Guide to Investment Strategy by Stanyer, Peter -- Read -- Imperial Library of Trantor

Index

Cover Title Page Copyright Table of Contents List of figures List of tables Introduction: Back to basics, again PART 1: THE BIG PICTURE

1 Setting the scene: What is risk for a personal investor?

Think about risk before it hits you Fraud and betrayal Betrayal aversion How much risk can you tolerate? Attitudes to risk and the financial crisis Know your niche War chests and umbrellas Base currency

2 Understand your behaviour: “Hope for riches and protect yourself from poverty”

Insights from behavioural finance Investor biases Investor preferences Loss aversion The “fourfold pattern” of attitudes to gains and losses Mental accounting and behavioural portfolio theory Investment strategy and behavioural finance Parameter uncertainty and behavioural finance Traditional finance, behavioural finance and evolution

3 The personal pension challenge

Retirement date uncertainty Life expectancy It is normally dumb to self-insure big risks Income uncertainty How much income can I draw?

4 Investment returns

Sources of investment performance Are government bonds risk-free? Sovereign risk and “a country called Europe” Safe havens that provide different kinds of shelter Which government bonds will perform best? Is the break-even inflation rate the market’s forecast? What premium return should bond investors expect? The place of safe-harbour government bonds in strategy The equity risk premium Don’t bank on time diversifying risk

Manager performance 5 Advice and investment strategy

Choosing an adviser Investment beliefs Conflicts of interest How should investor strategies evolve? Model investment strategies Asset allocation models: an essential discipline Risk-taking and portfolio rebalancing Short-term investment strategies How safe is cash? Do bonds provide insurance for short-term investors? How do investors invest?

6 Are you in it for the long term?

The time horizon for private and institutional wealth Long-term investors Financial planning and the time horizon The danger of keeping things too simple Declines in prices are sometimes good for you Unexpected inflation: yet again the party pooper “Keep-it-simple” long-term asset allocation models Should long-term investors hold more equities? Inflation, again US municipal bonds Laddered government bonds: a useful safety-first portfolio What’s the catch in following a long-term strategy? Market timing: an unavoidable risk Some “keep-it-simple” concluding messages The chance of a bad outcome may be higher than you think

PART 2: IMPLEMENTING MORE COMPLICATED STRATEGIES

7 Setting the scene

A health warning: liquidity risk Investing in illiquid markets “Liquidity budgets” Illiquidity in normally liquid markets Behavioural finance, market efficiency and arbitrage opportunities Barriers to arbitrage Fundamental risk and arbitrage Herd behaviour and arbitrage Implementation costs, market evolution and arbitrage

8 Equities

The restless shape of the equity market Concentrated stock positions in private portfolios Stockmarket anomalies and the fundamental insight of the capital asset pricing model “Small cap” and “large cap” Will it cost me to invest ethically or sustainably? Don’t get carried away by your “style” Value and growth managers Should cautious investors overweight value stocks? Fashionable investment ideas: low-volatility equity strategies Equity dividends and cautious investors Fashionable investment ideas: momentum strategies Home bias: how much international? Who should hedge international equities? How much in emerging markets? Fashionable investment ideas: frontier markets

9 Credit

Credit quality and the role of credit-rating agencies Corporate bonds and stockmarket volatility Portfolio diversification and credit risk Local currency emerging-market debt Securitisation, modern ways to invest in bond markets, and the credit crunch Mortgage-backed securities The role of mortgage-backed securities in meeting investment objectives Quantitative investment International bonds and currency hedging What does it achieve? What does it cost? How easy is foreign exchange forecasting?

10 Alternative investments

Private equity: information-based investment returns What is private equity? Private equity market risk Listed private equity Private equity portfolios Private equity returns Hedge funds What are hedge funds? Alternative sources of systematic return and risk “Do hedge funds hedge?” The quality of hedge fund performance data Are hedge fund fees too high? The importance of skill in hedge fund returns The shape of the hedge fund market Hedge fund replication and “alternative betas” Directional strategies Global macro Equity hedge, equity long/short and equity market neutral Short-selling or short-biased managers Long-only equity hedge funds Emerging-market hedge funds Fixed-income hedge funds: distressed debt Arbitrage strategies Fixed-income arbitrage Merger arbitrage Convertible arbitrage Statistical arbitrage Multi-strategy funds Commodity trading advisers (or managed futures funds) Hedge fund risk Madoff, hedge fund due diligence and regulation Illiquid hedge fund investments and long notice periods Lies, damn lies and some hedge fund risk statistics “Perfect storms” and hedge fund risk Managing investor risk: the role of funds of hedge funds How much should you allocate to hedge funds? Real estate What is real estate investing? Home ownership Commercial real estate What are the attractions of investing in real estate? Diversification Income yield Inflation hedge Styles of real estate investing and opportunities for active management What is a property worth and how much return should you expect? Rental income Government bond yields as the benchmark for real estate investing Tenant credit risk Property obsolescence Private and public markets for real estate International diversification of real estate investment Currency risk and international real estate investing

11 Art and investments of passion

How monetary easing probably inflated the prices of fine art and collectibles Psychic returns from art and collectibles Wealth, inequality and the price of art Art market indices Price indices for other investments of passion or “collectibles” Investing in art and collectibles Shared characteristics of fine art and other investments of passion Use of expert opinion for forecasting, valuation and risk modelling Collectibles as collateral

Acknowledgements Appendices 1 Glossary 2 Sources and recommended reading Notes on sources Index

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