5 comments about Martin Zweig Winning on Wall Street.

1. I purchased this book because the AAII 8 year study of different strategies showed Zwieg's returning 1,659.3% from 1998-2005. He was #1 out of 56 others, including Buffett, Lynch, Fisher, O'Neal's CAN SLIM, Motley fools, and using ROE, P/E's etc. Second place was O'Neal's CAN SLIM with a 860% return, which is the strategy I use. This study got my attention.
   Zweig is a rare mix, he was previously a finance professor, (He holds many degrees in finance). He is a successful trader in his own right. He is the chairman of a very successful closed end fund and a mutual fund, and publishes one of the most successful newsletters the Zwieg Forecast.
   His super model for stock market timing focuses in on timiming for entries and exits based on monetary policy and market momentum. He uses the prime rate, Fed rate, and installment debt as factors to judge the markets performance. He also uses market momentum indicators like advance decline ratios being greter than 2 to 1, up volume being at a 9-1 ratio. He also discusses simplyfing into entering on a 4% advance and selling after a 4% decline. He puts these factors together to create a point valued timing system that was close to perfect during the past 30 years predicting the trend. He shows the performance of each factor in real historical data.
   He favors value combined with growth and to stay away from huge P/E ratios, and diversifying your portifolio across at least 5 stocks in different industries. Which is great advice for investors. (I am a stock trader so I play the market differently, but use this in my 401K).
   He does believe in using a trailing stop loss on your stocks to limit losses to 10-20%. He also does the best job I have seen explaining short selling and how it is the same amount of risk as going long. Excellent book I put it at the top of the list in my library of 75 trading books. A must have for all serious investors/traders.



2. While I was in high school, I bought this book at a neighborhood bookstore
   in 1987 if I remember correctly. It was my first stock market book ever. At the time, I did not know that it was going to be a Wall Street classic though I should have foreseen it. When I first browsed through the book initially, It was quite advanced for me. Many years ago, I carefully reread the severely bangged up copy of mine again. That's when it all became clear for me. In fact, the stock screening method in the book is the backbone of my stock selection process now although it's not the only criteria I use. If anyone believes that it is possible to beat the stock market on consistent basis by logical stock selection, this book must be read at least a few times IMO.



3. An excellent treatise on the use of data from the New York Stock Exchange. It may be a little difficult to obtain equivalent UK data but a very thought provoking methodology.



4. Martin Zweig states in this book that people buy it when they experience loss or frustration in the stock market. I have to agree and wish I would have found this book a long time ago.
   
   Zweig provides a model to tell you if you should be a buyer, seller, or stay in cash. Then outlines some of his work at picking stocks. If you follow his model (you need to get data from the U.S. Gov, Barrons, and some stock indexes all free) then you can track the model on a WEEKLY BASIS not DAILY. This really provides direction for bigger moves and keeps the "weekend" investor from looking at the market in detail a day at a time.
   
   If you ever found yourself wondering overall should you be a buyer or seller, this book will answer that question for you. You will know when to start moving to cash, when to start moving into stocks, and if you should be in stocks or cash 100%.
   
   Buy this book you will keep it as an investment book you return to again and again. The blog www.investorknowledgebase.org discusses some topics in this book.



5. Mr. Zweig is simply a genius. And his book is a reflection of it. A must read to every person dealing with the stock market.

5 comments about The Investor's Guide to Technical Analysis.

1. This book did not offer any useful complex information. It is directed for those that are just getting started with the stock market. If you even know a little about technical analysis, this book would provide no extra value



2. I have very little time to read, but have a logical mind...if these two sound like you, give this book a chance. I was able to read it quickly and learn quite a bit, without "practicing" on real world charts before the test quiz at the end of the book (which I found VERY helpful). It is already making an impact on my ability to judge a good "play" vs. a bad one. After reading this book, I would suggest a more intermediate book and/or one on indicators. Good Luck!



3. This book provides a concise and easy to understand introduction and reference to technical analysis. It is well written and uses charts for illustration instead of mathematical formulas. In my view any serious investor should know technical analysis at least at this level in order to assess market direction and price behaviour. Those who wish to build solely on technical approach to trading and investment would need to purchase additionally some more detailed and comprehensive treatments.



4. This is a slim and concise guide to chart patterns and the relationships between volume and price. There is a brief discussion of moving averages and other indicators like oscillating waves, but the bulk of the book is centered on how to interpret the patterns seen when reading a stock chart.
   I think think the book would have been more useful for me if it included chapters about some of the other tools that are commonly available for charting stocks, such as Moving Average Convergence/Divergence (MACD).



5. Beware of the description of this book. Anyone who has a scintilla of technical analysis knowledge should avoid this book. If this is your very first day of obtaining trading knowledge then this is the book for you. If it is your second day, you are already beyond this book.

4 comments about The Rookie's Guide to Options: The Beginner's Handbook of Trading Equity Options.

1. Options are a complicated investment instrument, but if properly understood and implemented, they are far less risky than owning stock or mutual funds. And as a bonus, they are most often more profitable. Trading options, one can choose to be a risky gambler (not recommended) or a conservative income generator.
   
   The trick is understanding options and understanding risk management. If you trade options WITHOUT understanding them, and WITHOUT any risk management implementation, then by default you are a risky gambler. You will be out of money before you know what hit you.
   
   The option world has its own lingo. And there are myriad strategies to sift through before determining which one(s) suit your risk/reward desires. Placing the actual trade orders with your broker requires a thorough understanding and fluency of the lingo, as well as a confident understanding of the strategy you've chosen.
   
   The good news is that this book will actually TEACH you what you need to know to be a conservative income generator with options. I can assure you it is the ONLY book that TEACHES this. I own all the major books on options that have been released in the last five years and this one is by far the best and most practical. And long overdue.
   
   To me, in order for an author to teach options trading, he or she must provide the real world philosophy behind a strategy, real world examples, real world gotchas, real world "how", and most importantly, real world "why". Of all the books I own, this one provides the total package. The others do a good job of perhaps the philosophy and the how, but totally lack the rest. In short, no book until this one teaches the complete knowledge one requires to be successful at option trading for income.
   
   I am a rookie in that I had not actually traded options until studying this book. I am NOT a rookie when it comes to attempting to learn how to trade options. The other books did not leave me confident in my abilities to consistently earn income with options. Thus I didn't make any trades. This book gave me the confidence to start trading AND EARNING INCOME. That point alone truly sums up the value of this book compared to all other books on the shelves. The other books are simply lacking in regard to earning income with options. They are good resources for information but not for implementation.
   
   The author's approach is conservative. You will learn how to manage risk and see that options ARE a good, safe investment instrument if used with conservative strategies and prudent risk management techniques. You'll also learn, perhaps by constructing a spreadsheet on your own (strongly encouraged by me), just how much potential income you can earn. You'll be pleasantly surprised.
   
   However, a strong warning here: You MUST understand and comprehend what you are reading. You can't skim this book and expect to do well. In fact, you'll fail if you skim ANY book on options. Most likely, you'll fail big time after a lucky string because you THOUGHT you understood. If you can't commit to learning, and I mean intensely learning and understanding this book, then please steer clear of options. There are no free rides. You must invest brain power to do well. Recognize that most people do not WANT to invest the brain power required. It's hard. It's intense. It's confounding. It's WORTH THE EFFORT. Eventually it clicks. Decide if you do want to commit, and if so, buy this book. It's the only one you will need to conservatively earn a steady income trading options. If you do invest the brain power, you will be proud of yourself and you'll do well financially with your new knowledge.
   
   I want to add that the author is an experienced floor trader, and a gracious man who has replied to all questions I've asked of him via email. If you are inclined to purchase $2000+ in software and another $2000-5000+ in so called "training" or "education", please save your money and seed your options trading account with it instead. But before making ANY trades, nail down what this book teaches. It is all you need.
   
   FYI, my own trading focuses solely on Credit Spreads (which have their own chapter in the book) and utilizing the author's philosophy on risk management. But I had to understand the ENTIRE book prior to making that decision. You would be wise to do the same before deciding your own direction.



2. Before reading Create Your Own Hedge Fund (one of Marks other titles)I considered options to be far too risky and exotic and solely for the professional trader. However after reading the book options were no-longer anything to fear and I was completely sold on the idea of using options to both reduce risk and increase profits.
   
   The Rookies Guide to Options takes the ideas that were previously introduced and takes them to the next level. Concepts are introduced and explained in a way that makes them easy to understand and completely transparent. You're never left wondering - but what would happen if?
   
   It's a master class in options from a truly brilliant teacher.
   
   I can't recommend this book enough



3. Mark has written a terrific book that all options traders should read. He focuses on several popular strategies that you can find in many books, but the difference is that Mark gives you practical advice on how to trade, and even more importantly, how to stay out of trouble when you do trade. Mark's advice is consistently conservative. He is not so focused on milking every trade for every last dollar. It's more important to keep trades gone wrong from losing big. Over and over, you will find this important message coming through.
   
   Mark writes in a style that is friendly, easy to read, but deceptively informative. You don't feel like you're being overwhelmed with theory, but when you look back, you find that you've actually picked up more than you thought. He demonstrates the surprising equivalence, for example, of covered call writing, which many people are comfortable doing, and selling a naked put, which sounds riskier but is in fact identical.
   
   This book is full of really useful and practical information, and I believe anyone actively trading options would benefit from studying this book thoroughly. It's not just rookies who will gain from Mark's shared experiences. BTW, Mark maintains a web site and blog where he continues to share his knowledge. He is also most generous with his time, answering numerous questions from his readers.



4. Mark participates in an online options forum. I praised his book there and he asked if I would be willing to review it here. I'm not sure I can add much to what has already been written here. Donald West's review is especially detailed.
   This book actually holds your hand through profitable methods of trading. You still have to understand options to be successful, but this book is more practical than most. Most importantly, the emphasis is on decreasing risk. Options can be used like lottery tickets or can be used to make investing much safer than buying stocks, as the average investor does. Mr. Wolfinger is not a gambler, and he advises you not to gamble either.
   Is this the only options book you need? Perhaps. I can't be sure, since I already understood options well before I read it. If you are serious about taking control of your investments, then options can give you real advantages. But don't think that you'll skim over any book and then sit on a tropical beach the rest of your life making a few trades. Options are complicated and will leave you baffled at first. If you make the effort then they can be very rewarding. The good news is that this book is clearly written and practical. It really is one of the 5 best books I've read about options.

3 comments about The Handbook of Loan Syndications and Trading.

1. The book is strictly meant for those professionals involved in the field of putting together one of these loan arrangements or in doing trading of the created loans in a secondary market. It appears comprehensive, at least to a layman. And even for the latter, much of the text can be intelligible with careful parsing.
   
   The biggest contrast between loans and stocks and bonds arises when considering trading. Stocks are, in some sense, fungible. So too with bonds. But the authors point out that this is certainly not so with loans. Each loan is often customised. Which adds a complexity that can defy easy valuations for trading purposes. To wit, a key section of the text addresses how to price such loans. Non-trivial.



2. I recently received and read The Handbook of Loan Syndications and Trading. I purchased it because I am a lawyer who has recently begun working in the real estate and mortgage loan trading area, and wanted to get some deeper background on the loan sales and trading business operations of the financial institution clients I serve.
   
   The Loan Sales and Trading Association (LSTA), the trade association for the loan sales and trading industry, has outdone itself with this fine book, which is a model of clarity which will set the standard in this field for years to come. It has contributions from a host of top experts in this field. In 20 years of practicing law, this work is by a country mile the most comprehensive and clearest professional book I have ever read. It does exactly the job I needed of providing the business background for a lawyer who works in this area. It would also be of great value to people who work in the financial services industry who work in the loan sales and trading area, as well as to those who work in other financial services areas who need to understand the expansive growth and functioning of the loan sales and trading field.
   
   I cannot recommend this superb book highly enough.



3. The Handbook of Loan Syndications and Trading should be required reading for banking lawyers, bankers and borrowers. As a law school professor teaching in this area and former banking lawyer, the book opens up an area that is quickly transforming and changing the world's credit and lending markets. I found the book to be highly readable, concise and extremely helpful. The book is equally as valuable for the expert as well as the novice.
   
   Although the LSTA helped drive its publication, the book is not a shill for the loan syndication market. Instead, its involvement has served as a catalyst to enlist authors who are truly the best and the brightest in this area. Without its involvement, many of these authors would probably never have participated in such an undertaking.
   
   The book is valuable on both a micro and macro basis. It provides an excellent overview of the loan syndications market, helping the reading to appreciate and understand its depth, development and sophistication. On a micro level, the Handbook provides detailed analysis and instruction for those involved in negotiating and trading loans on a day to day basis. The Handbook is also easily accessed, with an excellent table of contents, index and glossary, allowing the reader to pick and choose topics of interest.
   
   Christian Johnson
   Law Professor, Loyola University Chicago School of Law

1 comments about Stigum's Money Market, 4E.

1. This book is pretty comprehensive in its scope. Overall it is pretty accessible to both laypeople and finance types. Might be improved with a slightly different layout with more structure. Overall though, I would recomend it for somebody who really wants to know about the world of Moolah!

No comments about Swing Trading For Dummies.

5 comments about Even Buffett Isn't Perfect: What You Can--and Can't--Learn from the World's Greatest Investor.

1. Congratulations to Mr. Janjigian for writing a book that not only does a great job in discussing Buffett's investment styles, but also and more importantly communicating the key investment concepts that individual investors should be aware of, in a very easy to understand manner. While there have been many, more detailed books written on Buffett's investment approach, I think Vahan effectively uses the different investment approaches employed by Buffett to highlight and to some extent caution individual investors who attempt to emulate Buffett by stating that what might be good for large long term investors like Buffett (who have access to top level managements), may not necessarily be true for individual stock investors. An investor like Buffett can make big concentrated bets based on his understanding of management and management's strategies, something that an individual stock investor may lack as a function of limited/no access to top level managements.
   
   I recommend this book to anyone who wants to gain a good understanding of the basic and key investment concepts, and I would recommend that colleges handout this book to incoming students in order to educate them with the basics of sound investing principles. I sincerely hope that this book is the first in many more to come!



2. I was hoping to learn something about investing that I could use, instead I got repetitive, unsubstantiated opinions, that only occasionally had any origin in Buffett's practice or style.
   
   Much of the book is devoted to attacks on Buffett's political opinions, which might have been interesting, had they been more than bald assertions that Buffett was wrong.
   
   The primary investment advice presented was a recommendation for momentum investing. Ignoring the dubious advisability of this tactic, it clearly has nothing to do with Mr. Buffett.



3. Informational. Esp for me being new in stock market/investing. Author goes into the good amount of details on how Buffet has been investing. Excellent in the sense that not all information on his investment is known to the non-initiated. Even some of his old investments were similar to the GE purchase. Then it makes a good point that common investors can not have that kind of opportunity where you get 10% guaranteed return plus options.
   
   All that said the book seems to have not emphasized that by investing on only companies that he understands and invests, following Warren may not be of much use for people in tech field where his portfolio has definitely been lean. Besides the tech stocks have not yet entered the value phase anyway. I think the task of carrying over his ideas into new stocks is still open for new generation.



4. "Even Buffett Isn't Perfect" provides no useful advice for investors and wastes the reader's time. Suggest instead something by Mary Buffett, or the new book "Snowball," by Alice Schroeder.
   
   "Even Buffett Isn't Perfect's" first chapter goes through a bloviated and pointless discussion of diversification trying to somehow make something out of the fact that Buffett recommends diversification (actually - a low-cost index fund) for others who don't have the stock research time and mindset that he does, while focusing his investments when he started out to get maximum impact. Now, given the tens of billions in Buffett's portfolio, he can no longer focus like he once did. Pretty simple - right? Unfortunately, the book took some 20+ pages to do the same.
   
   Then its off to another worthless discussion of Google vs. Washington Post. Buffett doesn't like investing in new "transforming" companies because they lack of track record and most fail in the initial stages of competition. In addition, he doesn't like technology stocks because he recognizes he doesn't know enough about the field to adequately assess. Saved you another 20+ pages of blarney.
   
   Janjigian believes Buffett is wrong in opposing momentum investing ("follow the crowd," at least for awhile) and cites two supporting studies. Reality, however, is that academics rarely agree on anything, and I'd bet there are at least another two studies that contradict Janjigian's point.
   
   Eventually, Janjigian gets to what really upsets him about Buffett - the fact that Buffett favors higher taxes for the wealthy and opposes ending the estate tax. That has nothing to do with investing strategy!



5. Congratulations to Mr. Janjigian for giving us a concise, readable and most importantly, an understandable book on the subject of investing. It is also very timely in this period of questionable financial practices. Whether perfect or not the career of Warren Buffett gives us a prime example of an ethical investor.

5 comments about Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals.

1. A well done treatise on the application of the scientific method to the field of TA. Highly recommended unless you would rather believe in fairy-tales ;)



2. EBTA is a great book for any technical analysis (TA) based trading system developer. This book attempts to put technical analysis on a more rigorous scientific footing that will allow it to flourish as an empirical science.
   
   As I see it, this book makes two main points:
   
   1) Traditional TA techniques are often defined so vaguely that they are properly classified as pseudoscience. Pseudoscience is characterized by claims that are so vague, they cannot be falsified. When a TA claim cannot be falsified, it cannot be subjected to scientific scrutiny, and so it can be perpetuated even when it holds no merit in predicting market movements.
   
   Therefore, any TA techniques that one uses should be programmable (in a computer language) so they can be backtested and either falsified or tentatively supported.
   
   2) Even if a backtested trading rule/strategy performs well in a backtest, this is merely a necessary and not a sufficient condition for believing this rule/strat will perform well in the future. Market movements are governed, at best, by a combination of randomness and predictable market structure. If one is not careful, backtested rules/strats may merely represent curve-fitting to the random elements of market movement that will not repeat themselves in the future. If/when one trades based on such overfitted strategies, one is almost sure to lose money.
   
   To combat this, one must submit backtesting results to rigorous statistical tests in order to reject results that are likely to be examples of such overfitting. Along these lines, the author gives a very clear introduction to basic statistical concepts/procedures, describes several out-of-sample testing methods, and explains 2 other advanced methods (White's Reality Check and the Monte Carlo Permutation method), that can all be used to analyze backtesting results. Again, applying these methods to backtesting results can help the researcher reject those results that are likely to be examples of overfitting due to data-mining efforts.
   
   ------------------------------------------------------------------------
   
   The author goes into great detail about how and why the procedures he presents should be used, and he also includes a backtesting case study clearly illustrating how to apply the methods he has introduced earlier in the text.
   
   The clarity and explicitness of the entire book is a refreshing change from most books on TA. The author provides enough detail for anyone interested to implement any and all the procedures he describes (including White's Reality Check and the Monte Carlo Permutation method) for themselves.
   
   If you are looking for a book that will provide you with a specific trading strategy or an in-depth description of relevant data-mining techniques, look elsewhere, but don't ignore this book even in those cases.
   
   For, no matter what particular systems/strategies you create/discover, this book will show you how to properly analyze your results. If your results pass the tests this book suggests you use in such analyses, you will be much more likely to make money going forward as opposed to being fooled by randomness.



3. Professor Aronson has produced the next generation of Technical Analysis guide that debunks much of what everyone has known but has never wanted to admit. Written in a concise and clear manner without Greek notation and mathematical proofs it is the working technicians guide that will bring solid scientific analysis to a "sorcery" based following. The book starts with philosophical and psychological explanations that lead to a solid non-mathematical framework of scientific reason for technical analysis. For those having basic statistical training this book will be easily mastered and it's insight immediate. The beauty of this volume is you do not need a doctorate to get the underlying message that what you see is often not reality. As a practitioner of everything random this book puts in perspective the integration of the new technologies and techniques that match the widespread use of technical analysis by everyone who investigates before they invest. As the old maxim has so often been quoted says, "one picture is worth a thousand words", the stock chart now has new meaning for anyone who will read this book. Should be on every investors bookshelf and must read for the new generation of technicians fresh out of graduate school or beginning trading for a living.



4. After reading some of the reviews of this book on Amazon, I was quite skeptical about the relevance and value of this topic in terms of actual practical trading applications. After all, as a trader who's read hundreds of market books, very few of them have actually contained real educational content with practical alpha generating ideas. Usually, it's the same old hogwash: "when you see this pattern you do this (buy or sell) because these 3 charts I've selectively chosen show you that it works" or "a low P/E ratio means the stock will go up, whereas a high P/E ratio means the stock is likely to go down". For serious traders familiar with the random and complex adaptive nature of financial markets and cognitive processes leading to the adoption of flawed trading methodologies, those types of books are seldom satisfactory. Moreover, most market books have either been written by academics with very little actual trading experience or traders who do not possess the intellectual rigor to write something of value for serious market practitioners. David Aronson convincingly punctures this traditional mold by incorporating disciplines such as philosophy, psychology, technical analysis, probability, statistics and others into one coherent analytical framework designed to do one thing: generate alpha by teaching you how to fish rather than handing you a fish. Never out of the hundreds of books that I've read have I encountered a book that has been able to do what the author has done: put many of these interrelated disciplines and ideas together into one book in a detailed, thorough and rigorous manner. Truly, David Aronson has done all of us traders who try to add more rigor to our methodology and analysis a gargantuan favor. For that, we should all be grateful.
   
   However, an important caveat is in order. As a previous reviewer has pointed out, this is not a book for those looking for a free lunch. It is presenting the reader with a conceptual framework, a thought process, a rigorous way of analyzing market action that will change the way you approach the markets and seek profit. And that very approach will always adapt and change as do the markets. After all, biology does not have the monopoly on evolution. Therefore, those disappointed by the lack of tradable patterns or ideas are simply missing the point: those patterns and ideas lose value as soon as they are widely disseminated rendering them ineffective and even dangerous since they act as psychological anchors. Not only does the author introduce and apply the scientific method to TA, he walks the reader through the logic of discovering actual predictive price patterns, relates those patterns to human nature through cognition, destroys the premise on which the EMH is based and introduces traders to an empirical method worth the time and effort of learning to avoid being "fooled by randomness". Read it, study it and learn from it. Then repeat the process. Not doing so will provide the counterparties to your trades with the edge. And eventually, your capital.
   Good study and good trading.



5. I had the opportunity to hear the author discuss his book at a Market Technician event at the Bloomberg building in NYC just over 2 years ago.
   Even though I have some disputes regarding his methodologies, reading his work was time well spent.
   
   The first half of the book was heavy on philosophy and psychology, driving home the idea that the "scientific method" (whatever that is), is our only guard against self delusion.
   
   As I am familiar with both philosophy of science, as well as psychology, it seemed to me as if he was stating the obvious, but I suspect for most traders, it is something that needs to be repeated.
   
   The next half of the book elaborates on how he feels a trading system should be tested. This part of the book has some very good ideas, as well as some unfortunate errors.
   
   The very good parts involve his discussion of the permutation test. The Classical hypothesis testing we are all taught in intro stats, has problems when multiple comparisons are made, as researchers in genetics and biology are finding out.
   
   In most cases, some correction (ie. the Bonferroni) is made for "false positives" ie. significant results that are due to chance because so many tests were made. These corrections have a drawback in that they make the problem of false negatives--ie. accepting the null when it is false, more likely. In other words, corrections reduce the power of the test. The permutation test the author describes does not have that problem.
   
   Yet, this is where the author makes some significant errors (forgive the pun). He seems to believe that significance testing alone tells him all he needs to know: ie. if a rule fails to attain "statistical significance" it is worthless. That is completely false.
   
   The "significance" test, or P value, gives the probability of getting results equal to or greater than the observed result ASSUMING THAT THE NULL IS TRUE P(data|null).
   
   What we are interested in is: what is the probability that some rule has a positive (negative) return, ASSSUMING OUR DATA IS TRUE P(alternate|data). These are two different questions, and it is the latter one that we are interested in.
   
   In order to determine how informative a statistical experiment is, we need to define a few things: 1. the EFFECT SIZE (abbreviated as d)--the size of the difference between the null and the alternate hypothesis.
   
   We also need the POWER (1-B), where B is the probability of a false negative--accepting the null when it is false. For a complete analysis, would also need a prior probability--ie. a subjective probability that some hypothesis is worth investigating.
   
   Once we have some idea how the alternate hypothesis might be distributed, we can then compare it to the null, and see how much these distributions overlap. if the null and the alternate hypothsis have distributions that share a large area, the experiment does not provide much information, either way, to decide. Other, subjective factors, will lead us to choose one hypothesis over another.
   
   More formally, it is logarithm of [(data|null) / (data|alternate)]. This is called the likelihood ratio, and measures the evidence of the experiment for or against a particular hypothesis.
   
   The author is completely unaware of the drawbacks of his testing procedures, nor is he aware of the need for prior (subjective) probabilities to determine the utility of his results.
   
   In short, he seems completely unaware of the Bayesian approach to this problem.
   
   In spite of these drawbacks, the book is worthwhile. Some of the indicators that aren't significant, look interesting when you closely examine their confidence intervals.
   
   Some of the rules (available on the website), have a confidence interval where the area on one side of zero is 4-7 times larger than the area on the other side.
   
   Take the last rule on his website:
   [...]
   
   The mean daily return of this rule is -0.102501. The confidence interval is -0.23433 to 0.03027. Even though it isn't "significant" most of the area of the confidence interval is negative, up to 7.6 times greater than the area above zero. Suffice it to say, the probability that the rule has a negative return is very high, and might be a worthy candidate to act on from a contrarian POV.
   
   The next half of the book elaborates on how he feels a trading system should be tested. This part of the book has some very good ideas, as well as some unfortunate errors.
   
   The very good parts involve his discussion of the permutation test. The Classical hypothesis testing we are all taught in intro stats, has problems when multiple comparisons are made, as researchers in genetics and biology are finding out.
   
   In most cases, some correction (ie. the Bonferroni) is made for "false positives" ie. significant results that are due to chance because so many tests were made. These corrections have a drawback in that they make the problem of false negatives--ie. accepting the null when it is false, more likely. In other words, corrections reduce the power of the test. The permutation test the author describes does not have that problem.
   
   Yet, this is where the author makes some significant errors (forgive the pun). He seems to believe that significance testing alone tells him all he needs to know: ie. if a rule fails to attain "statistical significance" it is worthless. That is false.
   
   The "significance" test, or P value, gives the probability of getting results equal to or greater than the observed result ASSUMING THAT THE NULL IS TRUE.
   
   In order to determine how informative a statistical experiment is, we need to define a few things: 1. the EFFECT SIZE (abbreviated as d)--the size of the difference between the null and the alternate hypothesis.
   
   We also need the POWER (1-B), where B is the probability of a false negative--accepting the null when it is false. We would also need a
   prior probability--ie. a subjective probability that some hypothesis is worth investigating.
   
   Once we have some idea how the alternate hypothesis might be distributed, we can then compare it to the null, and see how much they overlap. if the null and the alternate hypothsis have distributions that overlap (this area can be calculated), the statistical experiment has low power, and does not provide much information to decide what is preferable to believe.
   
   The author is completely unaware of the drawbacks of his testing procedures, nor is he aware of the need for prior (subjective) probabilities to determine the utility of his results. In short, he seems completely unaware of the Bayesian approach to this problem.
   
   In spite of these drawbacks, the book is worthwhile. Some of the indicators that aren't significant, look interesting when you closely examine their confidence intervals.
   
   Some of the rules (available on the website), have a confidence interval where the area above zero is 4-7 times larger than the area below.
   
   Take the last rule on his website:
   [...]
   
   The mean daily return of this rule is -0.102501. The confidence interval is -0.23433 to 0.03027. Even though it isn't "significant" most of the area of the confidence interval is negative, up to 7.6 times greater than the area above zero. Suffice it to say, the probability that the rule has a negative return is very high, and might be a worthy candidate to act on from a contrarian POV.

5 comments about Contrarian Investment Strategies in the Next Generation.

1. The author is very knowledgeable on the subject but his prose could use some improvement - its hard to read more then 1-2 hrs at a time.



2. I have read this book three times now, and intend to do so again. Dreman is obviously an outstanding investor, and his strategies flesh out and arguably "modernize" the techniques used by the noted fundamental investor Benjamin Graham, who was the mentor to Warren Buffett (although, I might add, this book does not emphasize the study of financial statements, which is something Benjamin Graham did in painstaking detail).
   
   Dreman's approach is most notable because of his use of investor psychology and his forceful rejection of the efficient market hypothesis. Instead, Dreman cites any number of studies and examples to support his main thesis: investors over-react to events, and those over-reactions create opportunities for savvy investors to make money. His approach involves a two-part strategy: first, preserve capital, and second, take advantage of market over-reactions to profit. His point is that the market is like a casino, but one in which the odds can favor a knowledgeable investor. In other words, no one can guarantee that a particular stock will do well, but over time, investors who follow a contrarian strategy will outperform the market generally.
   
   Dreman's approach to investing is notably different than much of what is considered "conventional" wisdom within the financial markets (for a good contrasting view, read "Expectations Investing" by Rappaport and Mauboussin). In particular, Dreman takes the position that experts err predictably and often, and that humans base decisions on a minute portion of the information thrown at them. In this respect, his skepticism differs notably from some other authors (example: Mauboussin in "More than What You Know").
   
   From this, he demonstrates how buying low p/e, high yielding, low price/book, and low price/free cash flow stocks results in higher-than-average returns. Dreman shows how favored stocks tend to underperform the market, while out-of-favor companies tend to outperform. However, reappraisal can happen slowly, even glacially.
   
   I found this book to be both enjoyable and informative, and it inspired me to read a couple books about behavioral finance (Paulos, "A Mathematician Plays the Stock Market" and Belsky and Gilovich "Why Smart People Make Big Money Mistakes and How to Correct Them").
   
   In all, I highly recommend this book to anyone who is interested in investing. A few other recommendations (other than those listed above) include:
   
   Klarman - "Margin of Safety" (out of print)
   Whitman - "The Aggressive Convervative Investor" and "Value Investing"
   Greenblatt - "You Can be a Stock Market Genius" (horrible title, great book)
   Graham - "Security Analysis" and "the Intelligent Investor"
   
   Each of these books sets forth a somewhat different approach to investing, but at the core, each of them shares a skepticism of the principals underlying the efficient market hypothesis.



3. Dreman makes a persuasive case here that the financial experts and analysts as well as the average investor are terrible in predicting which way the stock market is going. If you want to beat the market, you need to do the opposite of everyone else, by investing in currently out-of-favor value stocks with low P/E ratios.
   
   To his credit, Dreman correctly forecast the big market crash of 2000-2002. Published in 1998, Dreman here observed that the market of the late 90's was way overpriced and that a major correction was in the works. He was correct, although the crash was 2 years off when this was published.
   
   His whipping boy in this book, as in almost every other investing book on the shelves, is the Efficient Market Hypothesis (EMH). But in truth, his investing strategy does not contradict EMH. In its simplest form, EMH argues that, statistically speaking, the past movements of a stock have no significant relationship to its future movements. Dreman indeed agrees with this, and the assertion has never been disproved.
   
   Dreman has lots of fun poking fun at the assertion of EMH that investors are rational and that current stock prices reflect all known information about the company. But the claim that investors are rational is not really controversial: all it adds up to is that investors seek to maximize returns and avoid losing money. Investors may act for poor reasons, but there is always a reason for the movement of a stock. There are good and poor reasons, but those only emerge in hindsight.
   
   Dreman also says that Beta is completely worthless as a measure of risk and returns, and that may be true for individual stocks, but for mutual funds it's very useful. The Beta for a small-cap fund will be significantly higher than a large-cap value fund, and investors are generally rewarded for taking on that risk, at least in the long run.
   
   All but the most extreme forms of EMH accept that stocks may be undervalued or overvalued *in the short run.* In the long run, the market is in fact completely rational. If it wasn't, there would be no point in investing in the market at all, since stock movements would be completely random. And if there are temporary irrationalities in stock prices, then it follows that investors can profit from those under- or overvaluations. Some theorists argue that it's not wise to try to beat the market, but most EMH theorists advocate a value strategy identical to Dreman's. See for example Larry Swedroe's excellent "The Only Guide to a Winning Investment Strategy You'll Ever Need."



4. I was bummed out before I read this book- had just read A Random Walk Down Wall Street and had become a believer in a)the efficient market hypothesis and b)the inability to beat the market over the long term.
   
   Then comes this book. Chapter by chapter, Dreman dissects efficient market arguments that I saw as fact and showed that they were folly. Dreman states that the market is not efficient because investors are many times not rational. In fact, they are predictably irrational. And then Dreman gives data to prove this. He presents research to show that investing in a certain way allows you to beat the market.
   
   And he gives more research and data. And more, and more. Some people will complain that this is boring and overwhelming, but he does so to prove the validity of his methods. I've read many investment books, and usually an author will give his guidelines for picking stocks, with return numbers taken at a certain point in time, and holding stocks for a certain period, and maybe a few other stipulations. And in the end, I never trusted the author enough to invest any real money in his strategy.
   
   Not so with Dreman. The wealth of research convinced me that Dremans methods were not datamining and were not limited to certain market environments.
   
   Its the most imporant investing book I have read. Dremans method is very similiar to value investing preached by a number of other famous investors. The difference is that Dreman proves to you through his research that value investing works. Everybody addicted to Mad Money and Jim Cramer needs to give this book a peek.



5. I have very mixed feelings about this book. On the one hand, it has so much valuable information that every investor should read it. On the other, the structure and organization are just terrible. Topics are revisited multiple times in different chapters. Topics that are well covered as part of one chapter re-appear several chapters later as a chapter of their own. Entire chapters seem out of place or pointless. For example, after 300 pages of dense material, we are treated to a chapter on the basic "why investing in stocks is better than bonds, etc." topic. Believe me, if someone waded 300 pages into this book, they already know that.
   
   But, having said all that, do yourself a favor and read it. And when you get that deja-vu feeling, just start skimming.

5 comments about Investing the Templeton Way: The Market-Beating Strategies of Value Investing's Legendary Bargain Hunter.

1. The Templeton Way is possibly the best book on stock investing that I've ever read. Between this and One up on Wall Street, one will receive the insights need to invest in stocks successfully. One thing that sticks out to me is the simplicity of thought and wisdom that comes from the pages. If you are serious about strengthening your skills as an investor, this book is for you.



2. If you really want to read this book, borrow it from the library. It's not worth owning; frankly, it's not worth reading either.
   
   It certainly does not compare to One Up on Wall Street or any of the offerings of Peter Lynch. The best part of this book is the foreword by John Templeton; however, there is truly nothing worth reading after that.
   
   The style is engaging; the content is anemic. Sure, there are lots of anecdotes about the highly successful investing style of Sir John and his penurious predilection--nothing new there; his value investing style is well known and documented. There's nothing really valuable in the anecdotes that he provides. If what is written is novel, perhaps the ready shouldn't invest directly in common stock!
   
   Overall, a disappointing book, but I am sure it was a nice present for Uncle John.



3. I bought this book hoping to learn more about how to invest in foreign stocks since Templeton was known for that. Unfortunately other than a few simple things like checking to make sure a government's debt is no more than 25% of GDP, there were very few specifics. The author presents a couple of examples where "Uncle John" took advantage of distrust in foreign markets (like investing in South Korea during the Asian financial crises) to make great investments, but doesn't go enough into enough detail to be of any real benefit to anybody.
   
   The book is more about the very basics of being a value investor and the attitudes needed to be successful in investing (ie, don't follow the crowd, buy low P/E or low PEG stocks, diversification). But even that is presented in somewhat of a haphazard way compared to other books, such as Peter Lynch's books or some of the books about Warren Buffet. Chapter 6, "No Trouble TO Short The Bubble", is not much more than a recount of the tech wreck and an admonishment to people who bought tech stocks at high P/Es. The main points of the book could have been made in half the pages. Only the last chapter on China was interesting.
   
   I gave three stars because this would be an ok book for a beginning investor, but for an intermediate or advanced investor this in not much more than a rah-rah book about value investing and is more like one or two stars.



4. I was very exited to find a Investment book on John Templeton investment strategies. But after reading this book I am very disappointed. This does not mean I disagree with John Templeton strategies. The main problem is with the structure of this book. To me, author seems to be very confused whether he wants to write Templeton biography, his strategies or history of countries which Templeton used to cover.
   
   To give you an example, chapter 10 runs into 20 pages detailing China's economic and political events. It has got just three main messages. Buy stocks in countries 1) with high savings rate 2) trade surplus 3) and high profits attracts competition.
   
   So If you have patience to read 268 pages, which could well be condensed into not more than 100 pages, this is a good book. I have given it two star, because I do not appreciate anything which waste time.



5. Templeton was truly one of the greatest investors of all time. This book does give you insight into his thinking and methodology. So it should be a great book since there are very few books about him. However be warned the writing is just horrendous. I never cared about the writing style of a how to book, but this one is just terrible. Extremely hard to keep you interested, as if a 11 year old wrote this. It repeats the small irrelevant points as if it was the greatest discovery ever. It is just very annoying to read. Still I did learn from it. It explained that Templeton used bottom up approach to pick countries, if he found many companies to buy in Japan then he picked that country (He did not look at Macro factors and then decide to pick stock in that country)It gave good examples about how not to follow the crowd into hot markets and simple pointers like look for low P/E's, and use diversification unless you are right 100% of the time. But it was truly very hard to read.