Investment Philosophies: Successful
Investment Philosophies and the
Greatest Investors Who Made Them
Work by Aswath Damodaran
Great Book!
Damodaran is a well-informed scholar with a gift for organized, clearly
written syntheses of complex topics in modern finance. With Investment
Philosophies he provides the uncensored facts about winning in the market
place. If you are a fund manager, an investor, or simply a student of
finance, you will want to read this book.
–Tom Copeland
Managing Director of Corporate Finance, Monitor Group Professor
Damodaran has zeroed in on the most important missing element of many
investment management processes: a clearly defined investment
philosophy which can serve as a beacon in difficult markets. He offers a

cornucopia of philosophies and strategies that have worked for many of
the most successful investors, and which have stood the test of time.
–Rob Arnott
Chairman, First Quadrant, LP; Editor, Financial Analysts Journal As
an investor, I always have to look back to my philosophy and strategy for
taking risk and making money. This book is an invaluable aid for ‘taking
stock’ before buying stock. It lays out the concepts and tools for
understanding the basics of risk and return in the stock market, and
presents a framework for any investor to construct his or her own
investment philosophy.
–Mitch Julis
Managing Partner, Canyon Capital Advisors Choosing an
investment philosophy is the heart of successful investing. To make the
choice, though, you need to look within before you look outside. In
Investment Philosophies: Successful Strategies and the Investors Who
Made Them Work, Aswath Damodaran will help you do this by going
beyond the simple explanations of traditional and alternative investment
strategies, to discuss the individual underlying philosophies that support
these techniques. Investment Philosophies explores many of the time-
tested strategies that have allowed investors to reap rewards over the
years, including value investing, growth investing, technical analysis,
market timing, arbitrage, and indexing.
Personal Review: Investment Philosophies: Successful
Investment Philosophies and the Greatest Investors Who Made
Them Work by Aswath Damodaran
Investment Philosophies by Aswath Damodaran presents a balanced
survey of the different approaches to investment, points out the strengths
and weaknesses of each, and presents the results of numerous analyses
that have been conducted to test the merits of the various approaches.
The book is easy to read and far less mathematical than the author's
magnum opus, Investment Valuation. The only flaw I can cite is the need
for a more careful editing to remove several typographical errors.
Professor Damodaran starts Investment Philosophies with a brief overview
of the concept of risk, valuation techniques, the impact of transaction costs
and taxes, and the efficient market hypothesis. After presenting these
background topics, the addresses the various philosophies individually:
1. Technical Analysis: Selection of investments based on their prior
price patterns.
2. Value Investing: Identifying investments whose current price is low
relative either to their intrinsic values or to similar investment opportunities.
3. Growth Investing: Identifying investments whose value is likely to
grow more rapidly than alternatives.

4. Trading on News: Closely monitoring corporate announcements and
attempting to react rapidly to take advantage of new information.
5. Arbitrage: Attempting to minimize risk by hedging one investment
against another in a manner that leaves a small but highly probable profit.
6. Market Timing: Seeking to recognize when the market is overvalued
or undervalued and moving one's investments accordingly.
7. Indexing: Concluding that none of the above techniques is likely to
produce results that consistently beat such market indices as the S&P500
which can be tracked by numerous Index Funds.
One tidbit of wisdom that I especially appreciated was an explanation of
how to evaluate return on equity (ROE) for companies with very little
equity. In these cases, any positive return can result in an astronomical
ROE. Professor Damodaran's solution is to use the ratio of (Price-to-
Bookvalue) to ROE.
The title, Investment Philosophies, seems a bit too abstract to me and may
put off some potential readers who would enjoy and benefit from reading it.
The contents are sufficiently concrete to justify a title such as "A
Comparison of Alternative Investment Strategies". If you are looking for an
easy to read, non-mathematical approach to this subject, this book is
definitely a five star selection. If you want a bit more technical depth, start
with Investment Valuation, or use it as a reference while reading
Investment Philosophies.
See also Professor Damodaran's website, damodaran.com, which contains
a wealth of information from his books and classes at NYU.
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