Saturday, December 7, 2013

Win by Not Losing

by Nicholas Atkeson and Andrew Houghton



I’ve noticed a theme running through a lot of investment books lately, and that theme is: reducing risk in an investment portfolio does not necessarily mean that you will thereby be reducing gains. Of course, greater risk can lead to greater gains. It can also lead to unmitigated disaster. That’s why I like the middle ground that is advocated by Atkeson and Houghton: try to maximize the upside, sure, but by all means, minimize the downside at all costs.

The authors’ argument is that there are ways to predict when the market is inflated and stocks are overpriced, or at least, not good value. That’s when a smart investor will want to start hedging or selling, or at least not be in buying mode. They relate a number of real world stories of real world investors who prove their points. They then present data to support their points further, and they even give you a concrete plan for executing intelligent investments based on their ideas. If that isn’t enough, they have a website that provides more information on executing their methodologies.

Some of the other books I have read (and reviewed in this blog) that encourage a similar approach including Winning the Lower’s Game, Asset Allocation, and Risk-Return Analysis. This book more than rounds those out to make a fine quartet of books for investors, both those starting out and not wanting to get fleeced, and those who are farther along (like myself), who still need a certain level of income but can’t afford another year like 2008.

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