| Product Details Title: Bull's Eye Investing Author: John Mauldin Paperback: 432 pages Publisher: John Wiley & Sons; New Ed edition (May 6, 2005) Language: English ISBN: 0471716928 |
Book review
Enlightening, eye-opener. A must read.
Review by G.N.
I have mixed feelings about this book.
Let’s start with what I think are its weaknesses.
It’s too long. My paperback edition runs 400 pages. I believe the book would gain importance and usefulness with 100-150 less pages.
Of course you know the author sends a widely successful, free weekly newsletter. Well, this book is hugely built upon the newsletter material. How easy it had to be to do “copy and paste”! Just use a few keyboard strokes, and here you are with this 1.1 pounds work.
Strange things are also the two chapters devoted to hedge funds. Mr. John Mauldin is a manager of managers (so to speak). His turf are the hedge funds. He makes money out of clients he directs to hedge funds. Now I confess I read and then re-read those two chapters (20 and 21) and still I didn’t understand much. Is it my weakness or else’s?
I agree with other reviewers: In this book there are hardly any new topics and ideas in the field of investing money.
On the other hand, this book is very well researched and insightful. Of course the ideas aren’t new; what’s new is that those ideas are selected, gathered, prioritized and clearly presented. For me, it’s been an eye-opener. I detail what I believe are among the book’s strongest points:
1 – (from page 16) Research clearly demonstrates that “when broad market indexes go above P/E ratios of 23 or so, investors essentially get no return over the next 10 years”.
2 – (p. 33) An important study “showed that an inverted yield curve (when short-term rates are higher than long-term rates) is the single most reliable predictor of recessions. Recessions appear roughly a year after an inverted yield curve.”
3 – The Investment Matrix Revelations (p.
69):
“There are clear patterns of returns relating to the secular
bull and secular bear cycles. (....) Once the new period starts,
it tends to persist for long periods of time. Though the very long-term
returns have been positive and near average, investment horizons
of 10 years, 20 years, and even longer aren’t long enough
to ensure positive or acceptable returns. (…) the charts clearly
show the most important thing you can do to positively affect your
long-term returns is to begin investing in times of low P/E ratios”
(below 10 to 12).
4 – Technical analysis doesn’t work
(p. 209):
“Mark Finn of Vantage Consulting has spent years analyzing
trading systems. (…) He has a team of certifiable mathematical
geniuses working for him. They have access to the best pattern recognition
software available. They have run price data through every conceivable
program and come away with this conclusion: Past performance is
not indicative of future results.”
5 – Investors behaving badly (p. 217):
Gavin McQuill of the Financial Research Corporation (…) focused
on six emotions that cause investors to make mistakes. 1. Fear of
regret – an inability to accept you’ve made a wrong
decision, which leads to holding onto losers too long or selling
winners too soon. 2. Myopic loss aversion – a fear of losing
money and the subsequent inability to withstand short-term events
and maintain a long-term perspective. 3. Cognitive dissonance –
the inability to change your opinion after new evidence contradicts
your baseline assumption. 4. Overconfidence – people’s
tendency to overestimate their abilities relative to individuals
possessing greater expertise. 5. Anchoring – people’s
tendency to give too much credence to their most recent experience
and to show reluctance to adjust their current beliefs. 6. Representativeness
– the tendency of people to see patterns within random events.
6 – Value Value Value (p. 262)
“Throughout this book, I show how value wins time and again.
We have also seen numerous studies that show that buying deep value
for the long term is a strategy that works in all types of markets.
It is the only thing that works for stocks in a secular bear market
cycle.
The essence of Bull’s Eye Investing is quite simple. Target
your investments to where the market is going, not to where it has
been. Steady, stable, sure. Buying something that is undervalued,
perhaps grossly undervalued, and waiting for the value to be seen
by others is the way to real returns. Buying what everyone else
is buying, after it has already risen in value, is why most investors
simply do poorly.”
The part devoted to investors’ behavior coupled with the demonstration that a value strategy constantly outperforms market indices, should let readers correct their mistakes (if it’s the case) and obtain significant performances out of their money.
The author writes in a clear, compelling style. Although I’m no speed-reader – and although the book is quite long – it didn’t take me much to finish it off.
Every investor should read this book and keep it handy as a reference and a reminder.
(Disclosure: Artifex
bought a copy of the book reviewed)
