Author and investment manager Jack D. Schwager shares his vast knowledge of investing in Market Sense and Nonsense: How the Markets Really Work [and How They Don’t]. Schwager has published at least eleven investment books, and he’s done investment research for over 22 years with major financial companies. His education pedigree includes a BA and MA in Economics. He knows investing.
This book appeals to multiple audiences. Professional investors will want to read Market Sense and Nonsense. Economics students will use it as a textbook. Amateur investors will struggle with it, but they’ll find it is worth the struggle. At the end of each chapter, Schwager includes gray boxes containing the chapter highlights to assist readers who may have become lost in the technical details.
Schwager makes his points by using recent real life examples. In “Chapter 2: The Deficient Market Hypothesis,” he uses the mortgage crisis of 2008 to explain why markets don’t always act efficiently. He tells the reader what really caused the housing bubble to self-destruct when banks repackaged mortgages to be sold as bonds, and the failure of rating agencies to correctly evaluate the risk.
Speaking of risk in “Chapter 4: The Mismeasurement of Risk,” he teaches the reader how to calculate the risk of an investment. The reader gets a better understanding of risk than the explanation provided by television analysts. It’s a difficult chapter to read so you’ll want to read it a couple of times to get every detail. Schwager explains volatility, Beta and risk. He demonstrates why using past performance is not a good basis for making an investment decision.
Keep in mind, Schwager is a hedge fund guru as well as a technical analyst. In part two of Market Sense and Nonsense he gives an in depth description of hedge funds and their risks. After reading chapters 10 through 16, the reader will have a new understanding and respect for hedge funds.