Market Sense and Nonsense: How the Markets Really Work (And How They Don't) -- Copyright -- Contents -- Foreword -- Prologue -- Part One: Markets, Return, and Risk -- Chapter 1: Expert Advice -- Comedy Central versus CNBC -- The Elves Index -- Paid Advice -- Investment Insights -- Chapter 2: The Deficient Market Hypothesis -- The Efficient Market Hypothesis and Empirical Evidence -- The Price Is Not Always Right -- Pets.com and the Dot-Com Mania -- A Subprime Investment -- Negative Value Assets-The Palm/3Com Episode -- The Market Is Collapsing -- Where Is the News? -- The Disconnect between Fundamental Developments and Price Moves -- Copper: Delayed Response to Shrinking Inventories -- Countrywide Flies High as Housing Engine Sputters -- Subprime Bonds Ignore Rising Foreclosures -- Price Moves Determine Financial News -- Is It Luck or Skill? Exhibit A: The Renaissance Medallion Track Record -- The Flawed Premise of the Efficient Market Hypothesis: A Chess Analogy -- Some Players Are Not Even Trying to Win -- The Missing Ingredient -- Right for the Wrong Reason: Why Markets Are Difficult to Beat -- Diagnosing the Flaws of the Efficient Market Hypothesis -- Why the Efficient Market Hypothesis Is Destined for the Dustbin of Economic Theory -- Investment Insights -- Chapter 3: The Tyranny of Past Returns -- S&P Performance in Years Following High- and Low-Return Periods -- Implications of High- and Low-Return Periods on Longer-Term Investment Horizons -- Is There a Benefit in Selecting the Best Sector? -- Hedge Funds: Relative Performance of the Past Highest-Return Strategy -- Why Do Past High-Return Sectors and Strategy Styles Perform So Poorly? -- Wait a Minute. Do We Mean to Imply . . . ? -- Long-Only Funds (Mutual Funds) -- Hedge Funds and CTA Funds -- Investment Insights -- Chapter 4: The Mismeasurement of Risk -- Worse Than Nothing.

Volatility as a Risk Measure -- The Source of the Problem -- Hidden Risk -- Evaluating Hidden Risk -- Quantitative Measures -- Qualitative Assessment -- The Confusion between Volatility and Risk -- The Problem with Value at Risk (VaR) -- Asset Risk: Why Appearances May Be Deceiving, or Price Matters -- Investment Insights -- Chapter 5: Why Volatility Is Not Just about Risk, and the Case of Leveraged ETFs -- Leveraged ETFs: What You Get May Not Be What You Expect -- Investment Insights -- Chapter 6: Track Record Pitfalls -- Hidden Risk -- The Data Relevance Pitfall -- When Good Past Performance Is Bad -- The Apples-and-Oranges Pitfall -- Longer Track Records Could Be Less Relevant -- Investment Insights -- Chapter 7: Sense and Nonsense about Pro Forma Statistics -- Investment Insights -- Chapter 8: How to Evaluate Past Performance -- Why Return Alone Is Meaningless -- Risk-Adjusted Return Measures -- Sharpe Ratio -- Sortino Ratio -- Symmetric Downside-Risk Sharpe Ratio -- Gain-to-Pain Ratio -- Tail Ratio -- MAR and Calmar Ratios -- Return Retracement Ratio -- Comparing the Risk-Adjusted Return Performance Measures -- Which Return/Risk Measure Is Best? -- Visual Performance Evaluation -- Net Asset Value (NAV) Charts -- Rolling Window Return Charts -- Underwater Curve and 2DUC Charts -- Investment Insights -- Chapter 9: Correlation: Facts and Fallacies -- Correlation Defined -- Correlation Shows Linear Relationships -- The Coefficient of Determination (r2) -- Spurious (Nonsense) Correlations -- Misconceptions about Correlation -- Focusing on the Down Months -- Correlation versus Beta -- Investment Insights -- Part Two: Hedge Funds as an Investment -- Chapter 10: The Origin of Hedge Funds -- Chapter 11: Hedge Funds 101 -- Differences between Hedge Funds and Mutual Funds -- Types of Hedge Funds -- Correlation with Equities.

Chapter 12: Hedge Fund Investing: Perception and Reality -- The Rationale for Hedge Fund Investment -- Advantages of Incorporating Hedge Funds in a Portfolio -- The Special Case of Managed Futures -- Single-Fund Risk -- Investment Insights -- Chapter 13: Fear of Hedge Funds: It's Only Human -- A Parable -- Fear of Hedge Funds -- Chapter 14: The Paradox of Hedge Fund of Funds Underperformance -- Investment Insights -- Chapter 15: The Leverage Fallacy -- The Folly of Arbitrary Investment Rules -- Leverage and Investor Preference -- When Leverage Is Dangerous -- Investment Insights -- Chapter 16: Managed Accounts: An Investor-Friendly Alternative to Funds -- The Essential Difference between Managed Accounts and Funds -- The Major Advantages of a Managed Account -- Individual Managed Accounts versus Indirect Managed Account Investment -- Why Would Managers Agree to Managed Accounts? -- Are There Strategies That Are Not Amenable to Managed Accounts? -- Evaluating Four Common Objections to Managed Accounts -- Investment Insights -- Postscript to Part Two: Are Hedge Fund Returns a Mirage? -- Part Three: Portfolio Matters -- Chapter 17: Diversification: Why 10 Is Not Enough -- The Benefits of Diversification -- Diversification: How Much Is Enough? -- Randomness Risk -- Idiosyncratic Risk -- A Qualification -- Investment Insights -- Chapter 18: Diversification: When More Is Less -- Investment Insights -- Chapter 19: Robin Hood Investing -- A New Test -- Why Rebalancing Works -- A Clarification -- Investment Insights -- Chapter 20: Is High Volatility Always Bad? -- Investment Insights -- Chapter 21: Portfolio Construction Principles -- The Problem with Portfolio Optimization -- Eight Principles of Portfolio Construction -- Correlation Matrix -- Going Beyond Correlation -- Investment Insights -- Epilogue: 32 Investment Observations.

Appendix A: Options-Understanding the Basics -- Appendix B: Formulas for Risk-Adjusted Return Measures -- Sharpe Ratio -- Sortino Ratio -- Symmetric Downside-Risk Sharpe Ratio -- Gain-to-Pain Ratio (GPR) -- Tail Ratio -- MAR and Calmar Ratios -- Return Retracement Ratio -- Acknowledgments -- About the Author -- Index.