Contemporary Investments: Security and Portfolio Analysis

Written by our professor this is a good book. Easy to read and technical enough for some complicated work.

I am a computer scientist with some interest in personal finance, and I was looking for a book that can provide both practical descriptions of modern investment instruments as well some theoretical insight into how the instruments are valued and operated. For me, investment is an interesting and highly useful branch of applied mathematics. I spotted this book on my wife's book shelf (she bought the book for her MBA class), and found it exactly what I want. The book covers major categories of investment options, including stocks, bonds, options, futures, money market instruments, and mutual funds. The book begins by describing these instruments in general, and then dive into details on each instrument. The majority of the book is devoted to stock analysis but it also covers the most important concepts for other instruments. If you are looking for a simple investment cook book, I would recommend Eric Tyson's "Investing for Dummies", which does not go into detailed mathematical models. However, if you are someone interested in deeper math theory, then this could be a good book for you. For example, I highly enjoy the chapters on modern portfolio theory and fundamental analysis, as well the equations for calculating bond durations and volatility. On the practical side, I am also delighted that the book taught me something complimentary to what I have learned from other sources and personal investment experience. This is certainly not a perfect book. One major problem I found is that the authors sometimes do not give enough explanation of the math equations, or explanations are given in verbose English which can be tersely stated in a few equations. For example, in discussing the volatility of time diversification, the authors tried to explain that even though the variance of average annualized return tends to reduce with longer investment horizon, the variance of actual dollar return actually increases. In my first reading of this portion, I was confused by this apparent paradox (in plain English), but later I realized that this can be explained by a simple exponential equation; if the final return is R(t, r) = exp(t times r), where t is the number of years in investment and r is the annualized return, then decreasing variance in r while increasing t would actually increase the variance of R(t, r). Let me stop here before I started to get too nerdy with my review. But overall, I highly recommend this book. I know it is a little bit pricy, but hey, I read it for free anyway.