Monday, 7 September 2009

Book Review: Investing from the Top Down by Anthony Crescenzi

A bit strange this book is. On the one hand it has a great deal of explanation and links to sources on macro-economic indicators and trends, how they affect markets and how investors can use them to advantage. On the other hand, it steadfastly maintains that such an approach is simple and easy for the average investor.

I really doubt that somehow. How many investors are willing to take the time and trouble to regularly monitor and read no less than 40 top-down indicators? How many will be able to correctly remember all the inter-actions and implications to properly interpret the data therein in order to find the appropriate investment target sectors? How many will know where to find the investment target securities?

An example to illustrate the challenge: on pages 164-169, Crescenzi analyzes the then (June 2008 or thereabouts) subprime mortgage situation and begins with a comment that credit default swap indexes were priced for defaults on such mortgages to reach as high as 40%. Huh, how did he figure that out? If that is the basis for a judgment that the market at the time was over-reacting, we the investor would have to be able to estimate that too. But one would need to know what a credit default swap is, then know where to obtain the data, then to know what calculation to perform to estimate the 40%. And finally, of course, there is the bigger issue that instead of over-reacting, maybe the market at the time was under-reacting given the crash that resulted from September onwards.

I daresay the average investor will find it challenging, perhaps overwhelming. Crescenzi, as a top investment strategist (he recently got hired away by the famous PIMCO from the Miller Tabak, which is listed on the dust jacket as his employer), may find it easy from years of learning and observing and may even be very rich from carrying out his own recommendations. I think it does a disservice to himself and to his audience to pretend it is simple and quick. The get-rich-quick message isn't required and casts a shadow of suspicion that the whole approach is just a scam. He also harps on about how it is much easier than bottom-up value investing, an unnecessary distraction to the reader who just wants wants to know how to do it.

This is really a book for the committed active investor, the afficionado who is looking for another angle, another method or set of tools to find the winners. It will not appeal to those convinced that passive index investing is the surest, though slow, route to investing success.

To a degree, it will also interest those who like to read and understand their economic and financial world. I enjoyed finding many more informative and useful websites and sources of key data.

The book is available from Chapters and Amazon.

My rating: 3 out of 5 stars

1 comment:

Pacific said...

Great review! You tell it like it is. THANK YOU.

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