Key Points:
- The book Too Smart for Our Own Good: Ingenious Investment Strategies, Illusions of Safety, and Market Crashes by Bruce I. Jacobs explores investment products that seem low risk but actually introduce systemic risk and lead to market crashes.
- Jacobs focuses on three major market crises: the crash of 1987, the collapse of Long-Term Capital Management (LTCM) in 1998, and the global financial crisis of 2007–2008.
- Jacobs argues that certain investment strategies that offer the illusion of safety are complex, lack transparency, and exhibit excessive leverage.
- The book is divided into five parts, examining different market crises and proposing solutions for preventing future disasters.
- Investment professionals and all investors can benefit from understanding the causes of financial disasters and taking steps to avoid them.
The book Too Smart for Our Own Good: Ingenious Investment Strategies, Illusions of Safety, and Market Crashes by Bruce I. Jacobs explores the deceptive nature of certain investment products that appear to be low risk but actually introduce systemic risk and lead to market crashes. Jacobs examines three major market crises and proposes solutions for preventing future disasters.
Jacobs, co-founder and co-chief investment officer of Jacobs Levy Equity Management, criticizes flawed investment theories and highlights the role these theories played in market crashes. He focuses on three major market crises: the crash of 1987, the collapse of Long-Term Capital Management (LTCM) in 1998, and the global financial crisis of 2007–2008. Jacobs argues that investment strategies that offer the illusion of safety are often complex, lack transparency, and exhibit excessive (though perhaps disguised) leverage.
The book is divided into five parts. The first part provides background information on important risk concepts such as diversification and hedging. Parts two to four examine the specific crises of the crash of 1987, the collapse of LTCM in 1998, and the credit crisis and recession of 2007–2009. Part five discusses additional market crises and related issues, and proposes solutions such as regulation, increased disclosure, clearinghouses, and proper education.
The book aims to educate investment professionals and investors about the true causes of financial disasters and empower them to prevent similar crises in the future. Jacobs emphasizes that understanding the deceptive nature of certain investment strategies and the risks they introduce is crucial for avoiding market crashes.
Overall, Too Smart for Our Own Good serves as a valuable guide for investment professionals and all investors who want to learn from past market crises and take steps to protect themselves from future disasters.
