What if Everything We Knew About Investing Was Wrong?

Everyone knows rules for investing. Follow them, and your investments will pay off. But what if the rules were wrong? What if what we thought was important really had little or no relevance, or what if the rules we followed blinded us to better investment decisions? In this intriguing book, Accounting Professor Jeffry Haber scrutinizes the common knowledge about investing; he doesn’t claim to have the answers but wants people to question long-held beliefs and hopefully make more informed choices.

Good asset management is an essential part of financial success, but many management decisions are based on nothing more than hearsay or group enthusiasm. The author challenges the utility of long-term correlation metrics, benchmarks, fee schedules, and tail-risk hedging. He asks investors to question what is meant by ‘alternative assets’, international investments, diversification and correlation, and outsourcing, and then to make sure that their investments are working for them they way they anticipate. One example (among many useful ones): holding an investment in both a national and an international company may seem diversified, but if both companies have the same or similar markets, their share prices will respond similarly to market forces. That may or may not be what the investor wants; Professor Haber is merely trying to help investors make the most informed choice. He addresses risk and how or if it can be defined, outsourcing asset management to various degrees, liquidity, and tools, useful or less so, for choosing an asset manager.

This book was not what I was expecting; it is not a handbook for neophyte investors. Professor Haber is an academician, and his conclusions, backed by his academic research, are written from his published articles. To a complete investing novice, like myself, many of the terms were unfamiliar. However, the book is written in a friendly, conversational, even humorous style, and the author condensed and paraphrased his findings so well that even I was able to understand them. Appropriately enough, I had heard of and ‘knew’ the investing rules — they are, indeed, common knowledge. His supports for re-examining them were strong and clear, as he explained the data sets and what they represented. The book seemed heavily directed to institutional investors who will find much of value here, but certainly individual investors will also benefit from reading it. Readers will become aware of many unfounded assumptions and start to ask the questions that may lead to better investments.