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Investment advice from The Undercover Economist

John Reeves of The Motley Fool, an investment advice website, interviewed Tim Harford this week. It is a rare opportunity to hear the author of The Undercover Economist reveal his thoughts on how he would investment his money. Harford provides his analysis specifically of GM, Apple and the U.S. real estate market.

Here is a teaser paragraph:

You wouldn’t advise people to trust a fund manager?
No. We all know the basic statistics that index funds beat most fund managers, and we also know that even if a fund manager is doing well today, he may not do well tomorrow. For me, there’s a reason for these statistics: Fund managers are much better informed than ordinary investors, but they aren’t necessarily rewarded for making the right calls. The Undercover Economist tells the story of Tony Dye, a British fund manager widely known as “Doctor Doom” for his repeated predictions that the bubble was … well, a bubble. He made absolutely the right call over a five-year time horizon, but he was ridiculed by the newspapers, abandoned by his clients, and took early retirement just before the bubble burst, with many observers concluding that he had been forced out. But what’s a fund manager for, if not to make the right calls over five to 10 years? Tony Dye’s experience suggests that fund managers are not being rewarded for maximizing returns to their investors, but for running with the herd.

This comes on the heels of a glowing review in The Economist (“Why Things Cost What They Cost” – subscription req.). “‘Undercover Economist’ is a playful guide to the economics of everyday life, and as such is something of an elder sibling to Steven Levitt’s wild child, the hugely successful “Freakonomics”, which came out earlier this year. While Mr Levitt wanders freely among sumo wrestlers, game-show contestants and other inhabitants of the outer fringes of economics, Mr Harford takes care of the home turf—scarcity, competition, taxes and trade.”

LINK to interview at Fool.com

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