Review of The Random Walk Guide to Investing: Ten Rules for Financial Success (Hardcover)

Burton Malkiel is the author of the incredibly successful investment theory book "A Random Walk Down Wall Street" first published in 1973.Thirty years later, his publisher suggested he writes an investment guide capturing the wisdom from "A Random Walk" in a shorter tome aimed at the layperson.Malkiel did exactly that.In this book, he does a beautiful job in avoiding statistics out of reach for the layperson.Yet the investment advice remains sharp and relevant.

Malkiel covers a lot of ground in investments, financial planning, retirement, savings for college, and insurance in just 180 pages.He structures this knowledge through just ten basic rules. Throughout, he includes numerous useful tools.One is the famous rule of 72.If you divide 72 by the investment return, it will tell you how many years it takes to double your investment.Thus, Malkiel covers all the basics and also explores the cutting edge of behavioral economics from the luminaries in this field including Robert Shiller (Irrational Exuberance) and Richard Thaler.This book is just as interesting to the layperson and the investment professional alike.

Malkiel advice can be summarized as follows.Save regularly through 401Ks and other means.Invest in low cost mutual funds and index funds across four asset classes (money market funds, bonds, stocks, and REITs).Invest according to your optimal asset allocation which reflects your time horizon (driven by your age), your financial capacity to absorb losses, and your risk tolerance.Take full advantage of tax advantage investments, including 401Ks, IRAs, Education Savings Accounts.The book includes many more fascinating aspects of investing.

Malkiel outlines eloquently the benefits of index funds.They incur lower operating costs.They have lower turnover, which leads to lower transaction costs and greater tax efficiency.Consequently, index funds beat actively managed funds by 2 percentage points.Malkiel states this superior performance is a direct result of index funds low cost advantage.The higher cost handicap of actively managed funds is insurmountable over time.As a result, the S&P 500 index beats out 84% of large cap mutual funds over 10 years, and 88% over 20 years.

This leads to one of Malkiel most surprising point.Two investors investing $1,000 in an IRA earning respective returns of 6% and 8%; the investor earning 8% will have more than twice as much money in his account after 40 years ($21,725 vs. $10,286).I thought Malkiel made a typo.I calculated the figures, and he did not.This has huge implication in a long term investment environment where single digit returns will become the norm.Costs matter a lot!

On diversification Malkiel includes much original intelligence.He makes a strong case that international diversification is not all what it is cracked up to be.This is because international stock markets move increasingly together when the U.S. one experiences a downturn.Also, he mentions that REITs provide excellent diversification benefits (better than international stocks).I have personally done much research on this subject, using regression analysis.And, Malkiel is correct, even though this fact is unknown to Wall Street.

Malkiel recommends different asset allocations for different age brackets (Life-Cycle investing).He tracks how these different asset allocations performed over the past 20 years (January 1983 to December 2002).It is stunning to note that the most aggressive asset allocation targeted to young people with a 65% stock exposure would have earned a 11.52% return or only one percentage point greater than the most conservative one targeted at senior citizens with only 25% stock exposure which earned a 10.51% return.On the other hand, the most aggressive asset allocation would have suffered 20 quarterly losses with the worst one being minus 14.5%; meanwhile the most conservative asset allocation would have incurred only 16 quarterly losses with the worst one being only minus 5.0%.This gives you pause on how much additional risk is it worth taking.

Malkiel does also a credible job of explaining the superior long term performance of Warren Buffet and Peter Lynch despite the efficiency of the markets and the overall superiority of index funds.Of the two, he states that Peter Lynch record is much less impressive.

He attributes much of Lynch record to the laws of randomness.If you have a 1,000 coin flippers and you make them flip a coin 10 times in a row, you will have one coin flipper who will have flipped tails 10 times in a row.He will be perceived as a genius.But, he was just lucky.Observing Peter Lynch record, his hand got progressively colder as his Magellan fund became larger and his tenure lengthened.This is exactly what Malkiel expected.Lynch genius was to retire close to the top.He retired at the young age of 46, when his record viewed over his tenure could still be perceived as legendary.

Warren Buffet case is completely different.In Malkiel view, he is not so much an investment genius, as a businessman.Buffet has often intervened in running the companies in which he invested when they were faltering.This was the case for the Washington Post, Salomon Brothers, and many other companies Buffet invested in.So, to compare Buffet?s record to the S&P 500 is comparing apples and oranges.Buffet record can't be replicated by any regular investors who have no control over the companies they invest in.



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Review of The Cure Within: A History of Mind-Body Medicine (Hardcover)

Whenever a first-class scholar, like this one, writes a careful, data-based book, which is at the same time accessible to the intelligent lay person, we must be grateful.

This volume tells us much of the history, in the United States, of the various mind-over-body schemes:psychoanalysis, Transcendental Meditation, bio-feedback, Christian Science, and others.Nobody interested in modern American history can afford to ignore this story.

But I also found the book profoundly confusing.The author wants to tell us about these movements and how they were received by the public, but she has little interest, it seems, in the truth value behind the claims of these popular movements.Does bio-feedback, for instance, really help in reducing stress ?For that matter, is there such a thing as "stress" in the sense that the proponents of these movements have in mind ?Truth or untruth are things that hold little interest for this author.

Harrington generally tells the story of the beginnings of these movements as a series of successes, and then, for some reason, time and again, "things begin to unravel," as she has to state time and again.With all her sympathies for "mind-over-body,"sympathies that dominate her "narratives" (a favorite phrase of hers), it turns out, generally, and in stark contrast to her enthusiasms, that things don't work out after all, and it would seem -- though she never says this -- that it's probably best to be cynical about the whole lot of these movements.



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Review of Liar's Poker: Rising Through the Wreckage on Wall Street (Hardcover)

In the 1980's, Michael Lewis was a neophyte bond salesman for Salomon Brothers in New York and London for four years. Liar's Poker is a high-stakes game the traders, salesmen, and executives play each afternoon, but it is also a metaphor for the Salomon culture of extreme risk-taking with immediate payoffs and clear winners and losers.

This is the story of how Lewis survived the training program, inept but mean-spirited management, an aborted take-over even featuring a white knight, layoffs and the 1987 market crash before quitting to find his real calling as a business journalist. While Lewis's career did not take off quickly, he eventually became a highly paid producer, although not in the league of the true top dogs.

Lewis tells the real story of Wall Street in both go-go and crash days with self-deprecating humor enlivened with his ecletic wit. Colorful and well-known Wall Street characters appear such as Michael Milken, Lazlo Birini, Warren Buffett, Bill Simon, Sr. and John Guetfruend.All business students need to read this as even those with advanced degrees in finance such as myself, will learn how things really work. The story of how the junk bond and collateralized mortgage backed security markets emerge is told to fill in a chapter in financial history. Perhaps most interesting is some of the political machinations, rampant at Salomon, which lead for example for Salomon to ignore the junk bond market, allowing others to flourish and eventually attempt to take-over Salomon using junk bonds.

Lewis also describes for all investors the conflicts of interest and lack of governance on Wall Street long before Eliot Spitzer and Arthur Levitt became the champions of the little guy. My next step is to read Lewis's later books.



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Review of Flat Broke in the Free Market: How Globalization Fleeced Working People (Hardcover)

The author succinctly dismantles the mainsteam kudos of globalization without remorse. This is the story of how globalization has widened inequality, corrupted politicians, estranged neighbors from one another, torn families apart, privitized the commons(even rainwater!), prostituted women, caused numerous suicides, and sadly, the gut wrenching beat of betrayal goes on.
The World Bank, IMF, U.S. Treasury has created a transnational underclass. Globalization is an international shakedown, that targets ordinary people around the globe, making them economic outcasts in their own countries of birth. This madness is no way accidental, but has a signature of method writ large all over the globe by the financial wizards of elitism. Stock prices jumped because workers didn't get a raise, millions lost their jobs, retirement funds were eliminated,... & WALL STREET REJOICED!
Globalization is extractive, accumulation by dispossession, the rich exploiting the poor for no other reason than to fatten their pockets. Deregulation unleashed transnational corporations that privitized state-owned industries & utilities while eating up and spitting out jobs, driving up electricity & water costs.
GOVERNMENTS TRANSFER PUBLIC PROPERTY TO PRIVATE HANDS &
PRIVATE DEBT TO PUBLIC HANDS!!!!!!

The author personally interviewed over a seven year period - cab drivers, prostitutes, produce sellers, garbage collectors, people around the globe knocked down but not out.
A hard but necessary read to understand the depth of betrayal by those who have and are continuing to orchestrate a world/no one with any heart would want/nor frankly allow.
A succinct/without remorse/portrayal of globalization.

HIGHLY RECOMMENDED !!!!!!




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