Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies

When I first stated reading this book, I was frustrated in that it wasn't what I expected. I thought Damodaran made a theoretical approcah in explaining the investment myths. Instead, he presents findings of emprical research conducted by other academics to show you if myths are really myths and he recommends you several screens to to create a mini portfolio consistent with that investment strategy (myth). First I thought of giving 4 stars to the book but now after few weeks I finished reading the it, I think that the information in the book is very valuable. You can keep the book for future reference whenever you consider adopting an investment strategy mentioned in the book, and review the research results and get an idea of what sorts of additional criteria you need to use to execute that strategy safely.

aswath is the rare academic than can communicate to the layman. he thoroughly analyses many of the simpler beliefs such as: does buying low PE vv high PE really work. easy to read and contains valuable information.

This is a thick book, but it reads pretty easily. The main message is that there are no easy profits in the stock market. There's no profit without risk, and that means you can lose your money just as easily as make money. He starts each chapter with a "fable," a story of some gullible investor who follows one of the conventional strategies for stock profits (for example, buy low p/e stocks) and, after losing money, finds out it's not that simple. Rather than simply debunking all the traditional stock market investing strategies, he explores how much, if any, truth there is each one, and how you would need to practice that strategy in order to make money. For example, instead of simply screening for low p/e stocks, you would need to add other criteria in order to avoid the real losers. The strategies he investigates are High dividend Low P/E Low Price to Book Value Ratio Stable earnings Superior management Growth stocks Contrarian Small Caps and IPOs Mergers and Acquisitions Arbitrage Momentum Insiders and Experts Market timing Buy and Hold All in all, it's well-written and interesting. The author is a professor, but he writes for a general audience. The problem is that his whole approach here is in terms of CLASSES of stocks, rather than individual stocks. He assumes that investors find stocks using stock screening software only, while for most investors that is only a first step. Fro example, Damodarn assumes that contrarian investors buy a stock ONLY because it's gone down in price. But contrarian investors look for stocks which have been beaten down in price unfairly. They look at the whole company, its strengths, weaknesses, and potential for growth. Damodaran's comments mostly apply to mutual funds and asset classes (e.g. small growth). His argument is based on statistical performance of asset classes, but most stock investors buy invidual stocks based on a variety of criteria.

This book is a very accessible overview of finance research on most major investing strategies (or themes). The author introduces each chapter with a short story and then builds the case around each investing theme. The bottom line is that there is no investing "silver bullet" - which is probably intuitive, but often neglected in the search for a magical investing potion. The major contribution of this book is to address each one of the investing themes (Low P/E, Low P/S etc.) in great depth and actually build model portfolios. Damodaran has comprehensive command of his material and presents concepts in a very readable manner. If you are looking for an in-depth treatment of investment strategies, this is a great book.

I have every one of Damodaran's books, and they have all helped me greatly. This book is no exception. If you want to gain investment knowledge without the pain and losses most people suffer, read his books. Take a look at Damodaran's web site also. The web casts of his classes at NYU are fantastic.