Book Bits | 7 July 2018

The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk
By Taylor Larimore
Review via Morningstar
Three colors: red, white, and blue. Three funds: Vanguard Total Stock Market Index (VTSAX), Vanguard Total International Stock Index (VTIAX), and Vanguard Total Bond Market Index (VBTLX). According to author Taylor Larimore, those are all that an American investor needs.
All right, he doesn’t actually mention the U.S. flag. That was my addition, this being a July 4 column. However, Taylor’s new book, “The Bogleheads’ Guide to the Three-Fund Portfolio,” is less topical. It is intended to apply not only to each day of the year, but for many years to come. In that task, it succeeds. The publication is as timeless as anything that advocates specific funds can be.

Getting Back to Business: Why Modern Portfolio Theory Fails Investors and How You Can Bring Common Sense to Your Portfolio
By Daniel Peris
Summary via publisher (McGraw Hill Education)
Created in the 1950s, Modern Portfolio Theory (MPT) was created as an academic exercise and reflects the conditions of the 1950s and 1960s, not the state of your retirement account. A half century later, MPT has outlived its usefulness and is leading investors astray. Balancing historical evidence with a practitioner’s real-world expertise, Getting Back to Business demonstrates why you need to drop MPT and instead apply the kind standards that drive the business decisions we all make?cash return on cash investments. Author Daniel Peris focuses on cash generation and distributions, clearly illustrating the difference between investing?what businesspeople try to do day in and day out?and speculation?what all too many individuals and institutions end up doing with their portfolios. The former, he convincingly argues, leads to better strategic investment decisions and financial security.

Quantum Economics: The New Science of Money
By David Orrell
Summary via publisher (Icon Books)
A decade after the financial crisis, there is a growing consensus that economics has failed and needs to go back to the drawing board. David Orrell argues that it has been trying to solve the wrong problem all along. Economics sees itself as the science of scarcity. Instead, it should be the science of money (which plays a surprisingly small role in mainstream theory). And money is a substance that turns out to have a quantum nature of its own. Just as physicists learn about matter by studying the exchange of particles at the subatomic level, so economics should begin by analysing the nature of money-based transactions. Quantum Economics therefore starts with the meaning of the phrase ‘how much’ – or, to use the Latin word, quantum.

Populism and Economics
By Charles Dumas
Summary via publisher (Profile Books)
Populism and Economics, Charles Dumas’ latest book, examines the reasons for the rise in populism – Brexit and the election of Trump among other events – and how this discontent with the status quo has affected economics, both perceptions and reality. The book argues that while globalization and the influence of new technology have pulled the world economy out of recession and while the benefits of world trade are now spread more widely, there is a perception of injustice because of inequality within individual nations. In a detailed region-by-region analysis of the current state of the world economy and using exclusive research carried out by TS Lombard, Dumas shows how the perception of inequality now threatens to destabilize not only politics but also the economic order itself.

Behavioral Law and Economics
By Eyal Zamir and Doron Teichman
Summary via publisher (Oxford University Press)
In the past few decades, economic analysis of law has been challenged by a growing body of experimental and empirical studies that attest to prevalent and systematic deviations from the assumptions of economic rationality. While the findings on bounded rationality and heuristics and biases were initially perceived as antithetical to standard economic and legal-economic analysis, over time they have been largely integrated into mainstream economic analysis, including economic analysis of law. Moreover, the impact of behavioral insights has long since transcended purely economic analysis of law: in recent years, the behavioral movement has become one of the most influential developments in legal scholarship in general.