Exams are finally over. Time for reading things that stretches my mind.
Just finished an amazing book by Peter Bernstein, Capital Ideas Evolving. It profiles how "Capital Ideas" - EMH theory, CAPM and Mean-Variance analysis has evolved over the past 2 decade and have become a mainstay in finance.
What amazes me is that the very people who are pushing the boundaries of Capital Ideas and formulating new ways to explain the market and punch holes in the original Capial Ideas are the same pioneers. Can you imagine winning a noble prize for some work that you've done and then 20 years later invalidate those work that you've spent half your life working on? This is real creative destruction at work.
There are many interesting ideas that he posted, but a recurring theme to me is that the search for Alpha - excess risk adjusted returns, is elusive. And that after fee excess returns is even harder to come by, due to the intense investments in technology and human capital.
Also RISK should not be defined as a number, but as different scenarios. The chapter on William Sharpe, of the famous Sharpe ratio, will change the way you think about risk.
Lastly, we cannot control returns, but we can control risk and fees. Minimize fees and set your own risk tolerance level (however you defines it). And the return take care of itself.
New York Times profile of Berstein: http://dealbook.blogs.nytimes.com/2009/06/08/peter-l-bernstein-explainer-of-stock-risks-dies/
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