A Mathematician Plays the Stock Market

Product Description

Can a renowned mathematician successfully outwit the stock market? Not when his biggest investment is WorldCom.In A Mathematician Plays the Stock Market, best-selling author John Allen Paulos employs his trademark stories, vignettes, paradoxes, and puzzles to address every thinking reader's curiosity about the market--Is it efficient? Is it random? Is there anything to technical analysis, fundamental analysis, and other supposedly time-tested methods of picking stocks? How can one quantify risk? What are the most common scams? Are there any approaches to investing that truly outperform the major indexes?But Paulos's tour through the irrational exuberance of market mathematics doesn't end there. An unrequited (and financially disastrous) love affair with WorldCom leads Paulos to question some cherished ideas of personal finance. He explains why "data mining" is a self-fulfilling belief, why "momentum investing" is nothing more than herd behavior with a lot of mathematical jargon added, why the ever-popular Elliot Wave Theory cannot be correct, and why you should take Warren Buffet's "fundamental analysis" with a grain of salt.Like Burton Malkiel's A Random Walk Down Wall Street, this clever and illuminating book is for anyone, investor or not, who follows the markets--or knows someone who does.

Product Details

* Amazon Sales Rank: #615121 in Books
* Published on: 2003-05
* Released on: 2003-05-13
* Original language: English
* Number of items: 1
* Binding: Hardcover
* 224 pages

Editorial Reviews

From Publishers Weekly
We like to think not only that mathematicians are smarter than the rest of us but that by dint of their mastery of numbers, they hold the key to understanding the baffling mysteries of the universe. Alas, Paulos (Innumeracy) says that's not always the case. As the author relates in this funny, insightful little volume about attempts to bring order and science to the free-for-all that is the stock market, he himself was once a big investor (in WorldCom). Despite strong evidence to sell, he desperately hung on to his stock as the price plummeted, proving that a head for numbers doesn't always translate to Wall Street know-how. Through most of this book, Paulos discusses various methods for predicting markets and offers thoughts on why people keep trying to perfect them. Shocking in their obtuseness are the so-called Elliot Wave followers, who believe stocks operate according to an impossibly arcane series of numerical waves and cycles. The efficient-market theorists-many of whom believe the stock market is so inherently efficient that everything one needs to know about a company is reflected in its stock price-get the most thorough joshing from Paulos: never able to resist a joke, he tells one about how many efficient market theorists it takes to change a light bulb. "Answer: None. If the light bulb needed changing the market would have already done it." Playful and informative, Paulos's book will be appreciated by investors with a sense of humor.
Copyright 2003 Reed Business Information, Inc.

Review
A severe investment miscalculation leads to valuable lessons about the tricky psychology and thorny arithmetic of the market. Bestselling mathematician Paulos (Innumeracy, 1988, etc.; Mathematics/Temple Univ.) invested in WorldCom, he averaged down and bought more WorldCom, he bought WorldCom calls, and he bought WorldCom on margin. He lost a lot on WorldCom, but since that loss gave rise to this account, it's a gain for investing readers. His uncommonly cogent text does not promote a secret investment method for attaining riches. Rather, it lucidly clarifies many of the mathematical and statistical influences on the stock market. With accustomed humor and apt examples, Paulos tackles complex computations that are vaguely understood and frequently misapplied by Wall Street pros. He explores the deficiencies of both technical and fundamental analyses. Diversification, covariance, beta factors, and various portfolio selection models utilized by brokerage theoreticians all have mathematical perils unseen by the most sophisticated players, the author argues. He introduces the wave theory of market movements, based on Fibonacci numbers, to the golden ratio. He warns that scams like pump and dump, short and distort, e-mail chat-room diversions, or plain old book-cooking will surely affect an investment; so may arcana like moving averages, regression to the mean, standard deviation, availability error, Benford's Law, and the Nash equilibrium, not to mention psychological, logical, and belief-system influences. In his generally accessible explanations, Paulos walks the reader through basic formulae and eschews tables and charts-even where they might help. Investors would do well to heed his entertaining, frequently counterintuitive, always useful bean-counting methodology. A first-rate exploration into the math of the market: heuristic numeracy at its best. (Kirkus Reviews)

Mr. Paulos, who teaches mathematics at Temple, has a knack for making technical concepts clear and entertaining -- Wall Street Journal, July 16, 2003

Paulos is a genius at translating the arcane .... This book should be required reading for anyone opening a brokerage account. -- Washington Post, June 22, 2003

Paulos makes the process rewarding for those who want a better understanding of how the market works -- Kansas City Star, August 17, 2003

Throughout this wide-ranging survey, the writing is spirited, funny and clear. -- New York Observer, June 6, 2003

Yes, there are many percentage signs in this book ... But Paulos' humor and clarity will see you through. -- USA Today, June 15, 2003

a double-chocolate nougat of a book — a rich, densely packed delight. It is also rueful, funny and disarmingly personal -- Los Angeles Times, July 30, 2003

there is a certain pleasure to be had in reading that mathematical genius need be no barrier to financial comeuppance -- The Independent (London), July 26, 2003

About the Author
John Allen Paulos received his Ph.D. in mathematics from the University of Wisconsin and is professor of mathematics at Temple University. Dr. Paulos has written a number of scholarly papers on mathematical logic, probability, and the philosophy of science. He is also the author of Innumeracy: Mathematical Illiteracy and Its Consequences, Beyond Numeracy: Ruminations of a Numbers Man, Mathematics and Humor, and A Mathematician Reads the Newspaper. He lives in Philadelphia with his wife and two children.
Customer Reviews

Another Random Book2
If you like math games and paradoxes this is a fun book. Unfortunately it claims to be about the market and, like every math and physics guy's book about the market it claims that stock movements are completely random. Of course, that is because all of these people insist on using selection criteria that tells them nothing about the stock they are buying. Most bought during the bubble, lost money and therefore the market must be random or they -- smart people that they are -- would have figured it out. They never seem to have thought about what business their company was in or looked at things like long term earnings and dividend payments. They obsess with prices or simply buy stocks at random from tips. HINT: If a company makes and sells things you can check on like cheese or refrigerators and has been paying dividends steadily they MUST be making money. Following numbers only like P/e ratios, price etc can be like picking your dates by their phone numbers. Instead, actually go look at them. Same with stocks. Stick with what you can see and looks good and stay away from ones that smell bad.

Well written, witty5
I enjoyed reading this book. The information was presented in a way that the non-mathematically inclined person can understand.

bad1
This is poor.

Some of his arguments are just wrong. Look at his calculations on pages 25-27. I had to read it 3x to make sure he was this far-off. His calculations are wrong, and therefore his conclusions are junk.