BiographyEdward Chancellor is a financial journalist and author. After reading history at Cambridge and Oxford universities, he worked for Lazard Brothers in London. He has written freelance for a number of publications, including the Financial Times and The Economist, and is currently assistant editor at Breakingviews, the award-winning financial commentary service. Edward Chancellor studied history at both Cambridge and Oxford. He is a freelance contributor to the Financial Times and The Economist.
Books by Edward Chancellor
'Put all your eggs in one basket and watch that basket!'
This saying comes from Mark Twain, but has been applied to stock market investment more or less verbatim by both John Maynard Keynes and Warren Buffett. Modern portfolio theory suggests that one can reduce risk by diversification. However, it also suggests that the index represents the optimal portfolio, in which case one might as well purchase a tracker fund. However, most active investors would do better to concentrate their shareholdings in a limited number of companies which they feel they understand. This can actually reduce risk.
'When the ducks quack, feed them.'
This is an old Wall Street adage relating to initial public offerings. Investment bankers are not driven by philanthropy or even by an intellectual motivation to understand the world of finance. They are out to make money and will sell the public anything within the bounds of the law. In recent years we have seen a flood of second-rate IPOs, most of which are now trading at below their offer price. Research suggests that, in general, IPOs rocket upwards on the first day's trading but tend to underperform comparable companies over a three-year period. Since small investors don't receive fair allocations of the best IPOs but are landed with the duds, they should avoid the new issue market entirely.
'Markets make opinions, not the other way round.'
This is another Wall Street saying, which has been revived by James Grant, editor of Grant's Interest Rate Observer. When markets rise, commentators find a way of rationalising the gains. Take the recent bull market. We were told that the 'valuation clocks' were broken and that companies deserved to trade on a higher price-earnings ratio. We were also told that US productivity had risen and that the US would experience a higher growth rate in the past. We were also told that Greenspan et al would prevent another cyclical downturn. All these comments were spurious rationalisations of an 'irrationally exuberant' market.Taken from The Global-Investor Book of Investing Rules