REVIEW: Market sense and nonsense

Accountingweb member Domybooks recently reviewed Market sense and nonsense: How the markets really work by Jack D. Schwager. Here's how he found it: 

I'm very cautious when reading investment books. There's plenty of nonsense peddled as investment advice, but Jack Schwager's book caught my interest.

The author has written extensively on markets and his first book: A Complete Guide to the Futures Markets (1984) is considered to be one of the classic reference works in the field.

Market sense and nonsense is packed full of statistics. The author uses these statistics to push against common myths and misconceptions about stocks and returns.

For example would you be surprised to know that events which common market wisdom deemed once in a million were happening every few years.

Investment newsletters which can cost significant amounts to subscribe to are also analysed, The result isn't pretty in general, as they do worse than random investing.

This random investing is referred to as a chimpanzee throwing darts at a stock market quote page.

This humour flows throughout the book and makes what could be a heavy subject a really interesting read.

Schwager compares expert advice against actual real time events, time and time again showing experts generally don't beat the market.

There are many frightening facts in this book, but one jumped out at me, namely that Pre economic breakdown sub prime mortgages were bundled up into CDO's (Collateralized debt obligation) and sold at 0.25 percent of a premium over US treasury bonds.

If the market was anyway efficient how could these hugely risky CDO's be sold at such a tiny premium over government backed treasury bonds?

As expected, the book contains a lot of financial jargon and is obviously written for those familiar with finance and investing. However, the use of clear examples and humor makes its accessible to anyone with a passing interest in finance and investing.

The one thing I have learned from this book, which is just common sense, is to do your homework before investing and that few win by playing the market.

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