Investment Philosophies -- Contents -- CHAPTER 1 Introduction -- WHAT IS AN INVESTMENT PHILOSOPHY? -- Human Frailty -- Market Efficiency -- Tactics and Strategies -- WHY DO YOU NEED AN INVESTMENT PHILOSOPHY? -- THE BIG PICTURE OF INVESTING -- Step 1: Understanding the Client -- Step 2: Portfolio Construction -- Step 3: Evaluate Portfolio Performance -- CATEGORIZING INVESTMENT PHILOSOPHIES -- Market Timing versus Asset Selection -- Activist versus Passive Investing -- Time Horizon -- Coexistence of Contradictory Strategies -- Investment Philosophies in Context -- DEVELOPING AN INVESTMENT PHILOSOPHY -- Step 1: Understand the Fundamentals of Risk and Valuation -- Step 2: Develop a Point of View about How Markets Work and Where They Might Break Down -- Step 3: Find the Philosophy That Provides the Best Fit for You -- CONCLUSION -- EXERCISES -- CHAPTER 2 Upside, Downside: Understanding Risk -- WHAT IS RISK? -- EQUITY RISK: THEORY-BASED MODELS -- Defining Risk -- Diversifiable and Nondiversifiable Risk -- Models Measuring Market Risk -- ASSESSING CONVENTIONAL RISK AND RETURN MODELS -- EQUITY RISK: ALTERNATIVE MEASURES -- Accounting-Based Measures -- Proxy Models -- Market-Implied Measures -- Risk-Adjusted Cash Flows -- Margin of Safety -- EQUITY RISK: ASSESSING THE FIELD -- DEFAULT RISK -- The Determinants of Default Risk -- Bond Ratings as Measures of Default Risk -- What If a Firm Has No Bond Rating, and Why Do We Care? -- CONCLUSION -- EXERCISES -- CHAPTER 3 Numbers Don't Lie-Or Do They? -- THE BASIC ACCOUNTING STATEMENTS -- ASSET MEASUREMENT AND VALUATION -- Accounting Principles Underlying Asset Measurement -- Measuring Asset Value -- MEASURING FINANCING MIX -- Accounting Principles Underlying Liability and Equity Measurement -- Measuring the Value of Liabilities and Equity -- Preferred Stock -- Equity -- MEASURING EARNINGS AND PROFITABILITY.

Accounting Principles Underlying Measurement of Earnings and Profitability -- Measuring Accounting Earnings and Profitability -- Measures of Profitability -- MEASURING RISK -- Accounting Principles Underlying Risk Measurement -- Accounting Measures of Risk -- DIFFERENCES IN ACCOUNTING STANDARDS AND PRACTICES -- CONCLUSION -- EXERCISES -- CHAPTER 4 Show Me the Money: The Basics of Valuation -- INTRINSIC VALUE -- The Mechanics of Present Value -- Valuing an Asset with Guaranteed Cash Flows -- Introducing Uncertainty into Valuation -- Valuing an Asset with an Infinite Life -- RELATIVE VALUATION -- Standardized Values and Multiples -- The Fundamentals Behind Multiples -- The Use of Comparables -- VALUING AN ASSET WITH CONTINGENT CASH FLOWS (OPTIONS) -- Cash Flows on Options -- Determinants of Option Value -- CONCLUSION -- EXERCISES -- CHAPTER 5 Many a Slip: Trading, Execution, and Taxes -- THE TRADING COST DRAG -- THE COMPONENTS OF TRADING COSTS: TRADED FINANCIAL ASSETS -- The Bid-Ask Spread -- The Price Impact -- The Opportunity Cost of Waiting -- Investment Strategy and Total Trading Costs -- TRADING COSTS WITH NONTRADED ASSETS -- Trading Costs on Real Assets -- Trading Costs on Private Equity/Businesses -- MANAGEMENT OF TRADING COSTS -- TAXES -- Investment Returns and Taxes -- The Tax Drag on Returns -- Tax Management Strategies -- Tax Arbitrage -- CONCLUSION -- EXERCISES -- CHAPTER 6 Too Good to Be True? Testing Investment Strategies -- WHY DOES MARKET EFFICIENCY MATTER? -- EFFICIENT MARKETS: DEFINITION AND IMPLICATIONS -- What Is an Efficient Market? -- Market Efficiency, Investors, and Information -- BEHAVIORAL FINANCE: THE CHALLENGE TO EFFICIENT MARKETS -- Psychological Studies -- The Evidence -- Testing Market Efficiency -- Strategies for Testing Market Efficiency -- The Cardinal Sins in Testing Market Efficiency.

Some Lesser Sins That Can Be a Problem -- A SKEPTIC'S GUIDE TO INVESTMENT STRATEGIES -- CONCLUSION -- EXERCISES -- CHAPTER 7 Smoke and Mirrors? Price Patterns, Volume Charts, and Technical Analysis -- RANDOM WALKS AND PRICE PATTERNS -- The Basis for Random Walks -- The Basis for Price Patterns -- EMPIRICAL EVIDENCE -- The Really Short Term: Mild Price Patterns -- The Mid Term: Price Momentum -- The Long Term: Price Reversal Again! -- Price Correlation Run Amok: Market Bubbles -- Seasonal and Temporal Patterns in Prices -- Volume Patterns -- THE FOUNDATIONS OF TECHNICAL ANALYSIS -- TECHNICAL INDICATORS AND CHARTING PATTERNS -- Markets' Overreaction-Contrarian Indicators -- Shifting Demand -- Slow Learning Markets: Momentum Indicators -- Long-Term Cycles: Mystical Indicators -- Determinants of Success at Charting and Technical Analysis -- CONCLUSION -- EXERCISES -- CHAPTER 8 Graham's Disciples: Value Investing -- WHO IS A VALUE INVESTOR? -- THE PASSIVE SCREENER -- Ben Graham: The Father of Screening -- Warren Buffett: Sage from Omaha -- Value Screens -- Determinants of Success -- Tools for Success -- THE CONTRARIAN VALUE INVESTOR -- Basis for Contrarian Investing -- Strategies and Evidence -- Determinants of Success -- ACTIVIST VALUE INVESTING -- Strategies and Evidence -- Classes of Activist Investors -- Empirical Evidence on Activist Investing -- Determinants of Success -- CONCLUSION -- EXERCISES -- CHAPTER 9 The Allure of Growth: Small Cap and Growth Investing -- WHO IS A GROWTH INVESTOR? -- PASSIVE GROWTH INVESTING -- Small Cap Investing -- Initial Public Offerings -- Growth Screens -- ACTIVIST GROWTH INVESTING -- Description -- The Market for Private Equity and Venture Capital -- The Process of Venture Capital Investing -- The Payoff to Venture Capital and Private Equity Investing -- Determinants of Success in Activist Growth Investing.

CONCLUSION -- EXERCISES -- CHAPTER 10 Information Pays: Trading on News -- INFORMATION AND PRICES -- Private and Public Information -- Information Efficiency: How Stock Prices React to News -- TRADING ON PRIVATE INFORMATION -- Insiders -- Analysts -- TRADING ON PUBLIC INFORMATION -- Earnings Announcements -- Acquisitions -- Takeover-Based Investment Strategies -- Other Announcements -- IMPLEMENTING AN INFORMATION-BASED INVESTMENT STRATEGY -- CONCLUSION -- EXERCISES -- CHAPTER 11 A Sure Profit: The Essence of Arbitrage -- PURE ARBITRAGE -- Futures Arbitrage -- Options Arbitrage -- Fixed Income Arbitrage -- Determinants of Success -- NEAR ARBITRAGE -- Same Security, Multiple Markets -- Closed-End Funds -- Convertible and Capital Structure Arbitrage -- Determinants of Success -- SPECULATIVE ARBITRAGE -- Paired Arbitrage -- Merger Arbitrage -- Determinants of Success -- LONG/SHORT STRATEGIES-HEDGE FUNDS -- Background, History, and Structure -- Performance -- CONCLUSION -- EXERCISES -- CHAPTER 12 The Impossible Dream? Timing the Market -- MARKET TIMING: PAYOFFS AND COSTS -- The Payoff to Market Timing -- The Cost of Market Timing -- In Summary -- MARKET TIMING APPROACHES -- Market Timing Based on Nonfinancial Indicators -- Market Timing Based on Technical Indicators -- Market Timing Based on Fundamentals -- Determinants of Success -- THE EVIDENCE ON MARKET TIMING -- Mutual Fund Managers -- Investment Newsletters -- Market Strategists -- MARKET TIMING STRATEGIES -- The Big Picture -- The Details -- MARKET TIMING INSTRUMENTS -- Futures -- Options -- Exchange-Traded Funds (ETFs) -- CONNECTING MARKET TIMING TO SECURITY SELECTION -- CONCLUSION -- EXERCISES -- CHAPTER 13 Ready to Give Up? The Allure of Indexing -- THE MECHANICS OF INDEXING -- A Fully Indexed Fund -- A Sampled Index Fund -- A HISTORY OF INDEXING -- THE CASE FOR INDEXING -- Individual Investors.

Professional Money Managers -- In Summary -- WHY DO ACTIVE INVESTORS NOT PERFORM BETTER? -- Transaction Costs -- High Taxes -- Too Much Activity -- Failure to Stay Fully Invested in Equities-Delusions of Market Timing -- Behavioral Factors -- ALTERNATIVE PATHS TO INDEXING -- Exchange-Traded Funds -- Index Futures and Options -- Enhanced Index Funds -- CONCLUSION -- EXERCISES -- CHAPTER 14 A Road Map to Choosing an Investment Philosophy -- A SELF-ASSESSMENT -- Personal Characteristics -- Financial Characteristics -- Market Beliefs -- FINDING AN INVESTMENT PHILOSOPHY -- The Choices -- THE RIGHT INVESTMENT PHILOSOPHY -- Review and Introspection -- CONCLUSION -- EXERCISES -- Index.