A Mathematician Plays the Stock Market

by Paulos, John Allen

• ISBN13: 9780465054800
• ISBN10: 0465054803
• Format: Hardcover
• Copyright: 2003-05-02
• Publisher: Perseus Books Group

Summary

Can a renowned mathematician successfully outwit the stock market? Not when his biggest investment is WorldCom.InA 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'sA 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 Biography

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.

Table of Contents

Anticipating Others' Anticipations	1	(12)
Falling in Love with WorldCom
Being Right Versus Being Right About the Market
My Pedagogical Cruelty
Common Knowledge, Jealousy, and Market Sell-Offs
Fear, Greed, and Cognitive Illusions	13	(24)
Averaging Down or Catching a Falling Knife?
Emotional Overreactions and Homo Economicus
Behavioral Finance
Psychological Foibles, A List
Self-Fulfilling Beliefs and Data Mining
Rumors and Online Chatrooms
Pump and Dump, Short and Distort
Trends, Crowds, and Waves	37	(20)
Technical Analysis: Following the Followers
The Euro and the Golden Ratio
Moving Averages, Big Picture
Resistance and Support and All That
Predictability and Trends
Technical Strategies and Blackjack
Winning Through Losing?
Chance and Efficient Markets	57	(28)
Geniuses, Idiots, or Neither
Efficiency and Random Walks
Pennies and the Perception of Pattern
A Stock-Newsletter Scam
Decimals and Other Changes
Benford's Law and Looking Out for Number One
The Numbers Man---A Screen Treatment
Value Investing and Fundamental Analysis	85	(32)
e is the Root of All Money
The Fundamentalists' Creed: You Get What You Pay For
Ponzi and the Irrational Discounting of the Future
Average Riches, Likely Poverty
Fat Stocks, Fat People, and P/E
Contrarian Investing and the Sports Illustrated Cover Jinx
Accounting Practices, WorldCom's Problems
Options, Risk, and Volatility	117	(24)
Options and the Calls of the Wild
The Lure of Illegal Leverage
Short-Selling, Margin Buying, and Familial Finances
Are Insider Trading and Stock Manipulation So Bad?
Expected Value, Not Value Expected
What's Normal? Not Six Sigma
Diversifying Stock Portfolios	141	(22)
A Reminiscence and a Parable
Are Stocks Less Risky Than Bonds?
The St. Petersburg Paradox and Utility
Portfolios: Benefiting from the Hatfields and McCoys
Diversification and Politically Incorrect Funds
Beta---Is It Better?
Connectedness and Chaotic Price Movements	163	(24)
Insider Trading and Subterranean Information Processing
Trading Strategies, Whim, and Ant Behavior
Chaos and Unpredictability
Extreme Price Movements, Power Laws, and the Web
Economic Disparities and Media Disproportions
From Paradox to Complexity	187	(16)
The Paradoxical Efficient Market Hypothesis
The Prisoner's Dilemma and the Market
Pushing the Complexity Horizon
Game Theory and Supernatural Investor/Psychologists
Absurd Emails and the WorldCom Denouement
Bibliography	203	(2)
Index	205