Synopses & Reviews
Synopsis
Leading financial thinker and successful funds manager Bruce I. Jacobs reveals how markets crash as the result of investment strategies that purport to reduce risk but that ultimately backfire.
Are financial crises really "perfect storms" or are they the result of investment strategies that create an illusion of safety? Too Smart for Our Own Good reveals how investors invariably fall for investment strategies that offer illusory promises of higher returns and protection from losses, but end in greater risk for markets and the economy. The book examines the influence of such strategies on the 1987 stock market crash, the 1998 collapse of hedge fund Long-Term Capital Management, and the 2007-2008 credit crisis. Investors who are aware of the common threads that connect these market disruptions can avoid the mistakes of the past and anticipate future market crises.
The book provides a "behind the curtain" look at the investment approaches and instruments that caused several recent financial crises.
Synopsis
How investment strategies designed to reduce risk can increase it for everyone--and crash markets and economies
Why do financial markets fall apart with such seeming regularity? Are these turbulent episodes unavoidable coincidences, bad luck, or "perfect storms"? Or is something else at play?
In
Too Smart For Our Own Good, pioneering investment manager Bruce I. Jacobs addresses these questions by lifting the curtain on the biggest market events over the past three decades: the crash of 1987, the collapse of hedge fund Long-Term Capital Management in 1998, the 2007-2008 credit crisis, and the European debt crisis. He analyzes these crises through the lens of the investment strategies that caused these market ruptures, and uncovers the mechanisms behind these meltdowns.
Conclusion: These events weren't inevitable. They resulted from investment strategies that were supposed to reduce risk but instead magnified it, undermining global financial markets.
Too Smart For Our Own Good explains how risk arises in investing, examines the most common ways of mitigating it, and shows how certain strategies for reducing risk actually increase it.
Jacobs's book is the culmination of more than 35 years of investment practice and advocacy for more transparency and disclosure. It breaks new ground in explaining why financial crises occur. Investors will come away with a more sophisticated grasp of investment risk, and will be better equipped to recognize incipient crises--and potentially profit from them.
Synopsis
How investment strategies designed to reduce risk can increase risk for everyone--and can crash markets and economies
Financial crises are often blamed on unforeseeable events, the unforgiving nature of capital markets, or just plain bad luck.
Too Smart for Our Own Good argues that these crises are caused by certain alluring investment strategies that promise both high returns and safety of capital. In other words, the severe and widespread crises we have suffered in recent decades were not perfect storms. Instead, they were made by
us. By understanding how and why this is so, we may be able to avoid or ameliorate future crises--and maybe even anticipate them.
One of today's leading financial thinkers, Bruce I. Jacobs, examines recent financial crises--including the 1987 stock market crash, the 1998 collapse of the hedge fund Long-Term Capital Management, the 2007-2008 credit crisis, and the European debt crisis--and reveals the common threads that explain these market disruptions. In each case, investors in search of safety were drawn to novel strategies that were intended to reduce risk but actually magnified it--and blew up markets.
Too Smart for Our Own Good takes a behind-the-curtain look at:
-The inseparable nature of investment risk and reward and the often counterproductive effects of some popular approaches for reducing risk-A trading strategy known as portfolio insurance and the key role it played in the 1987 stock market crash-How option-related trading disrupted markets in the decade following the 1987 crash-Why the demise of Long-Term Capital Management in 1998 wreaked havoc on US stock and bond markets -How mortgage-backed financial products, by shifting risk from one party to another, created the credit crisis of 2007-2008 and contributed to the subsequent European debt crisis
This broad, detailed investigation of financial crises is the most penetrating and objective look at the subject to date. In addition, Jacobs, an industry insider, offers invaluable insights into the nature of investment risk and reward, and how to manage risk.
Risk is unavoidable--especially in investing--and financial markets connect us all. Until we accept these facts and manage risk in responsible ways, major crises will always be just around the bend.
Too Smart for Our Own Good is a big step toward smarter investing--and a better financial future for everyone.