Praise for The Missing Billionaires
¡°How much investment risk should I take? How much should I spend, and how much should I save? We all want answers to these questions, and financial economists have them, but the answers need to be translated into practical language. That¡¯s exactly why you should read this enjoyable and insightful book, to understand and apply the best thinking about risk-taking and lifetime financial planning.¡±
¡ªJohn Y. Campbell, Morton L. and Carole S. Olshan Professor of Economics at Harvard University
¡°Through years of dialogue with Victor and James, I have put into practice the ideas described in this book, and to great effect. They present a framework which encompasses many of the important principles I have learned through my nearly four decades of trading experience. The Missing Billionaires should be required reading at every bank, hedge fund and investment firm focused on enduring success.¡±
¡ªAlan Howard, Founder of Brevan Howard
¡°This book provides a thought-provoking, straightforward introduction to some of the most important questions in personal finance, and an engaging, non-technical description of some of the answers provided by financial economists over the past fifty years.¡±
¡ªRobert C. Merton, MIT Sloan School of Management Distinguished Professor of Finance, Nobel Laureate in Economic Sciences
¡°Haghani and White persuasively explain that to make good decisions under uncertainty, not only must we think probabilistically, but also we must apply those probabilities to the appropriate objective function. Thinking beyond the plight of the ¡®missing billionaires,¡¯ perhaps human history would have followed a gentler and more peaceful path if our leaders had made decisions with the ideas of this book in mind.¡±
¡ªPhilip E. Tetlock, Annenberg University Professor at the University of Pennsylvania, and co-founder of The Good Judgment Project
Foreword xiii
Preface xvii
About the Authors xxi
Acknowledgments xxiii
Chapter 1: Introduction: The Puzzle of the Missing Billionaires 1
Section I: Investment Sizing 13
Chapter 2: Befuddled Betting on a Biased Coin 15
Chapter 3: Size Matters When It's for Real 27
Chapter 4: A Taste of the Merton Share 41
Chapter 5: How Much to Invest in the Stock Market? 49
Chapter 6: The Mechanics of Choice 67
Chapter 7: Criticisms of Expected Utility Decision- making 103
Chapter 8: Reminiscences of a Hedge Fund Operator 117
Section II: Lifetime Spending and Investing 127
Chapter 9: Spending and Investing in Retirement 129
Chapter 10: Spending Like You'll Live Forever 149
Chapter 11: Spending Like You Won't Live Forever 165
Section III: Where the Rubber Meets the Road 173
Chapter 12: Measuring the Fabric of Felicity 175
Chapter 13: Human Capital 193
Chapter 14: Into the Weeds: Characteristics of Major Asset Classes 201
Chapter 15: No Place to Hide: Investing in a World with No Saf...e Asset 235
Chapter 16: What About Options? 245
Chapter 17: Tax Matters 265
Chapter 18: Risk Versus Uncertainty 275
Section IV: Puzzles 285
Chapter 19: How Can a Great Lottery Be a Bad Bet? 287
Chapter 20: The Equity Risk Premium Puzzle 291
Chapter 21: The Perpetuity Paradox and Negative Interest Rates 297
Chapter 22: When Less Is More 303
Chapter 23: The Costanza Trade 309
Chapter 24: Conclusion: U and Your Wealth 319
Bonus Chapter: Liar's Poker and Learning to Bet Smart 327
Cheat Sheet 335
A Few Rules of Thumb 340
Endnotes 343
Suggested Reading 357
References 359
Index 373