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THE INTELLIGENT INVESTOR`S GUIDE TO PROFITING FROM STOCK MARKET INEFFICIENCIES

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A quiet revolution has taken place in the field of finance that has dramatically changed conventional approaches to investment management. This revolution was created by a new science called modern investment theory (also known as dern portfolio theory). This theory has produced modern important advances in our understanding of investment risk and return which, in turn, have led to the development of new methods for selecting and managing investments. Among these methods, those relying on the concept of stock market ineffi ciency have proved most controversial (and profitable!). A stock market inefficiency occurs when certain stocks are priced at levels that do not fully reflect the available information con- cerning such stocks. The result is an opportunity for the alert investor who is able to identify the inefficiency and purchase the undervalued (or sell short the overvalued) securities. When such securities eventually do fully reflect the information affecting them, a return is obtained that can be significantly larger than returns obtained from other, more efficiently- priced, securities in the market.

In order to understand the basis of stock market inefficien- cies, a few important concepts in modern investment theory need first to be explained. To do this, I begin the book with an elementary introduction to modern investment theory that focuses on the concepts of investment risk, portfolio diversifi- cation and excess returns. Understanding these concepts, from the point of view offered by modern investment theory, should go a long way towards helping you to better understand and exploit market inefficiencies for your own profit.

Like most areas of finance, modern investment theory uses mathematics to explain its content. The particular branch of applied mathematics primarily used is called econometrics. Econometrics is the science of using statistics to explain and forecast the values of economic variables, such as stock returns. Fortunately, a background in econometrics is not necessary to appreciate the main results of modern investment theory. In this book, the use of statistics is limited to introduc ing a few basic financial concepts. All of the background needed to understand these concepts is provided. Following this brief introduction to modern investment theory, an extensive review of stock market inefficiencies and ways to exploit them is presented. Though several market inef. ficiencies that lead to market forecasting techniques are dis- cussed, by far the richest source of market inefficiencies are those that lead to stock selection techniques. The main focus of this book is the development of these latter techniques. Spe- cial attention is paid to those techniques that the individual investor can use without difficulty. Guidance is also given on how to best use these techniques. In all, this book contains the most complete selection of practical stock selection tech. niques based on market inefficiencies yet published.

The final section of this book examines the use of various investment strategies from the point of view offered by modern investment theory. The subject of portfolio risk management introduces this section. A way of determining your personal risk-tolerance level is presented that should prove useful in helping you define your portfolio's expected returns. The all- important subject of stock market forecasting is addressed and examples of some useful forecasting techniques are presented. Various other stock selection and trading strategies are examined. Finally, some, perhaps surprising, research findings are presented concerning the use of mutual fund investments as an investment strategy.

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332.6 COU i

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Detail Information

Series Title

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Statement of Responsibility

D. Robert Coulson

Call Number

332.6 COU i

Publisher

Tokyo : Toppan Co, Limited., 1992

Collation

xii, 261 p. : ill ; 22cm.

Language

English

ISBN/ISSN

0-917253-46-9

Classification

332.6

Content Type

-

Edition

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Subject(s)

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Specific Detail Info

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