From America's wittiest writer on mathematics, a lively and insightful book on the workings of stock markets and the basic irrationality of our dreams of wealth. 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" often leads to self-fulfilling beliefs, 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.
Author(s): John Allen Paulos
Edition: First Printing
Publisher: Basic Books
Year: 2003
Language: English
Pages: 221
Contents......Page 7
1 Anticipating Others' Anticipations......Page 9
FaIling in Love with WorldCom......Page 11
Being Right Versus Being Right About the Market......Page 13
My Pedagogical Cruelty......Page 15
Common Knowledge, Jealousy, and Market Sell-Offs......Page 17
Averaging Down or Catching a Falling Knife?......Page 21
Emotional Overreactions and Homo Economicus......Page 23
Behavioral Finance......Page 25
Psychological Foibles, A List......Page 29
Self-Fulfilling Beliefs and Data Mining......Page 34
Rumors and Online Chatrooms......Page 39
Pump and Dump, Short and Distort......Page 41
3 Trends, Crowds,and Waves......Page 45
Technical Analysis: Following the Followers......Page 46
The Euro and the Golden Ratio......Page 47
Moving Averages, Big Picture......Page 49
Resistance and Support and All That......Page 53
Predictability and Trends......Page 55
Technical Strategies and Blackjack......Page 57
Winning Through Losing?......Page 60
4 Chance and Efficient Markets......Page 64
Geniuses, Idiots, or Neither......Page 65
Efficiency and Random Walks......Page 66
Pennies and the Perception of Pattern......Page 70
A Stock-Newsletter Scam......Page 74
Decimals and Other Changes......Page 77
Benford's Law and Looking Out for Number One......Page 79
Act One......Page 82
Act Two......Page 86
Act Three......Page 88
5 Value Investing and Fundamental Analysis......Page 91
e is the Root of All Money......Page 92
The Fundamentalists' Creed: You Get What You Pay For......Page 96
Ponzi and the Irrational Discounting of the Future......Page 98
Average Riches, Likely Poverty......Page 101
Fat Stocks, Fat People, and P/E......Page 105
Contrarian Investing and the Sports Illustrated Cover Jinx......Page 110
Accounting Practices, WorldCom's Problems......Page 116
6 Options, Risk,and Volatility......Page 123
Options and the Calls of the Wild......Page 124
The Lure of Illegal Leverage......Page 129
Short-Selling, Margin Buying, and Familial Finances......Page 132
Are Insider Trading and Stock Manipulation So Bad?......Page 136
Expected Value, Not Value Expected......Page 138
What's Normal? Not Six Sigma......Page 142
A Reminiscence and a Parable......Page 147
Are Stocks Less Risky Than Bonds?......Page 149
The St. Petersburg Paradox and Utility......Page 153
Portfolios: Benefiting from the Hatfields and McCoys......Page 155
Diversification and Politically Incorrect Funds......Page 160
Beta-Is It Better?......Page 162
8 Connectedness and Chaotic Price Movements......Page 169
Insider Trading and Subterranean Information Processing......Page 170
Trading Strategies, Whim, and Ant Behavior......Page 173
Chaos and Unpredictability......Page 177
Extreme Price Movements, Power Laws, and the Web......Page 181
Economic Disparities and Media Disproportions......Page 187
The Paradoxical Efficient Market Hypothesis......Page 192
The Prisoner's Dilemma and the Market......Page 195
Pushing the Complexity Horizon......Page 197
Game Theory and Supernatural Investor/Psychologists......Page 201
Absurd Emails and the WorldCom Denouement......Page 203
Bibliography......Page 208
Index......Page 210
