Investment Bodie

[Denisha Simcoe]

Theyare actually both undergraduate texts; however, Investments is FAR more complex. Essentials of Investments really waters down the statistical and mathematical notation while Investments does not. Investments also has an entire section (4-5 chapters) called options, futures, and other derivatives while Essentials of Investments does not. [Of course, if you want to learn about options, futures, and other derivatives, there is a seminal book by John Hull with that exact title.]

That notwithstanding, neither book is sophisticated enough to be considered a true graduate school textbook in quantitative investment theory. No grad schools worth their salt are going to rely too heavily on Investments in a specialized finance curriculum. It's a great book to start out, though.

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Investments set the standardas a graduate (MBA) text intended primarily for courses in investment analysis.The guiding principle has been to present the material in a framework that isorganized by a central core of consistent fundamental principles and will introducestudents to major issues currently of concern to all investors. In an effort to link theory to practice, the authorsmake their approach consistent with that of the CFA Institute. Many features ofthis text make it consistent with and relevant to the CFA curriculum.

PART I: Introduction

Chapter 1: The Investment Environment

Chapter 2: Asset Classes and Financial Instruments

Chapter 3: How Securities Are Traded

Chapter 4: Mutual Funds and Other InvestmentCompanies

PART III: Equilibrium in Capital Markets

Chapter 9: The Capital Asset Pricing Model

Chapter 10: Arbitrage Pricing Theory andMultifactor Models of Risk and Return

Chapter 11: The Efficient Market Hypothesis

Chapter 12: Behavioral Finance and TechnicalAnalysis

Chapter 13: Empirical Evidence on SecurityReturns

Alan Marcus is the Mario J. Gabelli Professor of Finance in the Carroll School of Management at Boston College. He received his PhD in economics from MIT. Professor Marcus has been a visiting professor at the Athens Laboratory of Business Administration and at MIT's Sloan School of Management and has served as a research associate at the National Bureau of Economic Research. Professor Marcus has published widely in the fields of capital markets and portfolio management. He also spent two years at the Federal Home Loan Mortgage Corporation (Freddie Mac), where he developed models of mortgage pricing and credit risk.

He currently serves on the Research Foundation Advisory Board of the CFA Institute.

Zvi Bodie is Professor Emeritus at Boston University. He holds a PhD from the Massachusetts Institute of Technology and has served on the finance faculty at the Harvard Business School and MIT's Sloan School of Management. He has published widely in scholarly and professional journals on pension investment strategy and life-cycle asset-liability matching. In 2007 the Retirement Income Industry Association gave him its Lifetime Achievement Award for applied research.

Bodie argues that the long-term riskiness of stocks is dramatically understated by conventional investment wisdom and that most investors have far too much allocated to stocks and far too little allocated to safer, inflation-indexed investments such as TIPS and I Bonds. In many cases, Bodie recommends a portfolio comprised exclusively of TIPS and I Bonds.

The problem, in my opinion, is that Bodie significantly understates the rate of savings that would be required for most people to reach their goals using a 100% TIPS portfolio. The reason for this underestimate is that he makes a few shoddy assumptions:

Throughout the book, Bodie assumes that you can earn a 2% real return with TIPS. This works reasonably well for an investor with a lump sum to invest, who is already some years into retirement, and who can currently buy TIPS with a 2% real return.

I agree that investors should understand all the risks- returns may be lower than you predict, inflation may be higher than you predict, and you may live longer than you think, you may not be able to work as long as you plan. I really hope it is clear to investors that there are no performance guarantees with stocks.

Recognized as the market leading text for investment courses, the Tenth Canadian Edition of Investments continues to present material in a framework that is organized by a central core of consistent fundamental principles. The authors have eliminated unnecessary mathematical detail and concentrate on the intuition and insights that will be useful to students and practitioners throughout their careers as new ideas and challenges emerge from the financial marketplace.

PROBLEM MATERIAL. Rich end-of-chapter material including problem sets, CFA Exam prep questions, CFA problems and E-investment boxes provide more than enough opportunity for students to practice and apply the concepts learned in the chapter.

NUMBERED EXAMPLES. Numbered and titled examples are integrated throughout chapters. Using the worked-out solutions to these examples as models, students can learn how to solve specific problems step-by-step as well as gain insight into general principles by seeing how they are applied to answer concrete questions.

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Investments, 12th Edition sets the standard as a graduate (MBA) text intended primarily for courses in investment analysis. The guiding principle has been to present the material in a framework that is organized by a central core of consistent fundamental principles and to introduce students to major issues currently of concern to all investors.

In an effort to link theory to practice, the authors make their approach consistent with that of the CFA Institute with many features consistent with and relevant to the CFA curriculum. By combining these principles and features, this title will enable you to deliver a sucessful course in which your learners are fully equipped with investments knowledge and practice.

Alex Kane

Alex Kane holds a PhD from the Stern School of Business of New York University and has been Visiting Professor at the Faculty of Economics, University of Tokyo; Graduate School of Business, Harvard; Kennedy School of Government, Harvard; and Research Associate, National Bureau of Economic Research.

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