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- Product code: 3266
- ISBN: 0029030129,
ISBN13: 9780029030127,
340 pages, paperback
Published by Free Press, 1992
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Description of Capital Ideas |
In this rich and lively history of the ideas that shaped modern finance, Peter Bernstein tells the story of how a small, little-known group of scholars revolutionized the management of the world's wealth. Their ideas were dismissed as recently as the late 1960s by Wall Street veterans as 'a lot of baloney' pieced together by a bunch of 'academia nuts'. Their discovery, which specified how risk could be controlled through diversification,finally began to take hold after the shattering bear market of 1974.
Cocksure money managers gambling on their intuition were replaced by those who recognized that there are no easy pickings in the search for undervalued stocks, that the relationship between risk and return is systematic rather than haphazard, that the value of corporations has more to do with earnings potential than with capital structure, and that the old-fashioned methods of fine-tuning portfolios to the needs of each investor are actually harmful to the investor's interests.
As Bernstein tells the story, the men whose thinking laid the foundation for this revolution were unlikely bedfellows for the rough-and-tumble world of finance. They include an obscure turn-of-the-century French mathematician whose Ph.D thesis on the unpredictability of stock prices anticipated Einstein's work on relativity, an amateur statistician who debunked the claim that market analysts could pick winning stocks, and a naval astronomer who proved that stock prices move, like molecules in solution, in a random pattern.
Their ideas were galvanized in 1952 by the work of Harry Markovitz, a graduate student whose novel theory of diversification barely qualified him for a Ph.D in economics - and yet won him a Nobel Prize in that field in 1990.
The sometimes hilarious, sometimes painful, but ultimately triumphant story of Wall Street's earliest applications of the new thinking is recounted here. Bernstein shows how these capital ideas, by adding some science to the art of investing, have enlarged our understanding of how capital markets work, thereby enabling investors to manage risk better than ever before, while revitalizing economies throughout the world.
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Contents of Capital Ideas |
Part I: Setting the Scene
1. Are Stock Prices Predictable?
Part II: The Whole and the Parts
2. Fourteen Pages to Fame
3. The Interior Decorator Fallacy
4. The Most Important Single Influence
Part III: The Demon of Chance
5. Illusions, Molecules and Trends
6. Anticipating Prices Properly
7. The Search for High P.Q.
Part IV: What are Stocks Worth?
8. The Best at the Price
9. The Bombshell Assertions
10. Risky Business
11. The Universal Financial Device
Part V: From Gown to Town
12. The Constellation
13. The Accountant for Risk
14. The Ultimate Invention
Part VI: The Future
15. View from the Top of the Tower
Notes
Bibliography
Name Index
Subject index
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