Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined Hardcover – April 13, 2015

It is a pretty good book, though it is not clear who the target audience is. About a third of the book is basic finance and valuation concepts suited for an MBA course on investments or CFA, another third has to do with measuring performance and the last third has to do with the title -- how supposedly smart money invests. The parts having to do with valuation and and performance measurement are pretty slow going because they are conceptually difficult and quantitative. The part on measuring performance is well done but will be over the heads of most people. The third part, various investment styles, is the most interesting and accessible part of the book but unfortunately it is sandwiched between a lot of other material that for the seasoned investment professional will be old stuff and for the novice too difficult. The strategies are not suited for individuals, but rather, sophisticated institutions with substantial resources -- so if your objective is to figure out how to make money in the financial markets you should probably look elsewhere.

Lasse Pedersen elegantly introduces “Efficiently Inefficient” to his audience by articulating the three themes of his book in three simple tables.Table I aims to demonstrates that financial markets are neither efficient nor inefficient, but efficiently inefficient. Financial markets are efficiently inefficient because they allow some money managers to outperform the market on behalf of their investors after fees.Table II subdivides the different trading strategies that smart money, including hedge funds, uses to capitalize on the efficiently inefficient nature of financial markets. These strategies can be subdivided at a high level into equity strategies, macro strategies, and arbitrage strategies.Table III covers the different investment styles and their systematic implementation. The different investment styles can be reduced to some version of value investing and momentum investing.Mr. Pedersen usually strikes the right balance between his prose and the more technical aspects of active investment, equity strategies, asset allocation and macro strategies, and arbitrage strategies. The interviews that the author has conducted with hedge fund gurus such as James Chanos, George Soros, and John Paulson add some additional color to the different levered trading strategies in which they tend to specialize.In summary, “Efficiently Inefficient” can be easily ranked among the best books out there that focus on hedge funds and their respective modus operandi used to outperform the other market players.

Efficiently Inefficient breaks down the primary ways by which hedge funds (and conventional money managers) attempt to generate positive returns for their investors. It provides an overview of the hedge fund industry by going into the mechanics of the industry and then follows with detailed descriptions of the different strategies employed. Immediately after the Table of Contents, the author provides the gist of the book in three simple tables. These tables provide a very efficient overview of the main topics in each section of the book.In a nutshell the book could be outlined as:Part IThis section has five chapters which provide an overview of the theoretical aspects of investing. It covers an overview of the hedge fund industry in chapter one followed by a brief explanations of the “greek” alphabet of performance measurement in chapter two. The remaining chapters discuss issues in back-testing, perspectives on risk management followed by discussion of trading costs and leverage.Part IIPart II of the book discusses the three primary equity strategies which the author has broken down as Discretionary Equity Trading, Dedicated Short Bias and Quantitative Equity Investing. This book outlines the theoretical principles of each of these primary strategies and ends each respective chapter with an interview with a respected practitioner of the strategy. Discretionary Equity investing is what would probably be familiar to most investors. It is the Graham & Dodd realm of investing. The next chapter on Dedicated Short bias gets into the thesis, details and complications of short selling and ends with an interview with noted short seller James Chanos. The final chapter in this section gets into Quantitative Equity investing. Arguably, this is the chapter that hones in on what has been in the investing limelight in recent years as it discusses investing in factors such as value, momentum, size and volatility as well as statistical arbitrage. A lot of the material in this chapter relates to the recent interest in “smart beta.” The interview that concludes this chapter is with Cliff Asness whose firm is also the author’s employer and one of the leaders in creating smart beta products.Part IIIThis section of the book gets beyond the realm of equity security selection into larger asset allocation picture. Included here is a chapter on Global Macro Investing which ends with an interview with arguably the most famous global macro manager ever, George Soros. A chapter on managed futures follows with discussions of trend-focused analysis and an interview with David Harding of Winton Capital.Part IVThe final section of the book has separate chapters on Fixed-Income Arbitrage, Convertible Bond Arbitrage and a final chapter on Event-Driven Arbitrage. As with the other chapters, each ends with an interview with a noted practitioner of each respective strategy. In these chapters, the author interviews Nobel Laureate Myron Scholes, hedge fund managers Ken Griffin and John Paulson.Pedersen’s book could be used as a supplementary text for a college or MBA program but it does not read pedantically like a college text book. While some math appears, it is kept to a decent minimum. The clear and concise discussion of the theoretical basis for each strategy is followed nicely by an interview with a practitioner in that space. The interviews do follow in the spirit of books by John Train and Jack Schwager (albeit briefer) and help in providing color to each chapter. Arguably Pedersen’s work provides an efficient and very readable survey on the state of the investing environment today.

Great book, I purchased both Efficiently Inefficient and Expected Returns based on the recommendations by Cliff Asness.They compliment each other well. Efficiently Inefficient is more readable than Expected Returns but not as in depth.

As this is a textbook, it’s not for your average investor. I really enjoyed most of the book and especially the aspects of trading and investing psychology. However, because it is a text, it does get into the mathematical weeds which does weigh down the content. Overall, it was a challenging book but worth the effort.

Excellent book which covers a lot of topics in finance. Could be a little advanced for the casual reader but contains a lot of useful information. I enjoyed it and will probably re-read it sometime in the future.

I expected more from Lasse than this prose. It doesn't offer additional knowledge just sound bites from interviews that profer little that is new or use-able as a day trader or mini swing trader. Certainly scalpers will garner no use-able knowledge here either. What can I say other than really it highlights liquidity spirals good or bad and nothing really more.

Be very careful- my copy- which came from a US distributor was completely mis-printed- blank pages all over the place making it totally useless and a number of pages had blurred printing. Still trying to get my money back!!A brief flick through what I can read it looks useful - but only MBA level- not technical- if that's what you want then it provides a good review of fairly standard stuff but neatly gathered together in one place

Great Book! Systematic & Well Structured! However, it is Not Quantitative enough in Modelling for those with a PhD degree (as it is not meant to be a PhD-level Textbook). I really enjoy it anyway!

good book

Excellent!