Page numbers listed correspond to the print edition of this book. You can use your device’s search function to locate particular terms in the text.
academics, 34, 139–40, 188
academic theories of securities valuation, see new investment technology
accounting
“creative,” 167–69
fraudulent, 33, 92–94
Adams, Sam, 284
aggressive investments, see beta, high
AIG, credit default swaps by, 97
Ali, Muhammad, 75
All Weather Fund, 279–81
Alphabet, 130, 283
alphas, 216
Amazon.com, 29, 85, 137
A. M. Best, 294
AMC Entertainment, 104, 251
American Century, 368
American Child Health Association, 165–66
American Football League, 155
American Music Guild, 65
American Telephone & Telegraph (AT&T), 55, 59, 60, 79
Androbot, 74, 75
annuities, 370–73
anticompetitive behavior, 406–7
antitrust laws, 68
Apollo Group, 170
Apple, 29, 130, 282–83
arbitrage, 228, 245–49, 406
arbitrage pricing theory (APT), 220–22
ARK Innovation Fund, 177–78
art objects, as investments, 308, 322
Asch, Solomon, 237
Asperger, James, 77
asset allocation, 348–61
dollar-cost averaging, 353–57
rebalancing, 357–59
risk attitude vs. capacity, 359–61
and risk/holding period, 350–53
and risk–reward relationship, 349
asset pricing theory, see capital-asset pricing model (CAPM)
assets, needs and, 361
AT&T, see American Telephone & Telegraph
auto insurance, 293
Automatic Sprinkler Corporation (A-T-O, Inc.), 70
average return, see expected rate of return
Avon Products, 73
Babson, Roger, 58–59
Babson Break, 58–59
Balanced Index Fund, 281
banking, new system of, 96–97
Bank of Japan, 80
bankrate.com, 296
bankruptcy, 47, 99
banks, 34, 297, 305
Barber, Brad, 173, 231, 243, 253
Barclays Capital broad bond index, 204
Barron’s, 89, 169, 390
Barton, Bruce, 55
Baruch, Bernard, 62, 255
base-rate probabilities, 235
Batten, Barton, Durstine and Osborn, 55
Bawl Street Journal, The, 339–40
Bayes’ law, 235
Beardstown Ladies, 157–58
Beardstown Ladies Common-Sense Investment Guide, The, 157
bear traps, defined, 122
Beat the Dealer (Thorp), 159n
Beeple (Mike Winkelman), 112
behavioral finance, 43, 226–56, 264
beating the market with, 256
biased judgments in, 228, 232–35
herd mentality in, 228, 236–40, 250–52
lessons for investors, 249–56
limits to arbitrage in, 245–49
loss aversion in, 228, 240–42, 253
overconfidence in, 228–32, 253
pride and regret in, 242–43
and savings, 244–45
Benartzi, Shlomo, 244–45
bequests, 372
Berkin, Andrew, 268
Berns, Gregory, 238
Bernstein, Sanford C., 404
beta, 35, 206–25
calculation of, 207–8
defined, 207
high, 208, 213–15
as investment tool, 218
low, 208
as measure of risk, 218
of portfolio, 213n
as predictor of future returns, 216–18
Bethlehem Steel, 55, 60
biased judgments, 228, 232–35
Bierman, Harold, Jr., 61
biotechnology, 75–77, 82–83
Birinyi, Laszlo, 161
bitcoin, 105–11
Black, Fischer, 206
BlackRock, 282, 379, 407
Black Thursday, 59–60
blended factor strategies, 267–71
blockchain, 105–6
Blodgett, Henry, 88–89
Bloomberg, 92, 178
Bloomberg BusinessWeek, 390
Bloomberg Intelligence, 282
blue-chip stocks, 44, 131, 305; see also Nifty Fifty
Blunt, John, 49
Bogle, John “Jack,” 20–21, 255, 388, 395
bond funds, 313–19
AMT, 316
call protection for, 317
closed-end, 378
corporate, 305, 315
and financial repression, 320
foreign, 414
GNMA, 315
index, 384
inflation rate and, 317
interest rates on, 320
long-term, 307, 313, 314
Moody’s rating of, 316
mortgage, 315
new-issue vs. outstanding, 316
open-end, 314–15
rate of return on, 313
risk of, 304–5, 316
Standard & Poor’s rating of, 316
tax-exempt, 309–10, 313, 315–16
term, 314
U.S. savings, 313
bonds, 343–44, 357–59, 375
AAA rated, 96
corporate, 193, 304–5
derivative, 96
foreign, 319
future of, 343–44
holding period of, 348, 350–53
inflation rate and, 331, 336
interest rates on, 330–31
junk, 318–19
long-term, 350
municipal, 309–10, 315–16, 350, 419
rate of return on, 192–94, 327–31, 342, 343, 349
return on other assets vs., 290, 291
risk of, 350–53
as risk reducer, 204
savings, 313, 318
stocks vs., 132, 205, 352–53
substitutes for, 320
term, 314
Treasury, 204–5, 277, 280, 314, 318–19, 343
Trump’s Taj Mahal, 173
volatility of, 336
zero-coupon, 313–14, 330, 343
Boonton Electronic Corp., 65
Boston Celtics, 152
Bridgewater, 273–74, 279–81
British Petroleum (BP), 174
“broad” tape, 59
brokerage fees and commissions, 149, 161, 172–73, 324, 383
brokers, 33, 91–92, 173, 323
Brooks, John, 56
Brunnermeier, Markus, 247
Bubble Act, 54
bubbles, 44, 101
cryptocurrency, 109–11
digital mini-bubbles, 111–13
economic disruptions after, 101–2
housing, 95–100, 248
Internet, see Internet bubble
lessons from, 113–14
meme stock, 103–4
random-walk theory and, 101–2
South Sea, 44, 48–54, 86, 111
ZZZZ Best, 75–77
Buffett, Warren, 40, 107, 184, 252, 260, 323, 354, 394
“bull markets and bare knees” theory, 153–54
Bulls, Bears and Dr. Freud (Jackson and Haas), 122
Business 2.0, 91
BusinessWeek, 20, 146
Butler, Samuel, 188
buy-and-hold strategy
and behavioral finance, 249–50
defined, 144
minimizing taxes through, 252–53
technical strategies compared to, 144, 150, 151, 161
buy vs. sell recommendations, ratio of, 173
California, University of, 173
call options, 46
CAPE (cyclically adjusted price-earnings) multiples, 345, 385
capital-asset pricing model (CAPM), 206–25; see also beta
logic of, 210–16
proof of, 212–15
rate of return in, 207–16
reduced to formula, 212–15
risk and return according to, 210–14
search for alternatives to, 218–22
capital gains, 193, 309, 387
capital gains taxes, 161, 243, 329, 381
Capital Guardian Trust, 224
CAPM, see capital-asset pricing model
Carroll, Lewis, 63
Carswell, John, 49
Case-Shiller inflation-adjusted home-price index, 98–99
cash-burn rate, at Internet companies, 83
cash reserve, 292, 295–98
castle-in-the-air theory, 39, 44–81, 188, 400
described, 41–43
institutional investors and, 70
newspaper-contest analogy for, 42–43, 247
stock selection based on, 139–40, 391–92
technical analysis and, 118
CDs, see certificates of deposit
Census Bureau, U.S., 369
Center for Research in Security Prices, see CRSP
certificates of deposit (CDs), 296–97, 305, 351, 361
Chancellor, Edward, 91
Charmin, 112
chartists, 118–23, 232
arguments against random-walk theory by, 158–60
computer services aiding, 125–26, 143, 150–51
defined, 118
limitations of, 124–25, 141–43
market as viewed by, 118–19, 143–44
sexual overtones for, 122–23
as traders, 118–19, 123–26
Chase Bank, 57–58
Chicago, University of, 195
Cisco Systems, 84, 85
Cleaning Up and Down, But Not Out (Minkow), 77
closed-end funds, 61, 418–19
CNBC, 92
Cobleigh, Ira, 153
coin tossing, 142–43, 178–79
collectibles, as investments, 321–22, 336
college, saving for, 302–3
commodities, as investments, 201, 308, 323
common stocks, 34, 310, 320, 348, 349, 362
Do-It-Yourself Step in selection of, 377, 389–93
firm-foundation theory and, 38–40
future of, 344–46
as inflation hedge, 221, 331, 337, 338
Malkiel Step in selection of, 378
No-Brainer Step in selection of, 377, 379–89
rate of return on, 192–94, 307, 327–31
risk of, 193–94, 304–5, 307–8, 339, 340, 350
Substitute Player Step in selection of, 377, 394–95
Community Bible Church, 77
condominiums, 311–12
confidence intervals, 230–31
conglomerates, 67–72
Congress, U.S., 98, 302
consumer price index (CPI), 290, 291, 317, 318
control, illusion of, 232–35
Coolidge, Calvin, 55
Cornell University, 87, 152, 173
Corning, 85
correlation coefficients, 198, 201–3
Cosmopolitan, 157
counterparties, 96
covariance, 197n, 198
COVID-19 pandemic, 22, 29, 154, 194, 202, 283
CPI, see consumer price index
Cramer, Jim, 174
credit booms, 101
credit-default swaps, 97
Credit Suisse First Boston, 87
CRSP (Center for Research in Security Prices)
Large-Cap Value Index, 262, 266
U.S. Total Stock Market Index, 383, 384
cryptocurrency, 105–11, 323
blockchain and bitcoin system, 105–6
bubble, 109–10
deflation of bubble in, 110–11
digital mini-bubbles related to, 111–13
as real money, 107–9
CryptoKitties, 112
cyclically adjusted price-earnings (CAPE) multiples, 345, 385
Dalbar Associates, 239
Dalio, Ray, 273–74
Dartmouth College, 173
day traders, 113, 250, 324
decision-making process, 227, 228, 236–40
deconglomeration, 72
Deepwater Horizon, 174
defensive investments, see beta, low
deferred variable annuity, 294–95
demand-pull inflation, 335
derivatives, 33; see also stock options
DFA, see Dimensional Fund Advisors
diamonds, as investment, 321
Dickens, Charles, 377
Dickson, Joel, 387
Digiscents, 86
digital mini-bubbles, 111–13
Dimensional Fund Advisors (DFA), 269, 271
Large-Cap Value Fund, 271
Small-Cap Value Fund, 271
discount brokerage firms, 92, 388n, 400
discounted value, see present value
discounting, 39–40, 132n, 323
disposition effect, 243
diversification of portfolios, 195–202, 206–7
advantages of, 325, 350, 402–3
with bond substitutes, 320
with emerging market investments, 201, 384
index funds and, 381
international, 199–203, 307, 364, 384, 388–89, 402–3
and life cycle, 347–48
in practice, 199–203
in real estate, 308, 312
risk reduction and, 196–98
sleeping scale and, 305
stock picking and, 393
systematic risk and, 208–12
total risk and, 208–10, 325
unsystematic risk and, 208–12
dividend payout, 39–41, 130–31, 133–34, 137
dividends, 334, 338
and capacity for risk, 359
in firm-foundation theory, 39–40
length of time to double, 128
returns from stocks and, 194, 327–31
stock funds and ETFs with growing, 415–16
taxes and, 310
Dodd, David L., 40–41, 102, 184, 260
Doerr, John, 87
Dogecoin mini-bubble, 112
Dogs of the Dow strategy, 155
Do-It-Yourself method of investment management, 293, 373–76
Do-It-Yourself Step, in stock selection, 377, 389–93
dollar-cost averaging, 348, 353–57
Doonesbury, 88
Dorsey, Jack, 112
dot-com, in company names, 87
Dow Jones Industrial Average, 149, 153, 155, 161, 170, 171, 230
Dow theory, 149
Dreyfus, Jack, 65
Dreyfus and Company, 65
Drugstore.com, 90
DSI ETF, 285
Dyansen Corporation, 75
earnings, pro forma vs. actual, 168–69
earnings growth; see also growth stocks
compound, 126–27
conglomerate wave in, 68
expectations of, 61, 65, 127–30, 133–34, 163–66, 390–91
inflation and, 338
long-term, 137, 390–91
security analysts in prediction of, 163–65
Eastern Buggy Whip Company, 128
eBay, 321
Edison, Thomas A., 257
education, saving for, see “529” college saving accounts
Efficient Market Hypothesis (EMH), see random-walk theory
Einstein, Albert, 21, 127, 290
electronics industry, 65–67
electronic trading, 323
Ellis, Charles, 249
emerging markets, 201–5, 305, 384–85, 418
EMH (Efficient Market Hypothesis), see random-walk theory
Enron, 93, 94, 167–68, 254, 325, 361
equally-weighted portfolios, 270–71
ESG investing, 281–85
estate taxes, 303
Etherium, 110–11
exchange-traded index funds (ETFs), 181–82, 324, 387–89, 411–17
expected rate of return, 190–94, 196
Extraordinary Popular Delusions and the Madness of Crowds (Mackay), 46
Exxon, 79
Facebook, 108, 283
factor models, 222–23
Falwell, Jerry, 77
Fama, Eugene, 216–17, 222, 223, 262–63, 269, 275
FBI (Federal Bureau of Investigation), 77, 274
Federal Deposit Insurance Corporation, 297
Federal Housing Administration, 98
Federal Reserve, 23, 61, 335, 343, 375
Federal Reserve Board of Governors, 369
Federal Trade Commission (FTC), 71–72
Fidelity Investments, 253, 368
Figgie, Mr., 70
Figgie International, 70
filter system, 148–49
“financial alchemy,” 96–97
Financial Analysts Journal, 184
financial crisis (2007–2008), 29, 100, 154, 202
“financial engineering,” 96–97
financial market returns, eras of, 332–42
Age of Angst, 332, 335–39
Age of Comfort, 332, 333–35
Age of Disenchantment, 333, 341–42
Age of Exuberance, 332–33, 339–41
financial system
international, 96, 97, 201, 204
“originate and distribute” model in, 96
“originate and hold” model in, 96–97
Fine Art Acquisitions Ltd., 74–75
firm foundation of value, see intrinsic value of stocks
firm-foundation theory, 64–65, 118, 188, 400
defined, 39–40
fundamental analysis and, 118–19, 126
housing bubble and, 101–2
testing rules of, 128–30
undetermined data as source of inaccuracy in, 134–35
Fisher, Irving, 40, 59, 61
“529” college saving accounts, 302–3
flipping houses, 98
Flooz, 86
Forbes, 177, 232, 390
Forbes, Steve, 232
Ford Motor Company, 197–98, 221
Fortune, 89, 93, 157, 390
4 percent rule, 374–75
401(k) savings plans, 244, 301–2, 355, 363, 368, 376
403(b) savings plans, 301–2
framing, 240, 241, 244
Franklin, Benjamin, 282
fraud, 33, 56–58
bubbles and, 48–54, 92–94
Madoff and, 256
in new-issue craze, 65–67
free enterprise, 37
French, Kenneth, 216–17, 222, 223, 262–63, 269, 275
friends, 250
FTC (Federal Trade Commission), 71–72
fundamental analysis, 34, 117–40, 400; see also security analysts
caveats with, 133–35
defined, 118
firm-foundation theory and, 118, 126
limitations of, 135–37
market professionals and academics on, 163
random-walk theory and, 162–84
technical analysis used with, 137–40
technical analysis vs., 118–19, 126–27
technique of, 126–33
gambling, 113, 159
GameStop, 23, 103–4, 247, 251
Garber, Peter, 47
Garzarelli, Elaine, 157
GDP (gross domestic product), 222
General Electric (GE), 55, 60, 79, 97–98, 170–71
General Motors (GM), 76, 79, 360–61, 399
General Theory of Employment, Interest and Money, The (Keynes), 41
Geophysics Corporation of America, 65
gift taxes, 302–3
Gilbert, W. S., 141
Gill, Richard, 103
globalization, 201
TheGlobe.com, 87–88
GM, see General Motors
gold
as investment, 250, 321, 323, 336, 341
return on other assets vs., 290, 291
risks of, 305, 321
Goldman Sachs Trading Corporation, 61, 83
Active Beta ETF, 270, 271
Commodities Index (GSCI), 203
Goldwyn, Samuel, 134
Google, 231, 283, 297
government
cryptocurrency and, 111
in housing bubble, 98, 101
Graham, Benjamin, 40–41, 102, 127, 184, 260
Great Depression, 99, 100, 333
“greater-fool” theory, 42, 52, 64, 83, 239, 247
Great Myths of 1929, The (Bierman), 61
greed, 44, 48
Greenspan, Alan, 23
greenwashing, 283
Gross, Garry, 74
gross domestic product (GDP), 222
group think, 236–38
growth factor, 272
growth rate, see earnings growth; rate of return
growth stocks, 64–66, 364
changing premiums for, 135
declines in, 67, 75
overvaluation of, 232
P/E multiples for, 128–30, 137–40
risk of, 137, 305
Grubman, Jack, 88–89
GSCI (Goldman Sachs Commodities Index), 203
Haas, Albert, Jr., 122
Harvard Business School, 117
Harvard University, 108, 164
Hazard Powder Company, 128
hedge funds, 33, 117, 195, 247, 323
hemline indicator, 153–54
Henry IV, Part I (Shakespeare), 216
herd mentality, 228, 236–40, 250–52
Hewlett-Packard, 73
“Higgledy Piggledy Growth,” 164
high-technology boom, see Internet bubble; new issues
hindsight bias, 231–32
Home Depot, 130
home insurance, 293
Homestore.com, 90
Hong, Harrison, 239, 250
Hoover, Herbert, 60
“hot hand” phenomenon, 151–52
hot streaks, 232–33
hot tips, 255
housing bubble, 95–100, 248
Hulbert, Mark, 155
Hydro-Space Technology, 65
I Bonds, 318
Ibbotson, Roger, 262, 347–49
IBM (International Business Machines), 64, 73, 76, 79, 164
income, 309–10, 353, 360–61
income taxes, 161, 296, 297, 309–11, 315–17, 337, 376
Incredible January Effect, The, 156
index funds, 251, 365, 379–89
advantages of, 25, 27, 181, 258, 355, 380–83, 393, 402–3
broad definition of, 383–85
criticisms of, 404–7
float-weighted, 393
general equity, 411
international, 394, 413
low-cost, 324, 358
specific portfolio of, 385–87
tax-managed, 387–89
Individual Retirement Accounts (IRAs), 299–302, 368, 373, 376
Industry Standard, 91
inertia, 244
inflation, 295, 340, 344
core rate of, 333
demand-pull, 335
effect of, on bond returns, 317, 331
effects of, on purchasing power, 36–37, 133n, 304–5, 313
as factor in systematic risk, 221
home prices adjusted for, 98–99
interest rates and, 333, 335–36, 344
predictability of, 338
profits during, 337
real estate investment and, 312
information superhighway, 183
initial public offerings (IPOs), 75, 78, 87–88, 254–55; see also new issues
in-kind redemption, 388
In Search of Excellence (Peters and Waterman), 230
insiders, 183
Institutional Investor, 163, 215, 218
institutional investors, 63–81, 172, 215
in 1980s, 74–77
conglomerate boom, 67–72
growth stocks and new-issue craze for, 64–66
and Japanese real estate/stock bubbles, 78–81
lessons for, 78
Nifty Fifty for, 72–74
in stock market crash (1987), 157–58
Institutional Investors Study Report, 215
insurance, 293–94
Intelligent Investor, The (Graham), 127
interest rates, 132–33, 304–5, 320, 344; see also rate of return
compound, 126–27, 290
on money-market mutual funds, 296
on mortgages, 311–12
Internal Revenue Service (IRS), 314, 399n
International Business Machines, see IBM
International Flavors and Fragrances, 73
Internet, 294, 373, 390
Internet banks, 297
Internet bubble, 83–94, 329, 342
and broad-scale high-tech bubble, 84–86
danger of speculation related to, 23, 94
fraud and, 92–94
Globe.com IPO, 87–88
herding behavior in, 236, 238–39, 250
irrational market during, 101–2
limits of arbitrage and, 246, 247
media and, 91–92
new-issue craze in, 86–87, 254
ratio of buy to sell recommendations in, 173, 174
security analysts’ promotion of, 88–89
stock valuation in, 84–86, 90–91
valuation metrics of, 90–91
Internet companies
cash-burn rate for, 83
CDs from Internet banks, 297
new issues of stocks from, 86–87
Ponzi schemes and investments in, 83, 239
stocks of, 86–87
valuation metrics for, 90–91
intrinsic value of stocks, 39–41, 43
calculating of, impossibility of, 133–34, 136
determinants of, 164
as maximum price to pay, 137–39, 391
Invesco Equal Weight 500 ETF, 271
investment
as contemporary way of life, 36–38
costs of, 324
defined, 36
fun of, 38
gambling vs., 113
lovemaking vs., 401
sleeping scale for, 304–5
speculation vs., 36
theory of investing, 38–39
investment advisers, 395–400
investment banking, 166, 172–73
Investment Guide, Life-Cycle, 361–67
investment managers, 394–95
investment objectives, 306–11
investment pools, 56–57
investment program, 28
Investment Survey (Value Line), 390
investment theory, see castle-in-the-air theory; firm-foundation theory; new investment technology
investors, professional, performance of, 393, 394
IPOs, see initial public offerings
IRAs, see Individual Retirement Accounts
Irrational Exuberance (Shiller), 42–43, 83, 239
IRS (Internal Revenue Service), 314, 399n
Jackson, Don D., 122
Jagannathan, Ravi, 219–20
January Effect, 155–56
Japan, speculation in, 78–81
JDS Uniphase, 85
“jingle mail,” 99
Johnson & Johnson, 131
Justice Department, U.S., 67
Kabuto-cho (Japan’s Wall St.), 79
Kahneman, Daniel, 43, 227, 230–31, 234–35, 240–42
Kennedy, John F., 162, 334
Keynes, John M., 41–42, 61, 64, 170, 187, 247
Kindleberger, Charles, 239
King’s College, 41
Kipling, Rudyard, 82
Kirby, Robert, 224
Kleiner Perkins, 87
Kodak, 73, 164
Krieger, Lloyd, 169–70
Krizelman, Todd, 87
Kubik, Jeffrey, 239, 250
La Crosse and Minnesota Steam Packet Company, 128–29
La Rochefoucauld, François de, 117, 401
Law, John, 49
Lay, Ken, 93
Le Bon, Gustave, 44
Lehman Brothers, 157
Leinweber, David, 155
Letterman, David, 249
leverage, 46, 101
Liberty University, 77
life-cycle funds, 368
Life-Cycle Investment Guide, 361–67
life cycles, of corporations and industries, 128–29
life insurance, 34, 293–94
Lintner, John, 206
Litton Industries, 71
Lo, Andrew, 24, 146
loading fees, 315
loans, 96–102
Lompoc Federal Prison, 77
Long Term Capital Management, 246
loss aversion, 228, 240–42, 253
“lost decade,” 203–4, 329, 341–42, 403
Lucent Technologies, 85, 168
Lynch, Peter, 138–39, 184
Macaulay, Thomas B., 327
Mackay, Charles, 45–46
MacKinlay, A. Craig, 146
Madoff, Bernard L., 256
Magee, John, 120, 121
Magellan Fund, 138, 184
Making It in America (Minkow), 76
Malkiel Step strategy, 378
Manhattan Island, 127
Man Nobody Knows, The (Barton), 55
marginal tax rates, 309–11
margin buying, 56, 59, 213
market manipulation, 56–57, 65–67
market matrices, 70
market risk, see systematic risk
market timing, 161, 255–56
Markowitz, Harry, 195, 198, 200, 206, 240
Marks, Howard, 107
Marxism, 37
Massachusetts Institute of Technology, 282
Mastercard, 283
Master Trader (Birinyi), 161
Matto, Stephanie, 113
McDonald’s, 73
media, 91–92, 251
Meeker, Mary, 88–90
Melvin Capital, 246–47
meme stock mini-bubble, 103–4
mergers, see conglomerates
Merrill Lynch, 88, 216
Meta Platforms, 108, 283
Michigan, University of, 161
Microsoft, 51, 130
millionaire, invention of word, 50
“mind share,” 90–91
Minkow, Barry, 75–77, 167
Minnesota, University of, 219
Mississippi Company, 49–50, 54
modern portfolio theory (MPT), 187–206, 208, 226
as applied to international scene, 199–205
dispersion of returns and, 189–92
diversification and, 199–205
invention of, 195
and long-run study of risk, 192–94
mathematics of, 195–96
reducing risk with, 195–98
role of risk in determining returns, 188–89
modular building blocks, 70–71
momentum factor, 223, 263–64
money, bitcoin as, 107–9
Money Game, The (“Smith”), 117
money managers, 324
money-market funds, 296, 298, 304, 410
Montgomery Ward, 55, 60
Moody’s Investor Services, 282, 316
Morgan, J. P., 306
Morgan Stanley, 88, 90
Morgan Stanley Capital International (MSCI), 282, 283
emerging-markets index, 201–5, 384, 393, 399n
Europe, Australasia, and Far East (EAFE) securities index, 201–3, 384
U.S. Broad Market Index, 383, 384
Morgenstern, Oskar, 43
Morley, J. Kenfield, 289
Morningstar, 390
Morningstar Service, 216, 404
mortgage-backed securities, 100
mortgages, 96–99, 315
Mother’s Cookie Corp., 65
Motorola, 168
MPT, see modern portfolio theory
MSCI, see Morgan Stanley Capital International
Muhammad Ali Arcades International, 75
Musk, Elon, 112
mutual funds, 294, 355, 365, 380, 381; see also specific funds
herd mentality in managers of, 239
market index vs., 176
money-market, see money-market funds
no-load, 388
performance of, 175–82, 394–95
real estate, 412
risk of, 308, 394–95
smart beta, 416–17
vs. Standard & Poor’s 500, 179, 181
tax-managed index, 387–89
top-performing, choosing of, 394–95
value vs. growth, 239–40, 251
Nagel, Stefan, 247
Nakamoto, Satoshi, 105
NASDAQ Index, 83–84, 135, 252
NASDAQ market, 117
National Cash Register, 55, 60
National Football League, 154–55
national income change, 221
“naughties,” 341–42
Netflix, 137
New Economy, 83–94, 101–2, 238, 246
new investment technology, 35, 39, 188–286
alpha in, 216
beta in, 206–25
CAPM in, 206–25
MPT in, 187–205
portfolio construction with, 257–86
risk in, 188
new issues, 316
of 1959–1962 period, 64–66
of 1980s, 74–75
caution with, 78, 254–55
of Internet stocks, 86–87
Newsweek, 64
Newton, Isaac, 54, 357
New Yorker, 89
New York Post, 89
New York Stock Exchange (NYSE), 117
Babson Break in, 58–59
institutional investors in, 63–64
ratio of advancing to declining stocks on, 156
speculation in, 55–62
New York Times, 38, 91, 107, 390
NFTs (nonfungible tokens), 112–13, 323
Nifty Fifty, 72–74
NINJA loans, 98
Nobel Prize, 42, 43, 183, 195, 206, 227, 246
No-Brainer Step, 377, 379–89
NO-DOC loans, 98
no-equity loans, 97
nonfungible tokens (NFTs), 112–13, 323
Non-Random Walk Down Wall Street, A (Lo and MacKinlay), 146
Nortel Networks, 85, 164, 168
NTT Corporation, 79
nucleus theory of growth, 70–71
NYSE, see New York Stock Exchange
Odean, Terrance, 231, 243, 253
O’Higgins, Michael, 155
Once in Golconda (Brooks), 56
“one-decision” stocks, 73
online brokers, Internet bubble aided by, 91–92
OPEC (Organization of Petroleum Exporting Countries), 335
options, see stock options
O’Shaughnessy, James, 155
Outlook (S&P), 390
overconfidence, 228–32
overtrading, 231, 252–53
PalmPilot, 85–86
Paternot, Stephen, 87
P/BV (price-to-book value) ratios, 261
PDAs (Personal Digital Assistants), 85–86
P/E multiples, see price-earnings multiples
pension funds, 168, 182, 301–2
performance
of buy-and-hold strategy, 161
of common stocks (1970s), 338
of mutual funds, 175–82, 394–95
and price-earnings multiples, 261, 393
of professional investors, 393, 394
of security analysts, 175–82
of S&P 500 and MSCI EAFE, 201–3
Personal Digital Assistants (PDAs), 85–86
Peters, Thomas J., 230
Pfizer, 130
Philadelphia 76ers, 151
Phoenix, University of, 170
Polaroid, 73, 164
Ponzi schemes, 76–77, 83, 239, 256
portfolio construction, 257–86
blended factor strategies, 267–71
for ESG investing, 281–85
factor tilts for, 260–67
risk parity technique for, 273–81
smart beta strategies, 258–73
portfolio management; see also “smart beta” strategies
appetite vs. capacity for risk in, 359–61
by investment managers, 394–95
Life-Cycle Investment Guide for, 363–67
loss of analysts to, 166, 171–72, 176–84
over life cycle, 347–49, 386
by security analysts, 164–65
Portfolio Selection (Markowitz), 195
portfolio theory, see modern portfolio theory (MPT)
positive feedback loops, 83
Pound, John, 250
Power Shares RAFI ETF, 271
premiums, of stock options, 46
present value, 40, 132n
price-dividend multiples, 328–29, 338, 339, 341
price-earnings (P/E) multiples, 334, 342, 391–92
of blue-chip stocks, 73
of common stocks (1970s), 338
for conglomerates, 68–71
cyclically adjusted, 345, 384
forecasting with, 344–45
of growth stocks, 128–29, 137–40
of high-tech stocks, 84
performance and, 261, 393
valuation rules and, 133, 391
Priceline.com, 85
price stability, 61
price-to-book value (P/BV) ratios, 261
price-volume systems, 150
Price Waterhouse, 158
Princeton University, 164
private-equity funds, 323
probability judgments, 230–31, 235
Producers, The, 167
profitability factor, 223, 265
profit-maximizing behavior, 124–25
profits, 337
profit-sharing plans, 302
Prohibition, 56, 59
property taxes, 310–11
prospect theory, 240–42
prospectuses, warnings on, 67
PSI Net, 90–91
psychological factors in stock valuation, see castle-in-the-air theory; technical analysis
Puckle Machine Company, 52
purchasing power, effects of inflation on, 36–37, 133n, 312, 313
quality factor, 223, 265
Quandt, Richard, 147
quant, defined, 218
Quinn, Jane Bryant, 91
Qwest, 168
Radio Corporation of America (RCA), 55, 60
RAFI (Research Affiliates Fundamental Index), 269, 271
railroad industry, 91, 94
RAND Corporation, 195
random events, 151–52, 166–67
random walk
acceptance of, 151–52
defined, 24, 34–36, 144–48
summarized, 43
random-walk theory
assumptions of, 189, 226, 227
bubbles and, 101–2
criticism of, 158–60
example, 402–3
fundamental analysis and, 162–84
guide for, 289–326
index funds and, 379–89
investing implications of, 160–61
reflections on, 400–401
role of arbitrage in, 245–49
semi-strong form of EMH, 34, 182–84
on stock market “patterns,” 144–48
strong (broad) form of EMH, 34, 182–84
technical analysis and, 141–61
tenets of efficient-market hypothesis, 21–23
weak (narrow) form of EMH, 34, 144, 183
rate of return
for 2009–2022 period, 342–43
after inflation, 336
for bearing greater risk, 192–94, 209–10, 348
for bonds, 192–94, 307, 313, 327–31, 342, 343
in CAPM, 210–16
for common stocks, 192–94, 307
compounded, 349
diversification and, 196–98
expected, 190–94, 196
future events and, 38, 343–46
investment objectives and, 304–11
negative, 194
for real estate, 311
rebalancing to, 358
risk-free, 213–15
symmetrical distribution of, 190–91
for Treasury bills, 189, 193–94
Rational Investing in Irrational Times (Swedroe), 232–33
RCA (Radio Corporation of America), 55, 60
real estate, 305, 311–12, 342; see also housing bubble
advantages of, 311–12
boom and bust in Japanese, 78–81
commercial, 308, 312
intrinsic value of, 39
loss aversion in residential, 243
return on, 311–12, 336
risks associated with, 305, 308
Real Estate Investment Trusts (REITs), 308, 312, 324, 364, 384, 386
rebalancing, 357–59, 368, 376, 402
recession, 97, 131, 133, 197, 336; see also financial crisis (2007–2008)
Reddit, 103–5, 112
Refinitiv, 283
REITs, see Real Estate Investment Trusts
relative-strength system, 150
“relative volatility” measure, 132
renting, buying vs., 312
representative heuristic, 234–35
required minimum distributions (RMDs), 373, 376
Research Affiliates Fundamental Index (RAFI), 269, 271
resistance area, 124, 149
resistance level, 121, 124
retirement
Do-It-Yourself method of managing investments for, 373–76
inadequate preparation for, 369–70
investment management in, 369–76
nest egg for, 370–73
retirement plans, 365
behavioral finance and, 243–45
investment management in, 387
saving and, 290, 291
tax-advantaged, 291, 298–302, 314, 317
revisionists, 47, 61
Ripple, 111
risk, 46, 226, 253, 348, 349, 352
arbitrage pricing theory and, 220–22
assumption of, 189
attitude toward, 308–9, 347, 348, 359–62
beta as measurement of, see beta
of bonds, 306, 316
capacity for, 347, 348, 359–62
of common stocks, 193–94, 304–5, 307–8, 310, 339, 340
defined, 189
as dispersion of returns, 189–92
Fama-French three-factor model for, 222
financial survival as factor in, 308–9, 359–60
of gold, 305
of growth stocks, 137
in housing bubbles, 97
international scene and, 199–205
loss aversion and, 240–42
measurement of, 131–32, 192–94, 206–25
modeling of, see capital-asset pricing model [CAPM]
of mutual funds, 308
in new investment technology, 188–89
portfolio diversification and, 196–98
psychological makeup as factor in, 308–9
of real estate investment, 308
rebalancing and, 357–59
reduction of, 195–98, 207–16, 378
of savings accounts, 305
of six-month certificates, 305
sleeping scale on, 304–5
staying power and, 350–53
systematic/market, see systematic risk
three-factor model for, 269
total, 207–10
of Treasury securities, 305, 318
unsystematic, 207–12
risk parity, 273–81
60/40 portfolio vs., 277–79
in 2008 financial crisis, 279–81
with Bridgewater All Weather Fund, 279
with safe bonds, 276–77
technique for realizing, 274–75
risk premiums, 339
RMDs (required minimum distributions), 373, 376
Robinhood, 104, 231
Roll, Richard, 219
Ross, Stephen, 220
Roth IRAs, 300–301, 376
Rothschild, Nathan, 183
Royal Dutch Petroleum, 248
rule of 72, 128
Russell 3000 Index, 383, 384
salaries, in high finance, 117
Salesforce, 130
Salomon Smith Barney, 88–89
Samuelson, Paul, 183, 352n, 382
Santayana, George, 43
Sarbanes-Oxley, 174
Savannah and St. Paul Steamboat Line, 128
“Save More Tomorrow” plans, 244–45
savingforcollege.com, 303n
savings, 290–92, 312, 362–63
savings accounts, risk of, 305
Schwed, Fred, Jr., 126
securities
collateralized, 96
fixed-interest, 133
Securities and Exchange Commission (SEC), 66, 72, 89, 112, 174, 215, 256
Security Analysis (Graham and Dodd), 40, 102
security analysts, 162–84
advice and, 173
conflict of interest with investment banking, 166, 172–75
equity research stars and, 162
fads and, 78
forecasting difficulties of, 165–75
forecasting future earnings as raison d’être of, 163–65
Internet bubble fostered by, 88–89
loss of best, 166, 171–72
metamorphosis of, 162
occasional incompetence of, 166, 169–71, 175
performance of, 175–82
selection penalty, 240, 251
self-employment, 302
sell vs. buy recommendations, ratio of, 173–80
SEP IRA, 302
72, rule of, 128
Shakespeare, William, 199, 216
Sharpe, William, 206
Shell Transport, 248
Shields, Brooke, 74
Shiller, Robert, 42–43, 83, 239, 250, 264, 345
short selling, 58, 247–48
Shoven, John, 387
Siegel, Jeremy, 290, 291
Silent Road to Serfdom, The (Bernstein), 404
similarity, 234
single-family homes, 311–12
SIVs (structured investment vehicles), 97
six-month certificates, risk of, 305
60/40 portfolio, 277–79
size factor, 262–63
Skilling, Jeff, 93
“smart beta” strategies, 35, 220, 258–73, 416–17
blended factor, 267–71
defining, 258–60
ETFs and, 262
factor tilts of, 260–65
implications for investors, 272–73
value and, 260–62
volatility and, 258
Smith, Adam, 236
“Smith, Adam,” 117
socially responsible companies, 188, 281–85
Social Security, 318, 370
Sony, 73
South Sea Bubble, 44, 48–54, 86, 111
South Sea Bubble, The (Carswell), 49
South Sea Company, 48–54
Space-Tone, 65
special acquisition companies (SPACs), 111–12
speculation, 44–81
1928–1929 stock market, 55–61
behavioral finance, 231
by institutional investors, 63–81
investment vs., 36
in Japanese real estate and stock market, 78–81
lessons learned about, 62
South Sea Bubble, 48–54
tulip-bulb craze, 45–48
“spiders,” 388
stagflation, 190
Standard and Poor’s, 282, 283, 316
Standard and Poor’s 500 Index (S&P 500), 338, 342
Beardstown Ladies’ return vs., 157–58
and benefits of diversification, 201–5
beta and, 219
dispersion of returns for, 191–92
ETFs based on, 388
index funds and, 379–80
long-run returns for, 350–52, 383–84
MSCI EAFE performance vs., 201–3
mutual fund performance vs., 176, 179–81
standard deviation, 189, 191, 209
start-ups, Internet, 87–89
State Street Global Advisors, 379, 407
state taxes, 303
Statman, Meir, 226
status quo bias, 244–45
Stein, Jeremy, 239, 250
Stengel, Casey, 170
Stern, Howard, 92
Stigler, George J., 206
stock charts, 118–25
bear traps in, 122
channels in, 121
construction of, 119–21, 142–43
head-and-shoulders formation in, 121–22, 143, 150
information obtained from, 118–19
inverted bowl formation in, 119
pennant formation in, 119
as produced from coin tossing, 142–43
reading patterns on, 150–51
trends revealed by, 120–22, 138–45, 150–51
stock market, 156; see also New York Stock Exchange
in 1980s, 339–41
call options in, 46
efficiency of, see random-walk theory
emerging markets vs., 201–5
hot streaks in, 232–33
irrational exuberance in, 23
Japanese, boom and bust in, 78–81
language of, 138
momentum in, 143–44, 164
NASDAQ, 117
P/E crash in (1970s), 339, 341
rationality of, 226–28, 357
total, 219, 384, 402
stock-market crash (1929–1932), 59–61, 65
stock-market crash (1987), 132, 153–54, 157–58, 194
stock-market crash (2000s), 33, 95–102, 307, 362
stock options, 46, 330
stock prices
multifactor explanation of, 223
predictability of, 234
stocks, 357–59, 374
1980s returns on, 339, 340
“big capitalization,” 72–74
blue-chip, 44, 131, 305
bonds vs., 132, 205, 352–53
claim represented by, 337
common, see common stocks
future of, 343–46
high-beta, 220
holding period of, 348, 350–53
of Internet companies, 86–87
low-beta, 220
“one-decision,” 73
price-to-book value ratios of, 261
projecting returns for individual, 345–46
return on, 327–31, 342, 349, 351
return on other assets vs., 290, 291
small, 307
Stocks for the Long Run (Siegel), 290, 291
stock valuation; see also intrinsic value of stocks
1960s–1990s, 63–81
assessing levels of, 327–31
degree of risk and, 131–32
dividend payout and, 130–31, 133
with fundamental analysis, 126–33
future expectations and, 133–34
growth rate and, 127–30, 135
historical perspective on, 44–62, 78, 327
interest rates and, 132–33
Internet bubble and, 84–86, 90–91
precision in, 134–35
price-dividend multiples in, 328–29, 339, 342
theories of, 38–43, 390
variability and, 136
stop-loss order, 148
structured investment vehicles (SIVs), 97
Stuff Your Face, Inc., 74
Substitute-Player Step, 377, 394–95
Sullivan, Arthur, 141
Super Bowl indicator, 154–55
support area, 124, 149
support levels, 124
Sustainalytics, 282, 283
Swedroe, Larry, 232–33, 268, 284
swings, 207–8
synergism, 67–72
systematic risk, 207–10
beta as a measure of, see beta
defined, 207–8
non-beta elements of, 220–22
takeovers, 33
Tampa Bay Buccaneers, 154
target date funds, 368
taxes, 252, 254, 310–11, 365
and annuities, 373
avoidance of, 298–303
capital gains, 161, 243, 329, 381
estate, 303
ETFs and, 387–89
gift, 302–3
income, 161, 290, 296, 297, 309–11, 315–17, 337, 376
overtrading and, 252
property, 310–11
retirement plans and, 291, 298–302, 314, 317
state, 303
technical analysis, 34, 118–61, 400; see also chartists; stock charts
buy-and-hold strategy vs., 144, 150, 151, 161
castle-in-the-air theory and, 118, 139–40
defined, 118
fundamental analysis used with, 137–40
fundamental analysis vs., 118–19, 126–29
gurus of, 157–58
implications for investors, 160–61
limitations of, 124–25, 141–43, 163
random-walk theory and, 141–61
rationale for, 123–24
types of systems of, 148–58
Technical Analysis of Stock Trends (Magee), 121
technology, 27
telecom companies, 90
Teledyne, Inc., 71
television, Internet bubble and, 92
term4sale.com, 294
Texas Instruments, 64
Thaler, Richard, 244–45
Theory of Investment Value, The (Williams), 39
Thorp, Edward O., 159n
3Com, 85–86
three-factor model for risk, 222, 269
timing penalty, 239, 251, 252
TIPS, see Treasury inflation-protected securities
Total Stock Market Portfolio, 384
total world index funds, 388
trading, limiting of, 253, 392–93
tranches, 96
Treasury, U.S., 317, 343, 351
Treasury bills, 296, 297
rate of return on, 193–94, 349
return on other assets vs., 290, 291
risk associated with, 189
and risk premium, 258, 259
Treasury inflation-protected securities (TIPS), 279, 304, 306, 313, 317–18, 384
trends, 119, 121–23, 150–51
Tri-Continental Corporation, 61
“tronics” boom, see new issues, of 1959–1962 period
T. Rowe Price, 368
Truman, Harry S., 333
Trump, Donald, 173
Trump Tower, 75
tuition, 360
tulip-bulb craze, 45–48, 82, 94, 236
Tversky, Amos, 227, 234–35, 240–42
Twain, Mark, 44, 347
underwriters, 67, 172
unemployment, 336
unsystematic risk, 207–12
U.S. Steel, 59
utilities industry, 166
valic.com, 373
valuation metrics, for Internet companies, 90–91
value factor, 260–62
Value Line, 216, 390
Vanguard Group, 253, 295, 303, 363, 368, 387, 406–7
500 Index Fund, 281, 355, 356
500 Index Trust, 379
Balanced Index Fund, 280, 281
Jack Bogle at, 20–21, 255, 388, 395
ETFs of, 262, 266, 267
Personal Advisory Services, 399
Total Stock Market Index Fund, 28–29, 266, 267, 281, 388, 403, 404
variable annuities, 371
variance, 189–94, 351
Variety, 60
venture-capital funds, 323
Verizon, 130, 320
Vietnam War, 332, 334, 335
“vipers,” 388
Visa, 283
Vogue, 154
volatility, 92, 201–3, 259, 265
Volcker, Paul, 335–36
WallStreetBets, 103
Wall Street Journal, 93, 176–77, 179, 322, 390
Walt Disney, 73
Wang, Zhenyu, 219–20
wash sales, 57
Waterman, Robert H., 230
Weiss Research, 294
Westinghouse, 59
Where Are the Customers’ Yachts? (Schwed), 126
Wiggin, Albert, 57–58
Wilde, Oscar, 33
Williams, John B., 39–40
Wilshire Total Market Index, 383
Winkelman, Mike (Beeple), 112
Winklevoss, Cameron and Tyler, 108
Winning the Loser’s Game (Ellis), 249
Wired, 91
Wood, Cathie, 177–78
WorldCom, 93–94, 254
World War II, 320, 333, 334
wrap account, 324
Xcel Energy, 282
Xerox, 73, 164, 168
Yahoo!, 85, 129
Yale University, 40, 59
Youngman, Henny, 369
Zuckerberg, Mark, 108
Zweig, Jason, 322
ZZZZ Best, 75–77, 167