Rating: Summary: A Cut-and-Paste Job, Sloppily Executed Review: "Winning the Loser's Game" is a bit of a mess on several fronts. It primarily fails due to the ill conceived idea and sloppy execution of updating a book originally written for the institutional investor to also address the individual investor. In theory this should have been possible but neither Mr. Ellis nor his editors have invested the necessary effort to do a credible job. Advice for the individual investor is bolted on pretty much at random, with at times hilarious results. For example, the "Managing the Manager" chapter is filled with advice on setting a useful agenda for your quarterly meeting with your investment advisor organization (including criteria for deciding when to fire a portfolio manager!), and the role your investment committee should play in modifying your investment policy. In the same breath, Ellis also advises the individual investor in search of an investment vehicle to check with their employer's pension manager for the names of a few well respected mutual fund companies, for example, Vanguard and American Funds. In short, the entire chapter is for the institutional investor with the exception of this single paragraph on how to find a good mutual fund. Even at that, the advice is laughable. (I'm sure we are all on a first name basis with our employer's pension fund manager.....) This unsuccessful attempt to modify the book for the individual investor continues throughout. Even when Ellis directly discusses the individual investor we discover he is primarily concerned with that class of individual investor with "significant assets", that is, for investors who have retained advisors; not your garden variety working stiff saving for retirement. And certainly, Ellis's notion of a financial "end game" consists not in the asset allocation shifts necessary when approaching, and in retirement, to insure that limited resources last throughout retirement, but rather in deciding how to best allocate one's estate at death: e.g. establishing scholarships, funding the arts, avoiding estate taxes, etc.Mr. Ellis's sloppy handling of data is inexcusable, particularly for someone in a profession that presupposes competence with numbers and accurate (preferably also lucid and cogent) presentation of data. In the book's preface Ellis profusely thanks his editor Dero Saunders, and notes that Mr. Saunders "expects to be remembered as the editor who could remove four lines from the Lord's Prayer without anyone noticing". There is substantial evidence that to create this impression Mr. Saunders (and Mr. Ellis) intended to rely more on their reader's lack of perception than on their editorial skill. The book includes many, many, errors that are, I assume, the result of haphazardly updating text and tables from previous editions. Very often the figures in the text do not match the data in the corresponding graph or table, and vice versa (e.g,. see pages 5, 10-11, 33-34, 40-41, etc.), but in some cases the errors are just due to sloppy writing and proof-reading. For example, on page 33 we learn that since 1901, annual investment returns have ranged from at best 4%(yikes!) to at worst minus37.4%. Neither number, in particular the 4% number (thankfully), match the figures in the corresponding table on the next page. However, on page 40 we learn that that "over the past 50 years the actual returns have been between a loss of 43 percent and a gain of 54 percent". The accompanying footnote unhelpfully informs us that these numbers are "normal" while the numbers on page 33-34 are adjusted for inflation. How a loss of 43 % becomes a loss of 37.4% after adjusting for inflation is a bit of mathematical mystery. The preceding examples were simply oversights and negligence. However, on page 123 Ellis simply misuses his data as he asserts that "over the long, long term" common stocks have provided real returns of 4 ½%. His version of the long, long, term is 1965 to 1994. (Then again, on page 42 he asserts the long term return for stocks is 6.1%, however, the data he references on page 41 computes to a 6.7% return, so I have no idea where he got the 6.1% number. Never mind....) I don't have any reason to doubt the 4 1/2 % return number for the particular 30yr period measured, and surely it would be a good thing to remind folks that it is very possible to have a significantly below average return over a lifetime of investing, but to represent 4 ½% as the long term average real return for common stocks in the US is simply wrong. [For what it is worth, Ibbotson and Brinson assert 6.7% (1940-1990) and John Bogle asserts 7.2% (1926-1997).] In my opinion, Mr. Ellis is simply milking his very good 1975 article in the Financial Analyst's Journal (as he reminds us, "it won the profession's highest award".). In "Winning the Loser's Game" he recycles his argument, bolsters it with sloppily assembled data, and provides poorly organized advice to the investor on how to act on his argument. Much of the advice is undoubtedly true, but nevertheless, the book is poorly organized, highly repetitive, and a real grab bag of financial aphorisms, lacking the structure and clarity to give the interested reader anything to think through on their own. But then, this is I suspect, the real problem. In Mr. Ellis's estimation the individual investor is not capable of managing his or her finances alone, and they are advised to spend $10,000 to $20,000 every ten years for investment counseling and estate planning. If you are interested in a good treatment of market efficiency, the nature of risk, and a rational framework for estimating future returns, and the relationship of asset allocation to risk, you would be much better off with Burton Malkiel's "A Random Walk Down Wall Street" and William Bernstein's "The Intelligent Asset Allocator".
Rating: Summary: Pithy but repetitive Review: As someone just beginning to read books about finance and investment, I found this book interesting but repetitive. Perhaps it is important to keep drumming in the same messages: (1) the odds of beating the market by timing purchases of individual stocks are very low; (2) the asset allocation of your portfolio has more impact on your ultimate success than which stocks (mutual funds, whatever) you choose. While I did find the arguments compelling, I also heard them the first time and didn't need to see them again on every page. Fortunately, the book is short (certainly price per page quite high), therefore the repetition comes to an end before too long.
Rating: Summary: Amazing, Rich Book Review: Contrary to popular belief, this is not a book for insitutional investors...or individual investors. This is a book for every type of investor out there, and those who aim to correct their mistakes and start indexing their portfolio, because it's nearly impossible to beat the market, especially on a consistent basis. Ellis is one of Wall Street's great minds and his strong, fundmanetal-based ideas are relayed into this book. This is truly an investment classic for every serious investor.
Rating: Summary: Portfolio theory for fund managers and sales people Review: I was attracted by both the title "winning the loser's game" and the big names who wrote the recommendations - Abby Cohen, Peter Drucker, Bryon Wien...You seldom find them placed together on the same back cover. After I read thru it, I do agree with their praise, but not more. This book is an extension and a modification of Mr. Ellis's ground breaking paper in 1975, a piece of the early groundwork of contemporary investment philosophy - The Portfolio Theory, that investors can never beat the market in the long run by market timing, and that return is always proportional to the amount of market risk one takes, (the Capital Asset Pricing Model stuff). Investors therefore should consider their own conditions well to determine the level of risk to be taken and to choose the right type/span of investment or investment fund or fund managers, blah blah blah, things you should have heard of if you are a frequent attendant in mutual/index fund sales events or investment seminars. As a CFA charterholder, I have no problem in knowing what the core message is all about. (Mr. Ellis had chaired AIMR, the parent association of CFA. I found that on the bottom flip of the book cover) However, I doubt it very much whether a normal investor can appreciate that or not. The dilemma being that if you understand the book well (which I do), you might find the book a little bit boring (137 pages of one major message and mediocre writing skill). If you cant understand it that well, you will have little impetus to read on. In either case, you are playing the loser's game.
Rating: Summary: Portfolio theory for fund managers and sales people Review: I was attracted by both the title "winning the loser's game" and the big names who wrote the recommendations - Abby Cohen, Peter Drucker, Bryon Wien...You seldom find them placed together on the same back cover. After I read thru it, I do agree with their praise, but not more. This book is an extension and a modification of Mr. Ellis's ground breaking paper in 1975, a piece of the early groundwork of contemporary investment philosophy - The Portfolio Theory, that investors can never beat the market in the long run by market timing, and that return is always proportional to the amount of market risk one takes, (the Capital Asset Pricing Model stuff). Investors therefore should consider their own conditions well to determine the level of risk to be taken and to choose the right type/span of investment or investment fund or fund managers, blah blah blah, things you should have heard of if you are a frequent attendant in mutual/index fund sales events or investment seminars. As a CFA charterholder, I have no problem in knowing what the core message is all about. (Mr. Ellis had chaired AIMR, the parent association of CFA. I found that on the bottom flip of the book cover) However, I doubt it very much whether a normal investor can appreciate that or not. The dilemma being that if you understand the book well (which I do), you might find the book a little bit boring (137 pages of one major message and mediocre writing skill). If you cant understand it that well, you will have little impetus to read on. In either case, you are playing the loser's game.
Rating: Summary: Winning the Loser's Game Review: If there is any one book on investing that is a must read, this is the one. After 20 plus years on Wall Street I too am convinced that success is a function of "Winning the Loser's Game." I reread this book every year and am always impressed with the simple elegance of Mr. Ellis's words.
Rating: Summary: Time Changes Facts? Review: Index Mutual Funds worked in the high growth era of the 1990's, but have been bad news since. Therefore, the theory that an investor wastes his time by choosing a manager-run mutual fund is no longer valid, and probably never was. The 2000's have allowed truly great stock pickers to emerge and be in the spotlight. They are easier to find now and the phonies of the 1990's are fleeing the scene.
Rating: Summary: Competing Against Ourselves Review: Seventy-five percent of all fee-based managers under perform the market index against which they are measured. Nearly three-quarter of the actively managed mutual funds just equal or under perform overall market performance. Add to this a 1999 Dalbar, Inc. study that revealed the typical stock fund investor achieved less than half the returns of the un-managed S&P 500 index during the most recent bull market cycle. Houston, we have a problem! Charles D. Ellis' WINNING THE LOSER'S GAME (4th Edition) has a provocative investment policy message for investors: First, control your risk by deciding how much of your assets should be in stocks (versus bonds or cash). This allocation decision is the "single most important" investment policy decision you will make (and the biggest contributor to total return). Don't be a 'loser' by trying to beat the market. Profit by participating in its long term trends. Time is on your side, so load-up with equities if you have a ten year time horizon. Just look at the rolling periodic return charts for equities (pp. 74-75). Separate your functions as policy maker (viz., your goals, what you are trying to accomplish) and manager (viz., how the policy will be implemented). Do not confuse them. Stick to the policy plan to avoid the loser's game of over-managing your assets. Trying to time the market is just one way to play the loser's game: Just consider that missing only the thirty best (up) trading days over the past eighteen year bull market would have reduced an investor's annual compounded return from a market average of 18% to 11%. Stock picking as a strategy to achieve outsized returns is not reliable and leads to excessive trading costs. Regressing to index averages is a statistical reality for professional money managers, so why not consider an index fund/manager where operational costs and taxes that reduce returns are minimized. Trying to outperform the averages is ultimately a fool's game because so many talented people are trying to do it. Managers are competing against talented peers with no special advantage. Okay, the market may not be perfectly efficient. To be sure, market prices may be inflated or depressed in the short term affording money managers profitable opportunities, but the market is "sufficiently" efficient in time. Portfolio managers and investors who significantly outperform the indices are taking on more individual stock or group sector risk than time will reward. Note: WINNING THE LOSER'S GAME takes on a number of topics on which there is heated debate. Ellis' endorsement of indexed investments will be anathema to most investors. Large segments of the investment establishment justify their fees from disciplined strategies exploiting anomalies in the markets, or attempting to curtail losses in broad market declines. There are very many indexes available to investors in addition to the often referenced S&P 500, so which are the best ones to follow? Stockbrokers are dismissed by the author in a way that fails to account, among many other things, for their educational value to a growing investor class. Nonetheless, this is a book packed with insight...highly recommended.
Rating: Summary: Dissapointed...This should be an article, not a book Review: Since my life has had more ups and downs than this stock market, which is saying something, I decided to check out this book, and see if I could at least not be a loser in one area of my life. Unfortunately, I'm as unlucky in the stock market as I am in love, work, and the rest of my life. So the title of this book is basically the story of my whole life, except it's more like "Losing the Winner's Game." Hopefully, this useful book will help me turn at least that aspect of my life around. So far I've found this to be a decent book on the stock market.
Rating: Summary: Avoid Stalled Thinking about Beating the Market Review: This book is based on a famous article written by Mr. Ellis in 1975, "The Loser's Game," that showed why professional money managers are unable to beat the market averages in 90 percent of the cases. In fact, the harder they try, the more likely they are to lose by increasing trading costs and mistiming their trades. The first two editions of this book were aimed at providing solutions to that dilemma for professional money managers. Mr. Ellis provides consulting advice to such professional money managers, and is in a good position to know what he is talking about. This edition is aimed at the needs of the neophyte individual investor. It is especially timely as we near the end of 2 decades of almost continual bull markets for equities. The beauty of this book is that it is simple and easy to understand. Ellis designed it for anyone who has a genuine interest in getting good investment results, is willing to develop an appreciation for market fundamental, and has the discipline to pick an approach and stick to it. In various chapters, the book describes why professionals do so poorly, and how the individual can have the same problems if not careful. The key points of the book are that you need to establish your long-term investment objectives in writing, and with the expert advice of professionals, determine a well-reasoned and realistic set of investment plans that can help you achieve your objectives. You should set your asset mix at the highest ratio of equities you can afford financially and emotionally for the long-term. However you do this, don't try to beat the market. That's a loser's game. He emphasizes not making mistakes, not losing money relative to the market, staying in the market, and realizing that your real problem is beating inflation rather than the market. In general, doing less will be doing more. Avoid speculations, shifting funds continuously, and paying too much attention to near-term performance. A good companion book for this one is John Bogle's recent one, Common Sense on Mutual Funds, that articulates many of Ellis' points in more detail and more graphically. As a historical note, Bogle writes in his preface to Ellis' book that he was inspired by Ellis' original article to make Vanguard's first indexed mutual fund in 1975. In thinking about the advice here, I'm not sure that everyone needs professional advice to come out in the right direction. If you decide that you primarily want to pursue indexed mutual funds, there is little need for advice, for example. But if you do opt for advice, be sure you watch out for vested interests in the person giving the advice. Also, the book doesn't do enough to address the conflicted feelings that people have about money. If you don't address those, you won't carry through on your discipline. I suggest that you read any of the excellent books on that subject and do the exercises in them. I also suggest you find the calmest, sanest person you know who is good with investments (but is not an investment professional) and ask them to review how you are doing annually. This will help you keep your discipline. A parent, spouse, or good friend could be an appropriate choice for this role. Share this book with them first, so they will know what you are trying to do. Then explains your ideas, and spell them out on paper. Chances are you will outdo what you would otherwise accomplish. Good luck in outperforming inflation! Donald Mitchell Coauthor of The Irresistible Growth Enterprise and The 2,000 Percent Solution (donmitch@fastforward400.com)
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