A Mathematician Plays the Market [Hardback]by John A PaulosThis book is OUT OF PRINT You may be able to find a copy at ABE Books Description of A Mathematician Plays the MarketIn early 2000 John Allen Paulos, celebrated thinker and writer on mathematics, set out to use his insights into areas such as statistics, probability and psychology to examine the maths of the marketplace. However, he soon discovered that playing the market was far more addictive than he had anticipatedThis is the fascinating, funny and often excruciating story of how Paulos gambled and lost his money in the course of his investigations into the stockmarket: how his hot tip on a company called WorldCom turned out to be a disaster; how, even as the share price started to plummet, he kept on buying; how a usually rational man discovered a ruthless gambling streak; how he kept secret from his wife just how much he had invested; and how he tried to convince himself using mathematical logic that everything would be all right. Yet throughout his calamitous misadventures in the marketplace, John Allen Paulos still sheds light on its problems, paradoxes and puzzles: How random is it? How do you assess risk? What are the most common scams? How does our connectedness make stocks more volatile? How do the books of big companies get cooked? This tale of greed, hysteria, business gurus and gullible punters is for anyone fascinated by how the market works and how it can all go horribly wrong. Title Information
Press and Industry Reviews'John Allen Paulos is professor of mathematics at Temple University in the US and author of several books and papers on numeracy and probability. But even he, a prime candidate for the description "rational man", was swept along by the stock market frenzy of the late 1990s.A tip from friends persuaded him to invest in the shares of WorldCom, the telecommunications company. Worse still, as the share price plummeted and the company headed for collapse he bought further shares, some on margin, and even speculated on a WorldCom revival through the options market. During this disastrous foray, he displayed many of the traits that behavioural finance theorists have identified in investors. He showed "loss aversion", an unwillingness to sell his position and realise his loss; "anchoring", the fixation with a price target that the shares would (he hoped) regain; and "confirmation bias", a willingness to believe all favourable comments about WorldCom and to ignore all negative evidence. At one level, therefore, A Mathematician Plays the Market is a useful warning for all those amateurs who believe they can trade and beat the professionals from their own living rooms. The stock market has made fools of some very smart men. But Paulos also uses his mathematical expertise to dissect the way the market operates and the potential traps for those who do not understand the numbers. Take, for example, the difference between the average and the expected return. Imagine a world in which half of all new flotations rise 80 per cent in the first week and the other half lose 60 per cent. The plucky investor decides to buy every issue and sell after a week, for what he calculates is an average gain of 10 per cent a week. Indeed, Paulos suggests the average worth of an initial $10,000 stake using this strategy would be $1.4m. The problem is that the most likely outcome (experienced by half of investors) would be a sum of less than $1.95. This discrepancy is because a few investors would experience massive gains, pushing up the arithmetic average, but most investors would be severely disappointed. This problem helps explain why many investors experience "below average" performance. Paulos proceeds to skewer many popular investor and business fads. He robustly dismisses technical ana-lysis, the study of chart patterns to predict market movements. "The quasi-mathematical jargon of technical analysis seldom hangs together as a coherent theory. One of its less plausible manifestations [is] the so-called Elliott wave theory" whose followers believe that all market movements, ranging from intra-day fluctuations to patterns spanning centuries, are in waves of five and three. And of the "Six Sigma" approach to management, made popular by General Electric, which aims to achieve results six standard deviations above the norm, Paulos points out that "a Six Sigma performance is so unlikely that the tables in most statistics texts don't even include values for it". But the fundamental problem in analysing markets is that humans are involved. Unlike the study of physics, our psychology can affect the results. Take, for example, the efficient market theory, which states that prices already reflect all available information, and thus it is no use trying to beat the market by using publicly available data. Paulos points out that if most people believed the theory, they would not bother to comb the market for new information. And if that were the case, the market would not react quickly to reflect new information in prices. It would thus become inefficient. In other words, the efficient market theory can be true only if most investors believe it to be false. Paulos provides much in this book that is thought-provoking and informative, about both mathematics and the stock market. Those hoping a maths professor might have discovered a way of beating the market may be disappointed by the end of this book. But if they read carefully, they will understand why it is an impossible dream.' Philip Coggan, Financial Times Write a review of this book Customer Reviews from AmazonAbout John A PaulosJohn Allen Paulos is Professor of Mathematics and Presidential Scholar at Temple University in Philadelphia. He is the author of Innumeracy, Beyond Numeracy: Ruminations of a Number Man, A Mathematician Reads the Newspaper and Once Upon a Number. He has also published many scholarly papers on logic, probability and the philosophy of science. Paulos has appeared on many television and radio shows, frequently contributes articles to publications such as Nature, The Nation, Newsweek and the New York Times and is a monthly columnist for ABCNEWS.com.Contents of A Mathematician Plays the Market1. Anticipating Others' Anticipations2. Fear, Greed, and Cognitive Illusions 3. Trends, Crowds, and Waves 4. Chance and Efficient Markets 5. Value Investing and Fundamental Analysis 6. Options, Risk, and Volatility 7. Diversifying Stock Portfolios 8. Connectedness and Chaotic Price Movements 9. From Paradox to Complexity Bibliography Index Your recently viewed titles |
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