New Skill Forged: Investment Analysis
New Skill Forged
Investments, 10th Edition by Bodie, Kane, and Marcus. 1,056 pages. The grad school textbook that every CFA candidate owns and half of them actually read.
This is the canonical reference for modern finance theory. Not the pop finance kind — the kind with actual equations. Expected utility maximization, mean-variance optimization, no-arbitrage pricing. The kind of book that treats finance as a rigorous discipline rather than a collection of rules of thumb.
What this skill teaches Claude to do:
- Build portfolios using Modern Portfolio Theory: expected returns, variance, covariance matrices, the efficient frontier — the actual math, not just the concepts
- Apply CAPM to estimate required returns and calculate alpha (the actual definition: return above what CAPM predicts, not just “good performance”)
- Value equities with DDM, Gordon Growth Model, FCFF/FCFE models, and relative multiples (P/E, EV/EBITDA, P/B) — with an understanding of when each is appropriate
- Price bonds: calculate duration, convexity, explain why longer duration = more price sensitivity, and read a yield curve
- Price derivatives using Black-Scholes: understand what d1 and d2 represent, what each Greek measures, and why put-call parity is a no-arbitrage condition
- Evaluate portfolio performance with Sharpe, Treynor, Jensen’s alpha, and M² — and understand what each one is actually measuring and when to use which
The central insight the EMH section delivers:
Weak-form efficiency says technical analysis doesn’t work. Semi-strong says fundamental analysis doesn’t work at scale. Strong-form says nothing works. The anomalies (size, value, momentum) are either risk premiums in disguise or market inefficiencies slowly being arbitraged away. The debate is not resolved. The book presents both sides with evidence.
Why this matters beyond finance:
The framework for thinking about risk and return is applicable everywhere: you have expected outcomes, variance in those outcomes, and the question is whether your expected return compensates for the risk you’re taking. Every decision with uncertain outcomes is a portfolio decision.
Browse the full skill at /skills/investment-analysis
Forged from 4,939 books. This is #2 of the series.