74 of 89 people found the following review helpful
A mathematician explains why he is not a trader.,
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This review is from: A Mathematician Plays The Stock Market (Hardcover)
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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Showing 1-6 of 6 posts in this discussion
Initial post: Feb 6, 2009 12:22:52 AM PST
Amen and thank you.
Posted on Feb 1, 2010 6:18:49 AM PST
Last edited by the author on Feb 1, 2010 6:19:48 AM PST
RJ Sharpe says:
While I agree with your points about trading and risk management, this book has nothing to do with either nor does it claim to. Not every book on the stock market is about trading. The value of this book to me is that Paulos explains very clearly how psychological bias can kill the average market participant if he or she isn't careful. He also explains brilliantly how random performance can appear to be genius. Not being an academic or a mathematician, that's something I didn't understand. I do now, thanks to this book.
Every trader I've ever talk to thinks he or she is disciplined and knows when to pull the trigger, but the reality is that given a long enough window, even the greatest traders (Livemore, for example) have blown themselves up. Psychological biases are our achilles heel as traders. I appreciate your review and don't mean to be critical, especially 6 years later. I just wanted to add my perspective should anyone else stumble here and dismiss this book based on your comment. I think this book does what it sets out to do (which is not trading) very well.
Posted on Mar 25, 2012 3:15:03 AM PDT
so what book on maths and markets would you reccommend?
Posted on Aug 22, 2013 12:36:17 AM PDT
S. Ballew says:
What books do you recommend?
In reply to an earlier post on Aug 22, 2013 7:48:33 AM PDT
there are many very good books. The Classic that everyone must read is "Reminiscences of a Stock Operator" about Livermore. There is no finer book on trading. btw, totally non-mathematical. hth
In reply to an earlier post on Jan 30, 2014 7:45:43 PM PST
Abe Vigoda says:
Warning people: "Reminiscences of a Stock Operator" is over-rated and extremely boring.
It's damn old and what's worst- it shows.
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