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Investment Philosophies

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Investment Philosophies

Successful Investment Strategies and the Greatest Investors Who Made Them Work


15 min read
10 take-aways
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What's inside?

Investing basics: you need to know value investing, market trends, indexing…but mostly, you need to know yourself.

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"Just a spoonful of color would have made the investment philosophies go down, in the most delightful way." To paraphrase nanny Mary Poppins’ advice to add honey to nasty-tasting medicine, you may wish that this informative tome was more colorfully written, but you could not wish for a more solid dose of information. Aswath Damodaran backs up his explanations of investing philosophies with ample studies, detailed graphics and a website, even if you need to absorb the dense, detailed data in 15 minute chunks. This well-researched, solid book will be useful to individual investors, investment managers and anyone who wonders why various investment philosophies succeed and how (and at what risk) portfolio gains are made. The index investing chapter and the final summary are required reading for investors wondering how huge portfolios crashed after U.S. equities collapsed. recommends this soup-to-nuts introduction to sophisticated investing. Your financial security could hinge on a good grasp of the issues it covers.


Investment Philosophies

An investment philosophy is just that, your basic beliefs about how financial markets perform and investors act. Match your investment philosophy to your core ideas and psychology, and do not wander all over the place trying to find a fit. Don’t try to be macho: you don’t have to portray yourself as braver than you are with your investments.

To invest successfully, you must understand the nature of risk posed by different investments. Bonds and stocks have various criteria and models for risk. Different risk and return models show how to price risk and calculate expected payoffs. Some models use more than one factor to calculate how much risk an investment poses. For example, the capital asset pricing model focuses on a company stock’s beta (a measure of its volatility) versus the overall stock market. While this is considered an easier model to understand, it may not capture all the economic risk factors that could influence an economically sensitive investment. Proxy models look at a firm’s market capitalization and price-to-book ratios to gauge an investment. Some investors also use an arbitrage pricing model.

Bond Risks


About the Author

Aswath Damodaran teaches finance at the New York University School of Business. He also teaches corporate finance and valuation training courses for various investment banks. Finance runs the family - his father managed a large U.S. automaker’s pension fund for many years. Damodaran’s previous books include Investment Valuation, Corporate Finance, Investment Management, Applied Corporate Finance and The Dark Side of Valuation.

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