In a perfect investment world the price of a stock embodies its value. And those who believe this 'efficient' market hypothesis will be buying index mutual funds certainly not this book. But those who dismiss this academic construct to profit from the inefficiencies evident in the market still run substantial risks not adequately addressed by most investment books. The minefield of risks that Cunningham guides us through is that the biases of others, the cause of those price vs. value anomalies, are also our own biases and can trigger money-losing investment decisions. Overconfidence and the "pattern seeking" bias to project short term trends into the future are just two examples, but they do so some of the worst damage. They lead to a dangerous reliance on margin borrowing and excessive trading activity. Also, recognize that companies make many of the same behavioral errors. It is the author's "smart" investor who can spot the folly of manic acquisitions by companies acting as if they were on steroids - grasping for growth at a fiscal cost. Cunningham dismisses technical analysis as "hokum" (Here he agrees with the proponents of an efficient market who maintain market movements cannot be predicted accurately). Stay away from IPO's, companies relying on pro-forma accounting, and sector funds. Read analyst reports with caution, but do study closely "management's discussion" of their business in the annual report. Be wary of stock buybacks, stock option programs, stock splits, spin-offs, secondary offerings, and performance-based incentive plans. Any of these programs can be abused and rise out of corporate hubris. Above all: Recognize your biases, your tolerance for risk, be objective, and have criteria to know when to sell your positions. A lot of territory is covered in this book with some of the best material appearing in Chapters 10 and 11. Cunningham builds a persuasive case for adopting a long term, value oriented investment philosophy which is least affected by these biases.Click Here to see more reviews about: Outsmarting the Smart Money : Understand How Markets Really Work and Win the Wealth Game (Hardcover)
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