Post Modern Investment: Facts and Fallacies of Growing Wealth in a Multi-Asset World

Overview

"In Postmodern Investment, the authors provide a thoughtful framework for investing in the current and evolving financial markets. They provide a critical, yet even-handed, examination of 'modern' investment theories and point out the complexities of today's markets that require that we go beyond traditional models and asset classes in designing portfolios. The authors also drill down to individual assets, both 'traditional' and 'alternative', to explore the underlying risk and sources of returns. Most ...

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Post Modern Investment: Facts and Fallacies of Growing Wealth in a Multi-Asset World

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Overview

"In Postmodern Investment, the authors provide a thoughtful framework for investing in the current and evolving financial markets. They provide a critical, yet even-handed, examination of 'modern' investment theories and point out the complexities of today's markets that require that we go beyond traditional models and asset classes in designing portfolios. The authors also drill down to individual assets, both 'traditional' and 'alternative', to explore the underlying risk and sources of returns. Most importantly, the book focuses on the complex risks (those known and unknown) that can impact assets and portfolios, such as the risks added to structured products due to the business model and risk management of the product sponsor. This book is a must-read for anyone managing portfolios in today's dynamic environment."
—Tom Robinson, PhD, CFA, CAIA, CFP®, Managing Director, Education Division, CFA Institute

"I have waited years for a book that finally admits that investment firms sell the products that they can sell and not the ones they necessarily should and that academics often publish articles that are acceptable and not the ones that are difficult to accept. That wait is thankfully over. This book highlights the fact that individuals need to go beyond and break away from conventional thought to embrace a new investment reality. The authors have done a great service to the many investors who can use this book to educate themselves as to what is often hidden behind the curtain and how better to prepare themselves for the future."
—Florence Lombard, Chief Executive Officer, Chartered Alternative Investment Analyst Association (CAIA)

"Serious investment advisors and consultants would be well served by reading and absorbing the concepts in this groundbreaking book. We do indeed live in a postmodern investment environment where the certainties of the last 50 years seem more and more untrustworthy. The book provides a strong framework for investing in a different era, using different tools, evolving strategies, and alternative assets. Advisors and consultants need to free themselves from the past in order to best serve their clients in the future."
—Sean R. Walters, CAE, CEO / Executive Director, Investment Management Consultants Association (IMCA)

"It is not often when a finance book comes along that promises to free our minds from past mistakes and prejudices. The authors remind us to observe economic reality as it truly is, and not be blinded by accounting conventions, or by considerations of computational efficiency or regulatory convenience. This is a provocative, seminal work and represents iconoclasm in the best scientific tradition."
—Robert F. De Rito, PhD, SVP, Head of Financial Risk Management, APG Asset Management US

"This book serves as a sorely needed guidebook to the 'postmodern' world of investing. Equities have disappointed investors over the last decade with low returns and high volatility. Fixed-income investments now offer the lowest yield levels in 30 years. The book explores the features of the wider investment choice set we need today—including hedge funds, managed futures, commodities, and private equity as well as new approaches to risk management and asset allocation. It also addresses the myths and misconceptions that can lead investors astray and to high opportunity costs."
—Joanne M. Hill, PhD, Head of Investment Strategy, ProShares Advisors LLC

"Good books are informative; great books are provocative, fascinating, and well ahead of their time. The authors have the ability to poke holes in much of the 'theory' that the market frequently confuses as 'fact' and provides insightful analysis on the current 'toolkit' available to today's investors, as well as helpful advice on how to use those tools appropriately. It should form the foundation of any investor's collection of portfolio management reference material."
—Scott Welch, Senior Managing Director, Investment Research & Strategy, Fortigent, LLC

"Traditional investment approaches still dominate the professional fund management industry even though these approaches have often struggled to make sense of the world as it has evolved in the last few years. The authors emphasize issues in the underlying performance and risk of multiple asset classes as well as issues in the application of various risk management and asset allocation approaches. Rather than giving us a framework for operating in the world as it was supposed to be, it gives us a framework for dealing with the world as it actually is."
—William Dinning, Head of Strategy, Kames Capital

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Product Details

  • ISBN-13: 9781118432235
  • Publisher: Wiley
  • Publication date: 12/4/2012
  • Series: Wiley Finance Series , #831
  • Edition number: 1
  • Pages: 336
  • Sales rank: 1,452,585
  • Product dimensions: 5.90 (w) x 9.10 (h) x 1.40 (d)

Meet the Author

GARRY B. CROWDER, JD, MBA, MS, is a noted expert in the development and creation of multi-asset portfolio solutions and products. He has designed and implemented asset allocation solutions for leading multinational banks, insurance companies, and family offices. Mr. Crowder created and was managing partner of one of the first and largest hedge fund platforms based on managed accounts. In this capacity, he formed and led the team that created the Zurich Hedge Fund Indices and the Dow Jones Hedge Fund Benchmark Series. With over twenty years of investment experience, he is a founding Director of the Institute for Global Asset and Risk Management and the managing partner of Cortland Advisory Group, a global consulting and investment management firm focused on the risks and vagaries of alternative investments. Mr. Crowder has served as a managing director and member of the executive committee at Morgan Stanley Asset Management, managing partner of Traxis Strategic Asset Management Advisors and Chief Executive Officer of Crédit Agricole Structured Asset Management Americas.

THOMAS SCHNEEWEIS, PhD, is the Michael and Cheryl Philipp Professor of Finance at the University of Massachusetts Amherst and is the founding director of the Center for International Securities and Derivatives Markets. He is also the founding editor of the Journal of Alternative Investments, cofounder of the Chartered Alternative Investment Analyst Association, and a founding Director of the Institute for Global Asset and Risk Management. During his almost forty years of investment management experience, he has been associated with the development of alpha transfer and fund replication products, the creation and development of the Zurich Hedge Fund Indices and the Dow Jones Hedge Fund Benchmark Series, as well as being instrumental in the creation of the Bache Commodity Index. Schneeweis publishes widely in the area of investment management and is often quoted in the financial press.

HOSSEIN KAZEMI, PhD, CFA, is regarded as a leader in the area of asset allocation, and has published over thirty academic and practitioner articles in the area of asset pricing and asset allocation. He is a founding partner of Alternative Investment Analytics, LLC, and White Bear Partners LLC. Kazemi is a professor of finance at the University of Massachusetts Amherst and is the Associate Director of the Center for International Securities and Derivatives Markets. He is the current Program Director of the Chartered Alternative Analyst Investment Association.

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Table of Contents

Preface xiii

The Core Concepts in Managing Wealth xiv

Postmodern Investment xvi

How the Chapters Are Structured xviii

As You Begin xix

Acknowledgments xxi

Chapter 1 Investment Ideas: Evolution op Revolution? 1

In the Beginning 4

The Beginning of Information Transparency 11

New Markets, New Products, and the Evolution of Modern Investment 17

New Opportunities Create New Risks 18

The Market Is Not Efficient for Everyone 19

A Personal View of Modern Investment 21

What Every Investor Should Know 23

Myths and Misconceptions of Modern Investment 24

Chapter 2 Equity and Fixed Income: The Traditional Pair 31

A Brief Review 35

Equity and Fixed-Income Styles and Benchmarks 36

Basic Sources of Risk and Return 36

Performance: Fact and Fiction 38

Return and Risk Characteristics 39

The Myth of Average: Equity and Fixed-Income Return in Extreme Markets 43

Annual Performance 46

Performance in 2008 46

Special Issues: Making Sense Out of Traditional Stock and Bond Indices 46

A Personal View of Equity and Fixed-Income Analysis 52

What Every Investor Should Know 55

Myths and Misconceptions of Equity and Fixed Income 56

Chapter 3 Hedge Funds: An Absolute Return Answer? 63

What Are Hedge Funds? 68

Investing in Hedge Funds 69

Hedge Fund Styles and Benchmarks 69

Basic Sources of Return and Risk 71

Performance: Fact and Fiction 73

Return and Risk Characteristics 74

The Myth of Average: Hedge Fund Index Return in Extreme Markets 78

Hedge Fund Annual Performance 80

Performance in 2008 85

Making Sense Out of Hedge Fund Indices 85

Making Sense Out of Alternative Approaches to Investing in Hedge Funds 87

A Personal View: Issues in Hedge Fund Investment 91

What Every Investor Should Know 95

Myths and Misconceptions of Hedge Funds 96

Chapter 4 Managed Futures: A Zero-Sum Game? 101

What Are Managed Futures? 104

Investing in Managed Futures 105

Managed Futures Styles and Benchmarks 106

Basic Sources of Return and Risk 107

Performance: Fact and Fiction 108

Return and Risk Characteristics 109

The Myth of Average: Commodity Trading Advisor Index Return in Extreme Markets 113

Commodity Trading Advisor Annual Performance 115

Performance in 2008 120

Making Sense of Commodity Trading Advisor Performance 120

Making Sense Out of Alternative Approaches to Investing in Commodity Trading Advisors 124

Commodity Trading Advisor Investable Indices 125

A Personal View: Issues in Managed Futures Investment 126

What Every Investor Should Know 127

Myths and Misconceptions of Managed Futures 128

Chapter 5 Commodities: An Ever-Changing Balance 133

Investing in Commodities 137

Commodity Styles and Benchmarks 139

Basic Sources of Return and Risk 140

Performance: Fact and Fiction 142

Return and Risk Characteristics 142

The Myth of Average: Commodity Index Return in Extreme Markets 146

Commodity Annual Performance 148

Commodity Subsector Index: Annual Commodity Performance 154

Performance in 2008 154

Special Issues in Commodity Investment 155

Commodities as an Inflation Hedge 156

Comparison between Direct and Equity-Based Commodity Investment 158

Comparison between Equity-Based Mutual Fund and Exchange-Traded Fund Commodity Investment 159

A Personal View: Issues in Commodity Investment 160

What Every Investor Should Know 162

Myths and Misconceptions of Commodity investment 163

Chapter 6 Private Equity: its True Value? 167

Investing in Private Equity 171

Private Equity Styles and Benchmarks 174

Basic Sources of Risk and Return 176

Performance: Fact and Fiction 176

Return and Risk Characteristics 177

The Myth of Average: Private Equity Index Return in Extreme Markets 180

Private Equity Annual Performance 181

Performance in 2008 187

Issues in Private Equity Investment 187

Private Equity Indices 188

Alternatives to Investment in Private Equity 190

A Personal View: Issues in Private Equity Investment 193

What Every Investor Should Know 194

Myths and Misconceptions of Private Equity 196

Chapter 7 Real Estate: The New World 199

Investing in Real Estate 203

Housing or Residential Real Estate Properties 203

Private and Public Commercial Real Estate Debt 205

Real Estate Styles and Benchmarks 205

Basic Sources of Risk and Return 207

Performance: Fact and Fiction 208

Return and Risk Characteristics 209

The Myth of Average: Real Estate Investment Trust Index Return in Extreme Markets 212

Real Estate Annual Performance 216

Performance in 2008 221

The U.S. Real Estate "Bubble" and the Subprime Mortgage Crisis of 2007 to 2010 222

Special Issues in Real Estate 223

A Personal View: Issues in Real Estate Investment 226

What Every Investor Should Know 227

Myths and Misconceptions of Real Estate 228

Chapter 8 Asset Allocation: The Simple Way and the Hard Way 231

The Why and Wherefore of Multiple Asset Allocation Approaches 235

Overview and Limitations of the Existing Asset Allocation Process 236

Asset Allocation in Traditional and Alternative Investments: A Road Map 237

Return and Risk Attributes and Strategy Allocation 238

The Myth of Average: Asset Allocation in Extreme Markets 243

Alternative Asset Allocation Approaches 245

A Personal View: Issues in Asset Allocation 249

What Every Investor Should Know 253

Myths and Misconceptions in Asset Allocation 254

Chapter 9 Risk Management. An Oxymoron 257

Risk Management versus Risk Measurement 259

Measures of Risk 264

Risk-Adjusted Models 270

What a Difference a Day, Week, or Month Makes 274

Qualitative Risk Management 276

A Personal View: Issues in Risk Management 277

What Every Investor Should Know 279

Myths and Misconceptions of Risk Management 281

Chapter 10 In Conclusion 285

Notes 289

Bibliography 295

About the Authors 299

Index 301

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