This book is, upon inspection, quite difficult to understand but still considered way easier than Benjamin Graham's Security Analysis.
Today I am just going to give everyone a snippet of Chapter 1 which is entitled Ten Investment Insights which matter.
I will try to summarise each insight into a sentence for a start :
a) The Stock Market is a complex system - The stock market is essentially random but it has a web of return regularities in the form of market anomalies so it cannot be characterised simply as a random or predictable system at all.
b) Market complexity can be exploited with a rich multidimensional model - The more predictors you build to forecast returns, the bigger your informational advantage.
c) Return-predictor relationships should be disentangled - Low P/E needs to be disentangled from the small firm effect because most low P/E firms are small companies.
d) An investment firm should abide by the law of one alpha - Your value strategy may buy a stock which your momentum strategy wants to short.
e) The investment process should be dynamic and transparent - Tight risk control is bad for returns.
f) Customised, integrated process preserves insights - When you try to optimise your portfolio, don't forget to include costs in your model.
g) Integrated long-short optimization can provide enhanced returns and risk control for market neutral and 130-30 portfolios - Nobody in the financial blogosphere pairs their long positions with a short position to capture alphas. One of us should try this one day.
h) Alpha from security selection can be transported to any class - Basically it means that if your long-short positions generate alpha returns, they can be paired with a long position in the permanent portfolio for a boost to your returns.
i) Portfolio optimization should take into account an investor's aversion to leverage - The CFA program uses the mean-variance optimization to control leverage. This is not cool anymore.
j) Beware of risk-shiifting, free lunches and irrational markets - Mostly about LTCM.
As you can see, this is fairly complicated box and targetted at professionals.
Let's see where this journey over 39 chapters will take us.