The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio


"Most people are scared stiff by investment risk. But what most people don’t know is that the biggest risk is simply investor behavior. Irrational and fearful, investors routinely chase after investment rainbows offering high returns with zero risk . . . or sell off stocks in a panic when the market is down . . . or hoard their money in T-bills, which historically have just barely outpaced inflation.

The only way to eliminate such self-destructive behavior is to get hard facts on how the stock market really ...

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"Most people are scared stiff by investment risk. But what most people don’t know is that the biggest risk is simply investor behavior. Irrational and fearful, investors routinely chase after investment rainbows offering high returns with zero risk . . . or sell off stocks in a panic when the market is down . . . or hoard their money in T-bills, which historically have just barely outpaced inflation.

The only way to eliminate such self-destructive behavior is to get hard facts on how the stock market really works. Fortunately, anyone can learn -- not just the analysts on Wall Street -- with The Informed Investor. Packed with eye-opening charts and graphs, this powerful book shows how to develop an investment strategy that yields the highest return with the lowest risk. The Informed Investor:

• Replaces ""voodoo investing"" methods with proven real-world strategies and groundbreaking academic research

• Provides a thorough education in financial economics

• Explains how to allocate assets to achieve specific goals

• Simplifies difficult subjects with clear language and straight-shooting advice"

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Editorial Reviews

Publishers Weekly
Geared to the skittish novice investor who may have been spooked by the September 11 fallout, The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio guides readers through the basics of investing with a reassuring tone and a relatively conservative long-term strategy. Frank Armstrong III, a former contributor to CNNMoney, explains how to assess risk, choose a mutual fund and interpret the advice of financial soothsayers. He weighs the relative advantages of mutual fund alternatives (like real estate investment trusts and variable annuities) and offers specific tips for parents worried about college tuition. (Mar.) Copyright 2001 Cahners Business Information.
Library Journal
According to Armstrong, when it comes to investing in "Mother Market," there is no free lunch, and beware of the "performance fairies, voodoo priests, shamans, witch doctors, false profits and charlatans" who offer high returns but shrug their shoulders when the stock market goes south. A financial adviser and founder of Investor Solutions, Inc., Armstrong advises average investors to take responsibility for educating themselves, even when they use the help of stockbrokers. He offers some insight into how brokerage houses operate and cautions investors about reading popular money magazines and listening to what "Wall Street wants you to know." When it comes to stock selection, Armstrong recommends abandoning outmoded ideas. For example, he does not believe that timing the market and past-manager performance are criteria for making sound investments. Instead, he suggests replacing old thinking with new strategies for assessing risk tolerance, focusing more on asset allocation, and considering various types of mutual funds as a way to build a diverse portfolio. Combined with the additional resources listed, this book offers the average investor an adequate background in how to formulate a meaningful investment plan. Recommended for public libraries. Bellinda Wise, Nassau Community Coll. Lib., Garden City, NY Copyright 2002 Cahners Business Information.
Soundview Executive Book Summaries
If you are want better returns on your investments, want to control risk, and would like to design investment plans that can meet your goals, Frank Armstrong offers this easy-to-understand guide. In it, he explains the fundamentals of building an investment portfolio to maximize return and minimize risk. The ideas he presents offer ways to avoid skittishness, and look at long-term rather than short-term data. He helps amateur investors develop responsible investment strategies by explaining the basics of stock and bonds with plain language and charts. Copyright (c) 2002 Soundview Executive Book Summaries
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Product Details

  • ISBN-13: 9780814472507
  • Publisher: AMACOM Books
  • Publication date: 12/16/2003
  • Edition description: REV
  • Edition number: 2
  • Pages: 320
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.68 (d)

Meet the Author

Frank Armstrong III (Coconut Grove, FL) is the founder and principal of Investor Solutions, Inc. He is a frequent contributor to, and has appeared on CNN Headline News and PBS Morning Business Report.

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Table of Contents



2. Gathering Intelligence

3. Assessing The Risk

4. Taming the Beast

5. A Nibble From The Free Lunch

6. Travels On The Efficient Frontier

7. The Asset Allocation Decision

8. The Efficient Market Debate

9. Can Managers Add Value?

10. Doing It With Style

11. More Fun With Numbers

12. May Day And Better Mousetraps

13. It’s A Jungle Out There!

14. Setting Your Goals

15. Building Your Portfolio

16. Portfolio Tactics

17. Education

18. A Comprehensive Approach To Investing During Retirement

19. The Joys Of Fund Selection

20. The Good, The Bad, And The Ugly

21. Fund Alternatives

22. Tending Your Garden

23. Investor, Heal Thyself!

24. The Cultivation, Care, And Feeding Of Investment Advisors

25. Pulling It All Together: A Summary

Appendix 1

Appendix 2

Appendix 3

Appendix 4

Recommended Book List


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  • Anonymous

    Posted August 15, 2002

    Intelligent investing

    How does the disclaimer go, ¿Past performance is not necessarily a predictor of future returns?¿ If that is the case, how is an investor supposed to decide on any investment strategy? They all are based on ¿past performance.¿ The key is to base your decisions on peer reviewed published research from the most respected financial scholars in the field. Frank Armstrong does just that in his book, ¿The Informed Investor.¿ In a relaxed conversational narrative, he presents a simple yet academically sound approach to investing. He offers evidence that dismisses the notion that stock picking is a skill and contends that stock-pickers add only additional costs, increased risk and lower returns when compared to appropriate indexes. Mr. Armstrong introduces the Nobel Prize winning concept of Modern Portfolio Theory, and how it is used to construct a portfolio that minimizes risk for a given level of return. He advocates controlling costs at every turn, including the use of low expense index mutual funds whenever possible and suggests ways to minimize the tax consequences of investing. In the end you won¿t be left holding a basket of theory with no place to lay it all out. He answers the questions necessary to put together an investment plan. ¿How much do I need to accumulate if I need this much to live on in retirement? What assets and in what mix should I put in my portfolio? How do I raise or lower the risk in my portfolio and how might that affect return? How do I choose specific mutual funds? Who should I use for the custodian of my portfolio? How and when do I rebalance my portfolio? How much cash should I have as a minimum? How much can I safely withdraw after retirement and not run out in 20 to 30 years?¿ From market timing to Motley Fool, it has taken me 15 years of reading and investing to understand that the approach of Frank Armstrong is the one I should have entrusted my financial future to all along. I have been following his advice for three to four years, through earlier publications, and have not been disappointed. Now, it¿s nice to have that advice in a single, clearly written book.

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  • Anonymous

    Posted April 22, 2002

    Wisdom comes from several years of applying your knowledge

    I have been a practicing orthopedic surgeon for the last 45 years. As you might expect, colleagues who are overly confident, high-risk takers surround me. In my years at the surgeon¿s lunch table, I have listened to a multitude of schemes; systems; sure things known only to a select few; or guaranteed ways to become a millionaire by forty. Physicians, especially surgeons, are a target audience for financial salesmanship because they are high risk takers; quick decision makers; have excess income to invest; they need a large pot of capital to retire because the day they quit work there is no more business to bring in money; and finally because they have gone to school for such a long time they believe that they are well educated in all fields. In 1989 I returned to the University of Oregon to study for an MBA. I have always loved going to school. During my years in school, two events came together that would became my epiphany for handling any investments in the future. The first was a course in corporate finance; the second was Frank Armstrong and the monthly writing he was publishing online for AOL. My Principals of Corporate Finance Third edition, authored by Richard Brealey and Stewart Myers; and published by McGrawHill had a page with two unlabeled charts (Pg. 283). Both charts looked the same, yet the legend indicated that one was the Standard & Poor¿s Index for a 5-year period; the other recorded the results a weekly coin-toss for 5 years with a .25% drift to the positive. The reader was left to decide which was which. The chapter listed several sources for the statistical concepts illustrated by the two charts. I found the two listed below to be fascinating. 1. Theorie de La Speculation, Gauthier-Villars, Paris, 1900. Reprinted in English The Random Character of Stock Market Prices, M.I.T. Press, Cambridge, Mass 1964 2. The Analysis of Economic Time-Series, Part I. Prices, Journal of the Royal Statistical Society 1953 At the same time I read the articles Mr. Armstrong was writing on-line. These essays would become the basis of his book The Informed Investor. His writing was a delight to read. Frank¿s articles were witty, full of allegories, and his explanations of a rather complex statistical theory were understandable. Even if you do not enjoy reading books about investing, or market theory, The Informed Investor is fun to read because of the metaphors and imagery. You will recognize people you know who will fit perfectly with Franks descriptions of various investing personalities. Personally my biggest change has been in my anxiety level. I no longer have to take Zantacs very time I look at the stock quotes. I no longer take part, or become upset, with the daily rehashing of the latest stock market tips. During the discussions at the surgeons¿ lunch table I now have a big smile and truly enjoy the conversation for just its entertainment value. Someone once asked me: ¿If indexing is such a good idea, why doesn¿t everyone follow the strategy?¿ I said that I had no fear that this would happen because human greed would always combined with ¿I know more than the other guy¿ to perpetuate the random walk of the market place.

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  • Anonymous

    Posted April 14, 2002

    Get Rich Slowly

    Most people know the way to get rich in the market. Either you do your own research and assemble a basket of excellent high-growth securities, or you can hunt out a Mutual Fund whose expert management will enable it to beat the averages and do the job for you. Of course it's also important to time the market properly -- to jump off the bull just before it plunges and hop on the bear just before it dies. And, joy, there are no end of well-advertised gurus and funds and advisors more than willing to help you! Frank Armstrong, sad to say, is a spoilsport. He's assembled a bulletproof list of facts and statistics to explain what 'most people' now guess, if they don't know, in the hangover aftermath of Nasdaq and Enron and all those advice-givers who turn out to have been more loyal to their own positions (or ignorance) than to their hopeful audience. It turns out, surprise, that most of those expert managers generally underperform the market, that individual equities can be painfully risky, and that your broker may have other priorities than your well-being. So what's a girl to do? If she follows Armstrong's advice, she'll leave the exciting world of hot promises and opt instead for a carefully crafted portfolio of market-following index funds. She'll think about the risks and the rewards in a more directed way. She'll choose that mix of index funds (or Exchange Traded Funds) to achieve an asset allocation portfolio which should act together to maximize reward and minimize risk. And she'll settle for the statistical promise of long-term appreciation over the sucker-trap of quick reward. This turns out to be less a recipe book for the investor than a guide to good financial nutrition, because Armstrong is more interested in telling you why and how to shape a personal portfolio than in listing all the specific individual funds necessary to do so. But he does arm you with the principles, so it becomes much easier for the individual investor to chop through the forest of mutual funds to identify the particular Index Funds or ETF's necessary to assemble a portfolio. For those who want or need the added support, Armstrong (himself a fee-only advisor) offers specific advice for choosing an advisor. Altogether an essential guide book and investment aide.

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  • Anonymous

    Posted March 21, 2002

    An Outstanding Guide to Investing

    For years I've tried to make sense out of all the information and advice obtained from stockbrokers, books, magazines (and less authoritative sources) regarding how to best invest my savings for retirement. Finally I discovered and read Frank Armstrong. I felt at last I had found a professional who has remarkable knowledge, understanding, insight and experience in the investment business. His new book, 'The Informed Investor', puts it all together in the world of investing. He uses academic research, common institutional practices and years of real world experience to explain the underlying forces that govern global stock markets. His book is written in straight forward easy to understand language that allows all of us investors large and small to maximize returns with minimum risk over time. 'The Informed Investor' should be on every investor's reading list.

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