Capital Ideas and Market Realities: Option Replication, Investor Behavior, and Stock Market Crashes

"Wall Street's equivalent of the movie Nightmare on Elm Street - Part 10. Portfolio insurance / dynamic hedging, the Freddy Krueger of the 1987 stock market crash, is back again with the recent growth of options and swaps. Jacobs builds the case for how portfolio insurance and dynamic hedging exacerbated the 1987 crash and points out that dynamic hedging has played a similar role in recent periods of market volatility." Robert Glauber, Executive Director, Brady Commission and former Under Secretary of the Treasury <!--end-->

"Bruce Jacobs, an investment manager who predicted before the 1987 crash that portfolio insurance would trigger chain-reaction selling, recently forecast that option-strategies ('the sons of portfolio insurance') would play a similar, though more muted, role in a future debacle. Monday [October 27, 1997] provided damning evidence." The Wall Street Journal

"Every fiduciary should read this book. Investors have too often been taken in by promotions appealing to their basic human instincts of fear and greed. Bruce Jacobs shows how supposedly low-risk, seemingly infallible, investment strategies can backfire. His views on portfolio insurance helped steer our profit-sharing fund away from that craze in 1987. Today, especially in light of the long-term Capital Management fiasco, investors should know what Bruce has to say about derivatives trading strategies and market crashes." John E. Stettler, Vice President - Benefit Investments, Georgia-Pacific Corporation

"Bruce Jacobs demonstrates effectively that trend-following strategies like portfolio insurance are fair-weather techniques that may add to, rather than minimize, troubles when a major crash occurs." Charles P. Kindleberger, author of Manias, Panics, and Crashes: A History of Financial Crisis

"Bruce Jacobs has created an instant classic. Capital Ideas and Market Realities demonstrates how products that appeal to investors' fears of short-term losses often ignore prudence and long-term value. This book is a must read for every investor." The Journal of Investing