A Mathematician Plays The Stock Market by John Allen Paulos (PDF)

Description

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” 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’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.

User’s Reviews

Editorial Reviews: Review “With accustomed humor and apt examples, Paulos tackles complex computations that are vaguely understood and frequently misapplied by Wall Street pros.” About the Author John Allen Paulos is a professor of mathematics at Temple University. His books include the bestseller Innumeracy, A Mathematician Plays the Stock Market, and Irreligion. He lives in Philadelphia.

Reviews from Amazon users which were colected at the time this book was published on the website:

⭐This is an excellent book on investment theory. It reviews fundamental analysis, technical analysis, option theory and many other topics. The author explains exceptionally well the Efficient Market Hypothesis and the debate surrounding it. He also introduces basic concepts of behavioral finance.Abstract.As a mathematician having studied the stock market, he believes the stock market is pretty efficient; and that both technical analysis and fundamental analysis do not have much predictive value.Technical analysis according to him should be renamed trend analysis, as it consists in graphing and extrapolating current stock price trends. He covers the major strategies technical analysts use such as buying stocks when their current price breaks through its moving average, and selling them when they fall under this same moving average.He covers fundamental analysis and their associated metrics in good details. Reading this section, you will become familiar with all the usual metrics, including P/E, PEG, P/Book value, P/Sales.Mr. Paulos makes a case that the stock market captures the aggregate of all our psychological foibles, and goes on giving a good introduction in behavioral finance. He illustrates the common psychological flaws associated with investor behavior, including: the confirmation bias, anchoring effect, status quo bias, endowment effect, and Richard Thaler’s mental accounts. He also illustrates flaws we incur when doing investment research, such as: data mining back testing, and the survivor bias. But, in aggregate these human errors partly cancel themselves out rendering the stock market pretty efficient.The book’s gem is the debate on the Efficient Market Hypothesis (EMH). The fewer the investors believe in EMH, the more they will engage in technical and fundamental analysis to extract excess return above the index. These “active” investors will render the market increasingly efficient, and negate their opportunities to earn excess return. The opposite is also true. If investors believe in EMH, they will become “passive” and just buy the stock index through a Vanguard fund or an ETF. As a result, the market will not be so efficient, and the EMH will not hold up in such a situation. So if you believe in EMH, it is false. But, if you don’t believe in it, it is valid.Paulos argues that enough active investors do not believe in the EMH to render it valid. This argument is convincing when you think of the thousands of mutual funds, hedge funds, and private managers on Wall Street. Thus, there are plenty of professional active investors to render the market very efficient. But, Paulos does not deny that certain markets at certain times, temporarily ignored by Wall Street, may be less than efficient. Thus, for him the EMH debate is not just a true or false question, it is a matter of degree.Active investors play a crucial role in making the market efficient. Paulos makes an interesting distinction between the technical analyst and fundamental analyst. He states that technical analysts are momentum investors. Thus, they cause market volatility to increase. When stock prices increase, these guys buy even more. When stock prices decrease, they sell. Thus, they accentuate the swings in stock movements. Notice that they break the rule of Buy Low Sell High. The fundamental analysts are really value investors or contrarians. They do just the opposite of the technical analysts, and cause stock price movements to moderate. Thus, the two types of analysts/investors play a different role. But, together their active analysis make the stock market very efficient. The EMH states that all information is disseminated and absorbed immediately within the investment community, and thus is fully reflected within stock prices. But, somebody has to process this information. And, that is what the technical and fundamental analysts do.One of Paulos other big concept concerns the statistical distribution of stock price movements. According to the EMH, stock price movements are random. And, this is true as confirmed by the autocorrelation on any time series of stock prices that is typically very close to zero. If stock prices move randomly, they should assume a normal distribution. But, Paulos indicates it is not always the case. In other words, extreme events (stock crashes or booms) happen more frequently than in a normal distribution. He adds that at the tails, the price movement of stocks is better captured by the power laws. Check page 178 for a detailed explanation on power laws. This is fascinating, and it may represent an upgrade to the EMH that relies solely on the normal distribution.

⭐Alternate titles which I considered for this review of the book by the well known professor John Allen Paulos were:”A Survey Course in Investment Theory”, or”Don’t Confuse Intelligence with Insight”, or”How Smart People Do Dumb Things” or even,”A Little Knowledge is a Dangerous Thing’.This book is really two separate literary endeavors, and while they are intertwined the first forms the platform for the second. In some ways, the book needs a bifurcated review, since it suffers from seemingly being directed at multiple audiences. The basis of the book is Paulos’ cautionary story of his disastrous flirtation with the stock of Worldcom during the final phase of the “market bubble” in 2000 and 2001. The tale is remarkable only for the fact that it proves that knowledge and intelligence may be necessary conditions for avoiding investment disaster but they are far from sufficient (as logicians would say). A very smart college professor suffered exactly the same sort of disastrous losses in the stock market as many other traders and investors who forgot to balance risk and reward or let greed overwhelm fear in the constant tug-of-war between those opposing emotions. Paulos uses this tale, whose various aspects are interspersed throughout the book, as the basis of a very interesting discussion of many aspects of investment theory. There is also an excellent bibliography for those readers who are interested in pursuing some of the ideas which he discusses.The author presents an excellent discussion of the intersection of mathematics and psychology (with some economic and business theory added) that is comprehensive enough to provide readers with a solid basis for understanding market fundamentals. He also discusses stock picking techniques and strategies, including the differences between fundamental and technical analysis. And his discussion of such topics as The Efficient Market Hypothesis, Chaos Theory and Expected Value are rigorous yet understandable. Unfortunately, the strong point of the book will undoubtedly be its major weakness for many readers. That is, it elucidates the theoretical underpinnings of the current state of academic research with regard to investment theory in a very understandable fashion, but except for the cautionary impact of his personal tale and some general investment guidelines which emanate from the material presented, there is little here of practical help to an individual investor. (As a student of the market and former managing partner of an investment firm, I found the book very enjoyable. It succeeded in filling in some gaps in my knowledge base and in some cases reminded me of lessons that I had forgotten.) So, if you are looking for an interesting in-depth introduction to some aspects of the mathematics and psychology of investment theory written in a very entertaining manner, this book is highly recommended and my four star rating is appropriate. (I should probably caution that my approach was to read a chapter at a time, since that gave me time to reflect upon the material rather than losing it’s impact by immediately proceeding to a new concept.) However if you are looking for light reading or a practical investment handbook, then this book may disappoint you.Tucker Andersen

⭐El libro trata principalmente sobre la irracionalidad que puede padecer una persona al invertir en bolsa, lo que puede generar mentalmente una gran pérdida de capital, no aceptarla y dejar la posición abierta o inclusive invertir más en ella aun cuando esta perdedora. En cuanto a las matemáticas, toca temas relevantes muy por encima con ejemplos a mi gusto claros.Lo recomiendo para gente que piensa invertir en bolsa y no tiene muchas nociones matemáticas para esto.

⭐

⭐The Author is doing catharsis in the book due to his poor investement. There is nothing practical in the book about the stock market. Some of the mathematical puzzles presented in the book are interesting – they have no much relation to the real life. There are many difficult words in the book and it is not recommanded for beginning enlgish speakers. I’m disappointed by the book, however I’m gonna buy other books of the Author.

⭐I became fan from the first page itself. Fun to read haven’t finished it completely but its a must read if you are interested in maths and finance.

⭐Excellent book

⭐『天才数学者、株にハマる』のタイトルで訳書も出版されているが、ビジネスマンは原典で読むべきであろう。米テンプル大学数学教授（‘天才数学者’かどうかは定かでない）である著者は、90年代後半のネットバブルで株式投資に手を染め、ワールドコム株では大損をしたものの、株式市場の魅力と魔力にとりつかれたことが本書執筆の動機になったという。最先端のファイナンス数理が議論されているわけではないが、ファイナンス理論の規範性と限界に関する知見は随所に見られる。また示唆に富むエピソードがふんだんに盛り込まれている点も本書の魅力のひとつだ。本書の英語は平均的ビジネスマンには決して易しいとはいえないが、丹念に辞書を引きつつ読めば、ファイナンスの常識習得と英語力アップの一挙両得になるだろう。

⭐

Keywords

Free Download A Mathematician Plays The Stock Market in PDF format
A Mathematician Plays The Stock Market PDF Free Download
Download A Mathematician Plays The Stock Market 2004 PDF Free
A Mathematician Plays The Stock Market 2004 PDF Free Download
Download A Mathematician Plays The Stock Market PDF
Free Download Ebook A Mathematician Plays The Stock Market