Tough Minded Investment Manager Analysis

Commodity Market Money Management was published by John Wiley in 1983.  It is now out of print and not without reason.  Almost everything of value in CMMM is in Quantitative Trading and Money Management: A Guide To Risk Analysis and Trading Survival.  Everything that is of value in CMMM  but is not in QTAMM will be in QTAMM’s successor. You can buy used copies of CMMM on Amazon and elsewhere if you must, but I can’t see a single reason why you should.

Quantitative Trading and Money Management: A Guide To Risk Analysis and Trading Survival was published by McGraw Hill in 1995.  In writing CMMM and QTAMM, my goal was to think through what a trader needed to know and what a trader needed to be able to do to be able to trade the way he should be able to trade.  QTAMM will not help you analyze investment managers, but it will help you understand what their job is and that can be of real value.  Substantial portions of QTAMM need revision.  Some of the chapters are ten years behind the times.  In addition, there are a few mistakes and one or two small items I should have imported from CMMM.  You will find an errata listing below.  If you find any errors and omissions, please let me and my readers know.  And take credit for your discovery!  I intend to rewrite QTAMM eventually, but that may take a while.

Is QTAMM still worth buying and reading?  I think so, but I’m strongly biased.  In my opinion, most of the book holds up surprisingly well.  The chapter on scientific research, for example, is still bleeding-edge, still more advanced than anything I have seen in the investment literature.  Even where the material has aged, it is still most of the material most traders have access to.  I do not mean that there aren’t books that cover individual chapters’ topics better.  There are and I intend to blog about them at length.  But I do not know of any books that cover the work of trading anywhere near as well.  On the other hand, if you disagree, if you have another candidate, let me know and I will list it here.  To let me know about a competing book click here.

Errata for Quantitative Trading and Money Management.

P18.  I left out the single most important footnote in Commodity Market Money Management.  It is, “Three additional points along similar lines must be made.  First, the trader who uses the techniques in this book must also accept the risk that I do not understand what is going on.  Naturally, I believe this risk is slight but, then, I would believe the same thing if I were deluded.  Second, in a certain sense much of this book is almost certainly wrong or at least dated.  Very little is known, or, at least, very little has been published about many important areas of money management.  It would be remarkable if techniques were not eventually developed that were superior to many of those presented in their book.  But the trader must manage his money now.  He cannot wait while academicians debate.  Third, to the best of my knowledge and belief, there are no errors of fact or logic in this book.  Still, such errors are possible and the trader uses this book at his or her own risk.  I would greatly appreciate being informed of any errors the reader finds.”  To let me know about other errors click here.  Or just add your comments below.

P39.  Line 6.  If a1 ≤ 0 and a2 <0 then [x1,x2] =[a1 • P2, a2 • P1

P122.  To the bottom of footnote 11 add, “Worth a look if you have some free time.”

P158. To the end of footnote 17 add, “It is also risky.  Secrecy is a great aid to fraud.”

P203. The first sentence in Footnote 4 should read, “Investment statistics almost never have to be adjusted for population size.”

P214. The last sentence on the page should read, “In other words, part of the uncertainty a trader must accept is not knowing the full extent of the risk.”