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Roger Dennis (Colchester, UK)

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The Evolution of Cooperation
The Evolution of Cooperation
by Robert Axelrod
Edition: Paperback

5.0 out of 5 stars A good read, 21 Jun. 2011
This is a really interesting book. It is a classic, which has been referred to in many other books, but is worth reading for its own sake. It describes an experiment involving a tournament of the classical game theoretic "prisoners' dilemma", from which Axelrod draws conclusions that are relevant to many areas of social science. It is not a mathematics book and is accessible to everyone. The major conclusion is that co-operation does not require altruism, but requires "durability": the likelihood of further interactions with those you are interacting with now.

The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets
The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets
by Mebane T. Faber
Edition: Paperback
Price: £12.08

5.0 out of 5 stars simply the best, 9 Jun. 2011
I have been reading investment books for over 40 years, and this is one of the best I have come across. It easy to read and understand, but covers the difficult areas.
Successful investment requires both skill and luck. Warren Buffet may be the world's luckiest investor, but if you apply the test of whether what he does can be replicated, the world's most skilful investor is David Swensen, the manager of the Yale University Endowment. Swensen does not rely on luck but on a well-thought-out and intellectually-sound method.
This book sets out to show you how you can apply the Swensen strategy to your own retirement savings. It is an extremely practical self-help book, without any of the obfuscation prevalent in many other investment books.
It gives some history of the Yale and Harvard Endowments and explains how they are invested. It then discusses which features those of us with much smaller funds can copy and which are out of our reach. It discusses "alternative" investments and hedge funds and how to avoid large losses. Most importantly it guides you how to plan your own asset allocation, with options for how simple or refined you want to make it.
It finishes with the following aphorism: We do not live to make money; we make money to live. I wonder if Warren Buffet agrees.

The Lifecycle Investor
The Lifecycle Investor
by Ian Ayres
Edition: Hardcover

1 of 2 people found the following review helpful
3.0 out of 5 stars an economists' tale, 12 May 2011
This review is from: The Lifecycle Investor (Hardcover)
This is a book by economists about an idea in economics. It is not an original idea - the great economist Paul Samuelson propounded it over 40 years ago. It is not a very important idea, or a very practical one. It is an idea that economists will relish, but normal people will dismiss. The idea is that in the early years of buying a pension you should borrow money and gear up your investment in shares, because shares (usually) produce a better return than the interest on the loan, and so you will get a bigger pension when you retire.

The authors' justification for this idea is Samuelson's "insight": that you should allocate your investments according to your lifetime wealth, and not just the level of your current savings. Borrowing to invest in your pension is no different, they argue, from borrowing when you are young to invest in a house.

Following Samuelson's dictum completely would mean anticipating all your retirement savings. The authors recognise that this could quickly wipe out your accumulated savings, and so they suggest that you should cap your gearing and borrow no more than the current value of your pension fund.

The book starts with a mention of David Swenson, who has achieved good results managing the Yale Endowment. The authors claim that the book will show how to do the same with your pension fund. (It does not, but "The Ivy Portfolio" by Faber and Richardson does.)

They test their idea with an analysis of how it would have worked if it had been used in the past. Not surprisingly, the answer is "very well". But using historic data gives a false sense of objectivity; the future will not repeat the past, and something which worked in the nineteenth or twentieth century will not necessarily work in the twenty first. It is a shame that they did not use Monte Carlo simulations instead, and tell us exactly what the future has to be like for the idea to work.

Another disappointment is that the authors conflate their borrowing idea with the asset allocation question. If you do gear up your investment in shares then you are likely to get a bigger retirement fund, but the authors do not analyse separately just how much value the borrowing adds.

It is their cavalier treatment of "risk" which is main weakness of the book. They equate risk with variability, and so say, for example, that an outcome distribution range of 291 to 1210 is less risky than one of 167 to 1330 - which is something you might disagree with if your fund is 1210 when it could have been 1330. They reject as too risky the idea of investing entirely in shares, and come up with a metric (also attributed to Samuelson, but not fully explained) for determining the split between bonds and shares. This is based on your "relative risk aversion", which they admit is difficult to assess and turns out to be rather arbitrary. They have an underlying assumption that the bond-share spit should be the same throughout the 40+ years that you save for your pension.

Some of the American English (such as "different than") will annoy British readers.

If you are interested in the economics of the asset allocation problem then you might want to read this book, but you will be disappointed if you are looking for a practical book on how to save for a pension.

Multi-Asset Class Investment Strategy
Multi-Asset Class Investment Strategy
by Guy Fraser-Sampson
Edition: Hardcover
Price: £34.00

4 of 4 people found the following review helpful
1.0 out of 5 stars Why did I bother?, 19 Aug. 2008
I bought this book after reading a favourable review in a pension journal, but there is so much that is wrong in it that I wish I hadn't bothered.
The author starts by criticising the technique of discounting liabilities to calculate their present value. His objection boils down to the fact that this is often done at the gilt yield, which he wrongly says is what the accountancy standard requires for recording pension costs in sponsors' accounts. His conclusion is that trustees need to know the internal rate of return that will equate the present fund and future liability cash flows, increased by 10 to 25 per cent to allow for uncertainty.
Then he throws out the IRR and substitutes his own formulation of "total fund return". This is last year's excess of expenditure over contributions, increased by allowances for the change in the ratio of the number of pensioners to the number of contributors, the reduction in the average term to retirement, improved longevity, pension accrual, and inflation. He does not say how these allowances are calculated or what you do if income exceeds expenditure. This whole idea is flawed, and shows that the author has scant experience of pension funding.
Having worked out what return the fund "needs", he chooses the asset allocation with an expected return that equals this. He overlooks the fact that the expected return is not what will actually happen, but just the mid point of a range of possible outcomes, and that the chosen asset allocation is more than likely not to achieve the return that you need.
In five places he likens pension fund investment to travelling by train, saying that it doesn't matter how fast or slowly the train goes as long as it gets to your destination on time. In the real world, how you get on in the long term is the sum of how you get on in short-term intervals, and it does matter if your train comes to a long stop in the middle of nowhere. The comparison is not helpful because trains can be late but are never very early, whereas investment returns can be much worse or much better than you were expecting. It is this probabilistic nature of investment that the author does not understand.
He castigates the Yale Endowment fund managers for using their subjective judgements of the distributions of future returns, instead of assuming that they will be the same as they have been in the past. He criticises the use of the word "risk" when what is meant is "volatility", but continues to use it. He vilifies the Capital Asset Pricing Model, because it uses the covariance of an asset class return with the return of whole market of which it is a constituent. And he gets normalised variables mixed up with probabilities. It's no wonder the publisher's blurb says that his approach is "unique"!
The whole book is peppered with annoying, irrelevant asides. I don't believe for one second that Albanian has 27 words for moustache, but if it were true I wouldn't want to be told this in an investment book.
The general idea that trustees should invest entirely in high-return assets with low correlations is a good one. But if you want to read about it then David Swensen's "Pioneering Portfolio Management" is an infinitely better book than this one.

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