Applied Investment Theory

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Institutions now dominate global equity trading, with mutual funds playing a crucial role as custodians of retirement savings. However, there is a lack of comprehensive understanding of fund manager behavior and a corresponding theory. This gap is concerning, as a key question in finance remains: why can't experienced, well-resourced fund managers outperform the market? The book combines academic research, empirical evidence, and real market experience to shed light on equity markets and their behaviors. Drawing from the author's extensive industry experience and over 40 interviews with fund managers across three continents, it presents an innovative model explaining the poor performance of mutual funds through the structural features of markets, the managed investment industry, and fund manager conduct. It offers a fully integrated view of market and investor dynamics, providing insights relevant to investors, wealth managers, and regulators. The text is well-documented yet accessible, avoiding jargon and complex mathematics, making it suitable for anyone interested in understanding mutual fund operations. This work proposes a new investment paradigm, essential for developing finance theory in the wake of recent financial crises.