Competitive Advantage in Investing Building Winning Professional Portfolios

Links theory and practice for investment professionals and portfolio managers, demonstrating why some portfolios consistently perform better than others

Investing well, like any other business, depends on competitive advantage. Some portfolios reliably generate greater returns than others because they simply are better positioned to benefit from strengths and avoid weaknesses. Building and using competitive advantage becomes central to the daily work of the best mutual funds, hedge funds, banks, insurers and virtually every other type of portfolio. But competitive advantage commonly is overlooked in most written work for investment professionals. The literature often varies between abstract formal treatments and pragmatic workbooks with little in between. Competitive Advantage in Investing fills the gap by integrating modern portfolio theory with actual practice in one comprehensive volume.

This innovative book guides investment professionals on building and sustaining competitive advantage and helps policymakers and researchers apply theory in a wide range of practical settings. Author Steven Abrahams—Senior Managing Director at Amherst Pierpont Securities and former Adjunct Professor of Finance and Economics at Columbia Business School—draws from his experience in both academic theory and real-life strategic investing to bridge the two worlds. This valuable resource:

• Connects the formal literature on investing to the actual work of most institutional portfolio managers
• Examines core strengths and weaknesses that drive portfolio behavior at mutual and hedge funds, banks and insurers, at other institutions and for individuals
• Demonstrates how linking portfolio theory and practice can increase competitive advantage
• Offers a robust description of investing, markets, and asset value

Competitive Advantage in Investing: Building Winning Professional Portfolios is a must-have book for any investment professional, policymaker, or researcher.

Steven Abrahams is Senior Managing Director and Head of Investment Strategy at Amherst Pierpont Securities and former Adjunct Professor of Finance and Economics at Columbia Business School. He has spent 28 years as an investment strategist advising banks, insurers, mutual and hedge funds, and other institutional portfolios in the United States and abroad.

Preface ix

Acknowledgments xiii

Part I Theory 1

1 Welcome, Harry Markowitz 3

2 A Sharpe Line 17

3 The Counsel of Critics 27

4 Toward a New Capital Asset Pricing Model 35

5 The Local Capital Asset Pricing Model 41

6 Creating Competitive Advantage 53

7 Building a Portfolio on Competitive Advantage 65

Part II Practice 73

8 Investing for Total Return: Mutual Funds 75

9 Investing for Total Return: Hedge Funds 99

10 Investing for Banks, Thrifts, and Credit Unions 121

11 Investing for Property/Casualty and Life Insurers 159

12 Investing for Broker/Dealers 187

13 Investing for Real Estate Investment Trusts 203

14 Investing for Sovereign Wealth Funds 213

15 Investing for Individuals 229

Part III Markets 243

16 Turning the Tables: Investor Impact on Asset Values 245

References 255

About the Author 265

Index 267

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