A Mathematician Plays the Stock Market

by Paulos, John Allen

• ISBN13: 9780465054817
• ISBN10: 0465054811
• Edition: Reprint
• Format: Paperback
• Copyright: 2004-05-05
• Publisher: Basic Books

Summary

InA Mathematician Plays the Stock Marketbest-selling author John Allen Paulos demonstrates what the tools of mathematics can tell us about the vagaries of the stock market. Employing his trademark stories, vignettes, paradoxes, and puzzles (and even a film treatment), Paulos addresses every thinking reader's curiosity about the market: Is it efficient? Is it rational? 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? What light do fractals, network theory, and common psychological foibles shed on investor behavior? Are there any approaches to investing that truly outperform the major indexes? Can a deeper knowledge of mathematics help beat the odds?All of these questions are explored with the engaging erudition that made Paulos'sA Mathematician Reads the NewspaperandInnumeracyfavorites with both armchair mathematicians and readers who want to think like them. Paulos also shares the cautionary tale of his own long and disastrous love affair with WorldCom. In the tradition of Burton Malkiel'sA Random Walk Down Wall Streetand Jeremy Siegel'sStocks for the Long Run, this wry 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

1 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
2 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
3 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?
4 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
5 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
6 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
7 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?
8 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
9 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 Super-natural Investor/Psychologists
Absurd Emails and the WorldCom Denouement
Bibliography	203	(2)
Index	205