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One of the best books I have read on investing in recent years. An excellent guide to factor investing and asset allocation overall as it covers more than just public markets. Worth reading whether you are interested in the mathematical explanations or not. I read the chapters in the order I found them interesting rather than in order.
The book is clear and informative, but I expected better. I found “Expected return” of Ilmanen much more original and inspiring. This is certainly an easier book, more suitable for an undergraduate reading.
Asset Management is useful because it provides a good background on "factors" that are persistent over the long-term and it promotes portfolio rebalancing. But, these are really old ideas for serious students of finance. In addition, the book fails on practical implementation, especially for individual investors that do not have tens of millions of dollars to invest (institutional investors or portfolio managers of high net worth individuals hopefully already know these concepts). For example, a portfolio that is long value and short growth is necessary to exploit the value premium. But, this strategy already poses several problems for the individual investor. First, as an individual investor, you have to be willing and able to short stocks. That's asking the individual to increase his/her leverage, which some may not be comfortable with. If investing in stocks is like gambling, this strategy is like doubling-down on your bet. The author acknowledges a long only value portfolio will not yield high returns. Second, there is no guidance on which value stocks and which growth stocks do you have to invest in. Even if there were guidance, this poses several problems for the individual investor. The first is the access to market data and fundamental data, which could be expensive and/or time-consuming to collect. Then, even if you have access to the data, you need to have the analytical skills to identify which stocks you would select. Finally, you would have to balance out transactions costs, so you have to be selective in picking which stocks and the number of stocks that you would go long and short. Third, portfolio rebalancing is an easy concept to implement if you have two index funds: one equity and one fixed income. However, if you have a portfolio with more than two assets, there is no guidance on which asset you should sell if you want to reduce exposure to a particular factor and which asset you should buy if you want to increase exposure to a particular factor. In the case of the long value and short growth, which of the stocks should I rebalance with including consideration for transactions costs?
I can't say how much I enjoyed reading this book. "Enjoy" is probably not the word because 600 pages is quite a slog !. But I was thoroughly pleased with the content, and I would say it has given me a very complete and well-documented update on theory and practice. The book provides a very complete overview of the entire field of investing, and its evolution over the past 40-50 years. Ang gives a thorough review of the main asset classes, the development of financial theory and above all, a (relatively brief) overview of the emerging field of factor investing and its foundation in theory. Brief, but enough to understand the theory and application. Ang offers a very critical view of theory and approaches to investing and shows with reference to many ( a huge amount in fact ) academic studies how the CAPM and mean-variance investing are no longer adequate as an explanation of markets. He is also very critical of the claims of Hedge Funds and Private Equity to superior performance and convincingly proves how on a risk-adjusted basis, they offer no alpha. He has very interesting insights on commodities, and real estate investing and also debunks their claim to be inflation hedges. Although taking its point of departure from theory, and academic studies, Ang does a great job of helping the reader with interesting practical details and quite a few anecdotes, and of course, concrete examples of model portfolios. Grateful to Andrew Ang for taking the time to write such a fascinating book, and after finishing I felt like I had taken a 6-month course on modern financial theory and practice. It is also good to see that he now heads an important division in Blackrock where many of his ideas in factor investing are being implemented through a series of new ETFs which he has created there. Can't recommend this book too much to those in the field of investing.