Book Review: Intelligent Portfolio by C. Jones

Practical Wisdom on Personal Investing From Financial Engines

Dec 16, 2008 Roger Lever

The Intelligent Portfolio by Christopher L. Jones is designed to help the investor make choices about investment risk and diversification using modern portfolio theory.

The author draws on financial research and academic study to show lessons learned and fundamental principles of personal investing. In particular, there is an emphasis on outcomes based investment, using ideas based on Monte Carlo simulation of various financial scenarios.

Monte Carlo

Whilst the future is unpredictable a Monte Carlo investment simulation can provide a better understanding of a range of possible outcomes and helping to:

  • Calculate probability of investment outcome
  • Provide forward looking measures of investment risk
  • Test drive investment strategies

Core concepts

The author then goes into a number of chapters that form the essential core concepts of the book:

  1. Recognise the linkage between risk and reward – No Free Lunch
  2. Avoid being deceived by history – History is Bunk
  3. Leverage the wisdom of the market – Wisdom of the Market
  4. Select an appropriate level of risk – Getting the Risk Right
  5. Avoid the perils of stock picking – An Unnecessary Gamble
  6. Don’t spend too much on investment fees – How Fees Eat Your Lunch
  7. Diversify intelligently – Smart Diversification
  8. Select funds using relevant forward looking criteria – Picking the Good Ones
  9. Understand how to realistically fund financial goals – Funding the Future
  10. Invest tax efficiently – Investing and Uncle Sam

Take-aways

Each chapter contains a short summary of the key points. The overall style is clear and lucid with a strong emphasis on providing supporting evidence but without any complicated mathematics or formulae.

Wrapping It Up

The author concludes by offering various words of wisdom such as being realistic about your ability and interest in managing your own investments and maintaining a skeptical attitude about investments.

Whilst the book is well written and offers some interesting insights there is a certain amount of déjà-vu here as comments such as historical returns are no guide to future returns and control costs [expenses and taxes] are rather familiar, for example in the books by John C. Bogle or Charles D. Ellis. However, weaving in insights from Monte Carlo simulation adds an interesting twist and consequently some independent value.

About the Author

Christopher Jones is Chief Investment Officer and Executive Vice President of Investment Management for Financial Engines. Working closely with founder William F. Sharpe Jones built and led the team of experts in finance, economics and mathematics that developed the financial methodology for Financial Engines’ personalised investment advice and management services.

The Financial Engines noted in the subtitle is the name of a company offering investment advice and portfolio management services to individual investors.

The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines by Christopher L. Jones. Wiley 2008. ISBN: 978-0-470-22804-3

The copyright of the article Book Review: Intelligent Portfolio by C. Jones in Reference Books is owned by Roger Lever. Permission to republish Book Review: Intelligent Portfolio by C. Jones in print or online must be granted by the author in writing.
Book Review: Intelligent Portfolio by C. Jones, John Wiley & Sons, Corbis Book Review: Intelligent Portfolio by C. Jones
   
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