulation and optimization methods to demonstrate the often-surprising results of applying modern financial economics to personal investment decisions.
Book review I have been investing using Modern Portfolio Theory (MPT) for over 20 years and have read many books on this subject. This book has reemphasized some of those not so obvious concepts that I have learned through the years. For some one with very basic investment knowledge, specially in MPT, this may not be the first book that I would recommend. However, at some point in the investor's life, this book is a must! In addition to the above comments, it would say that to effectively implement the book's recommendations, Financial Engines (a paid Monte Carlo software) is most likely needed.
Unconventional thinking These are the unconventional investment ideas that I found this book very unique:
1. Portfolio rebalancing means unintended bet against the market.
2. Presented the portfolio risk not as standard deviation of return, but versus that of market portfolio.
3. Hierarchical approach of investment (asset allocation first then investment selection) is not a good idea. Reason being: 1. Asset allocation likely assuming zero cost index fund as a guide. 2. Assuming each fund can fit into single asset class. 3. Asset allocation is paramount to investment selection regardless of the quality of investment selection. 4. Approach frequently ends up with actively managed and high fee fund.
4. Alternative investment not necessarily a good diversification due to risk and cost.
5. Financial Engines does not put funds into rigid asset class categories but rather use techniques to create a weighted peer group of funds based on how close the investment style (risk relative to market portfolio) is to the fund in question, and then rank funds on various measures (expenses, fund-specific risk, performance, turnover).
Overall, the book is very enlightening to both novice and professional investors without digging into complicated mathematics!
Perfect for judging personal investments Chris Jones covers all the bases related to investment choices based upon what's best for the personal investor rather than the financial advisor. Great examples, clear concise terminology, a perfect book for anyone interested in well grounded wealth accummulation over glitz!
Passive investing is the way to go...... This book does a number of things well.
1) it offers a great overview of the basics of personal investing (historical and future market performance factors, the roles of risk attitudes and time horizon when determining one's asset allocation, the value of diversification, tax issues, etc.)
2) it shows, mathematically, the perils of individual stock picking, and the negative impact this will likely have on your portfolio
3) most importantly, in my view, is the detailed examination of how and why a passive indexed approach will likely beat an active managed approach, unless the managers get lucky. No wonder John Bogle likes this book!
The book is heavy on concepts and examples, light on tough math. Not a super-light read, but far from a technical manual. Good for most readers, I would think.
In conclusion, if you implement what this author suggests, you can't go wrong.
Easy read with great investment advice This book was well written and easy to read.
The author makes the case that we would need about 1500 years of stock market return data to be able to predict stock market returns within +/- 1% with high confidence. Since we only have about 100 years of reliable data, we can predict within +/- 4% of the long term historical average. Over long 25 year time periods, stock market returns can vary by a factor of 6X or 6 times.
The author discusses the current world asset allocation of about 63:37 stocks:bonds. Interestingly enough, this is not far from the age old pension plan asset allocation of 60:40. The ratio of U.S. to foreign stocks is also about 60:40.
This author has a different opinion about periodically rebalancing a portfolio. He says rebalancing is really a market timing bet.........because you are betting against the consensus of market participants when the market asset allocation changes. He recommends rebalancing to changes in the over-all market allocation versus to a fixed stock:bond asset allocation ratio.
While conducting research for Financial Engines, they found that investors preferred having risk expressed in dollars versus percentages or sigma.
The author correctly focuses on using funds with low expenses, and he says most mutual funds have total expenses over 2% per year. He recommends adjusting your asset allocation around low expense funds...........if you are in a 401K with very limited choices. His work suggests that not investing in an asset class only costs you about 0.5% in return. If it costs you more than 1% in additional fees to get into a new asset class, then skip this asset class.
The author suggests having a maximum of 10% invested in REITs. He argues that if you own your home, you probably have no need for REITs as a separate investment.
The author also argues that commodities have a 0% expected return, so skip this asset class.
Over-all, this book is easy to read with very sound advice for investors.
Index Mutual Funds: How to Simplify Your Financial Life and Beat the Pro's The Richest Man in Babylon Bogle on Mutual Funds: New Perspectives for the Intelligent Investor The Millionaire Next Door The Four Pillars of Investing: Lessons for Building a Winning Portfolio A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life The Bogleheads' Guide to Investing
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