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A Mathematician Plays The Stock Market Paperback – May 4, 2004


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Product Details

  • Paperback: 224 pages
  • Publisher: Basic Books (May 4, 2004)
  • Language: English
  • ISBN-10: 0465054811
  • ISBN-13: 978-0465054817
  • Product Dimensions: 7.9 x 5.5 x 0.8 inches
  • Shipping Weight: 8.8 ounces (View shipping rates and policies)
  • Average Customer Review: 3.3 out of 5 stars  See all reviews (99 customer reviews)
  • Amazon Best Sellers Rank: #742,396 in Books (See Top 100 in Books)

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. --This text refers to an out of print or unavailable edition of this title.

Review

"With accustomed humor and apt examples, Paulos tackles complex computations that are vaguely understood and frequently misapplied by Wall Street pros."

Customer Reviews

I was very impressed by the depth of reading that this book reflects.
Donald Mitchell
I do get annoyed when a book's title does not reflect what the book is about.
BernardZ
The book is tedious, and in many respects his arguments are fallacious.
Just My Opinion

Most Helpful Customer Reviews

164 of 178 people found the following review helpful By Donald Mitchell HALL OF FAMETOP 500 REVIEWERVINE VOICE on May 17, 2003
Format: Hardcover
If you would like an objective view of the stock market, are comfortable with math and enjoy a little irreverence in your investment reading, you will love this book. The material is easily accessible for anyone who finds algebra not too taxing. Professor Paulos minimizes the formulas for you by using anecdotes, simple brain teasers and practical examples instead.
What makes the book delightful is his self-effacing sense of humor. I cannot remember reading another book in which a writer is as candid and funny about his own failings as an investor. Only Andy Tobias comes anywhere close. The book's running joke is the professor's disastrous obsession with buying WorldCom stock using borrowed money before it became apparent that the company's reported earnings had more to do with wishful thinking than reality. It is this example that makes the book also insightful for the reader because it shows how easily our emotions and instincts can lead us astray, even when we understand as much about the stock market as Professor Paulos does.
I have read dozens of stock market books that have attempted to explain the "numbers" aspect of stock-market investing. None of them covered as much ground or did so as succinctly as this book does. I was very impressed by the depth of reading that this book reflects. Although it is not an academic book, the rigor is impressive.
The basic point is that the stock market is a lot more complicated than anyone can hope to understand, and likely to be more volatile than almost anyone will be comfortable with. Professor Paulos provides potential remedies for both (index investing, diversifying active portfolios, and using derivatives as insurance against large risks).
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25 of 27 people found the following review helpful By Befragt VINE VOICE on September 6, 2006
Format: Paperback
I have read a number of the reviews of this book, and I feel that some of them give a bit of a mis-impression about what this book is about. It is not about picking stocks, it is first and foremost an overview of various theories of behavioral finance/investment psychology. In particular, it focuses on how human psychological foibles may preclude individuals (individually and in the aggregate) from acting in their own best interests. The book no more supports efficient market theory than it supports technical analysis (e.g., the book takes shots at both).

The book does a good job of reviewing various human psychological foibles and how they may affect stock market investing, including "anchoring effect," "availability error," "confirmation bias," "status quo bias," and "endowment effect." I found the overview of these issues to be quite useful, and since reading the book 5 months ago, have tried to review them periodically to (hopefully) minimize their effect on my own investment decision making.

Paulos does a great job of debunking the notion that a particular formula may lead to stock market success. One quote stands out: "If you look hard enough, you can always find some seemingly effective rule that resulted in large gains over a certain time frame or within a certain sector."

In sum, Paulos' conclusion is that humans are overly-fixated on short-term results, and that people do not have a set of fixed preferences upon which they cooly and rationally base their investment decisions. Rather, because of the prevalence of fads, fashions, imitative behavior, etc., humans often act irrationally. His book provides a nice framework for investors to analyze their own decision-making process to (hopefully) improve their results.
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78 of 93 people found the following review helpful By A Customer on February 24, 2004
Format: Hardcover Verified Purchase
This book should have been called " A smart person loses money trading stocks and explains why it can't be his fault, since he is so smart". My fundamental criticism of this book is that it displays terrible understanding of what the business of trading is about. It is not about (primarily) picking a market direction. The primary skill of a trader is risk control. This is a concept not mentioned in this book, any other academic's book I have read, nor in any of the "throw a dart does as well as analysis" books on trading. Let a dart tell you when to take a loss or when to let a profit ride and then I'll believe it. Incidentally a dart would have exercised better risk control then Paulos did in his worldcom trade. Risk control is the heart of trading. I believe that a good trader could be given a position by flipping a coin and he'/she would still make money. This is because traders are good at managing risk.
So the book misses the major point of trading. It has a number of stories and some information- some interesting and some silly. At one point he explains that you can't make money because the market is a random walk(markov property). Later on in the book he explains how you can't make money because of mean regression. These two don't add up. Taleb's book makes all the intelligent points of this book and doesnt' smugly explain how it is impossible to make money since the author didn't. Incidentally my background is in academia (ms in mathematics) and I do trade for a living. I leave you with the words of Chuck Smith on trading- said to a trading crowd, but perhaps of relevance to Paulos et al: "This isn't rocket surgery"
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