A review by Dr. Mark Holder.
“History repeats itself.” Never was a phrase (oft cited as Churchill quote) more apt in describing a text. The book, Investing with the Trend by Gregory L. Morris, is now more in tune with today than ever. As a trainer for new hires at investment banks and hedge funds, I have found one of the main purposes to this training is to relate past market scenarios to these new hires so they “don’t reinvent the wheel.” One story I relate is a passbook savings account I had that paid 14% annual interest! The events of 2007-08 are among many of the market situations that I relay to these groups to get them ready for their upcoming careers in finance. I also try to give them content and readings that they can use to continue their learning journeys. One of my highest recommended readings for these groups is Greg’s book, “Investing with the Trend.” It provides insight and reasoning behind the mathematics that is often used to explain how markets work. Every group I have trained has valued this text and I often receive feedback on how it helped them to get a better idea of markets, investing, and trading.
The first section on Market Fictions, Flaws, and Facts is a common sense look at the “rules of thumb” and outright fictions that permeate many texts in finance. I especially like Greg’s chart showing performance with and without the ten best return days in a year. This often shocks people the first time they see this. Another fallacy is that of standard deviation and the measures for risk. Perhaps part of this continued belief is that using skew and kurtosis makes the math intractable. But that shouldn’t be an excuse to simply use standard deviation as a risk measure (or its evil twin, volatility). Greg clearly dispels many myths that exist in finance. Mind you, he doesn’t throw them out entirely but puts them in context in terms what is useful and when to be much more careful in their use. While the mathematical concept of volatility has a place, what investors are truly concerned about, especially in today’s markets, is whether their portfolio at a gain or loss – drawdown. Greg carefully delineates these concepts and gives the math its due but provides readers with better insight on what really matters regarding investing and portfolio management.
Greg also provides readers with a quite complete coverage of the behavioral biases that inevitably creep into decision making regarding investing. The presentation is clear and straight forward without any of the typical circular reasoning I have often seen, particular with respect how to deal with these logic errors. He distills down prospect theory into just a few paragraphs that provide the reader with everything they need to know without any of the academic hypothesis testing. I found these sections to be very insightful and self-explanatory.
Chapter 11 on drawdown analysis can be extremely useful for readers in terms of really understanding what risk is. He covers not just depth, but breadth of drawdowns. There are countless charts and tables illustrating how to understand and measure drawdown. It is important to note that good readers will likely review Greg’s prior performance as a professional investor and his actual drawdown numbers. On seeing this, the reader will know that they are listening to the “Master’s Voice” (sorry RCA Victor records for that quote).
Chapter 16 is short and sweet. It uses interviews with solid professionals to ensure that readers really understand what it takes to put the contents of this book into practice. The book is especially useful in today’s investing world. History does seem to be repeating itself with 40-year highs in inflation, turmoil on the world stage, and forecasts (at least as of this writing) of a recession. The techniques and content provided by Greg are timeless, but especially important in the difficult investing environment today. Throughout the 2000’s investing and trading looked easy. But “never mistake a bull market for brains” is never truer than it is now. Investing today and earning solid returns requires more than luck now. Chapter 15 provides readers with practical knowledge on putting your investing on the right track in today’s marketplace. His advice on developing objective rules and discipline will be key to building your own system that works. The text has great advice and guidance on measuring risk and setting sell criteria to avoid large drawdowns. This chapter is replete with charts and tables that demonstrate these key tools.
In summary, you would be hard pressed to find a more well-written text that thoroughly explains why markets work the way they do. It provides readers with a solid understanding of the fallacies that exist about markets and instead provides a commonsense approach to truly understand, in an intuitive way, what is going on in the world of investing, markets and trading. The coverage of technical analysis avoids the faddish models often promoted by charlatans and instead gives readers a useful understanding of the real purposes of technical analysis. The last section of the book gives a practical and useful guide for building a rules-based trading system culminating in trend analysis and how to build your own successful system for investing. This book is full of great anecdotes, useful tips and is an easy read. It is a highly valuable read for everyone from part-time investors to highly experienced money managers. I am certain everyone will find practical and effective content that will change your thinking about markets and trading and enhance your performance.
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Dr. Mark Holder is a consultant in financial markets, providing services to leading global Investment Banks, Exchanges, and Commodity Firms. He is also a lead partner for a proprietary trading firm located in Hong Kong. He has prior experience as the Director of Research and Product Development at two Exchanges, as well as Managing Director for a leading financial training company. His background also includes 14 years of teaching experience at the masters and PhD levels. While at the university he was the Chairman of the Department of Finance and Program Director of the Master Science in Financial Engineering program.
Dr. Holder has designed and conducted training programs for a wide range of clients including Goldman Sachs, Merrill Lynch, Barclays, Reuters, Dubai Financial Services Authority, CSRC, Guotai Junan, Aberdeen Asset Management and many other leading financial institutions for the past 15 years. These programs have covered a wide variety of topics, including Derivatives, Risk Management and Financial Modeling, for audiences such as Analysts and Associates to Managing Directors and Vice Chairs. He has also offered courses for Practical Training requirements and client-based courses as well.
Dr. Holder is also an accomplished author. His publication record includes more than 50 articles in leading journals. He was the Editor of the journal Review of Futures Markets, a leading academic journal covering the field of derivatives and markets for over 10 years. Mark has significant prior experience working in fixed incomes and derivatives from the CBOT and as a trader. He has firsthand knowledge of market practices and operations. His evaluations show he can convey this information is an intuitive way to participants to maximize their understanding and knowledge.
