Andrew Allentuck

Saturday, February 22, 2003

Investment Philosophies: Successful Strategies and the Investors Who Make Them
by Aswath Damodaran
274 pages
ISBN 0-471-34503-2

Great books in finance are rare. But Aswath Damodaran's Investment Philosophies makes my list of superb works, along with such memorables as Burton Malkiel's A Random Walk Down Wall Street, Graham and Dodd's Security Analysis, and Charles D. Ellis' Winning the Loser's Game.

Aswath Damodaran is Professor of Finance at New York University. His previous works, including the massive Investment Valuation, also published by Wiley, are not light reading. Investment Philosophies treads lightly on accounting and statistics. It offers counsel and wisdom, original thinking, and delightful insights.

Prof. Damodaran covers risk and return models, differences in accounting standards and what accountants really do, valuation models, analysis of trading costs, the validity of technical analysis, value investing, growth investing, the value of information, arbitrage, market timing and indexing. There's a a good index and a fine bibliography.

On the question of whether stocks that go up continue to do so, Prof. Damodaran says that the coefficient of correlation of past period performance with future performance is so weak that one cannot invest in it. Save for a few calendar anomalies, such as weak market Mondays and the January effect in small caps, there is nothing that heads and shoulders and wiggles and wisps can tell the investor.

This work is destined to be a classic. For any investor concerned with the validity of an investing methodology from deep value to no-holds-barred price momentum, Investment Philosophies is an essential read.