Book Review : "A Mathematician Plays the Stock Market"

Discussion in 'Psychology' started by harrytrader, Jan 24, 2004.

  1. When a mathematician plays stock market it's a catastrophe or rather he is just another Irving Fisher because not all mathematicians should be alike :D*

    We like to think not only that mathematicians are smarter than the rest of us but that by dint of their mastery of numbers, they hold the key to understanding the baffling mysteries of the universe. Alas, Paulos (Innumeracy) says that's not always the case. As the author relates in this funny, insightful little volume about attempts to bring order and science to the free-for-all that is the stock market, he himself was once a big investor (in WorldCom). Despite strong evidence to sell, he desperately hung on to his stock as the price plummeted, proving that a head for numbers doesn't always translate to Wall Street know-how. Through most of this book, Paulos discusses various methods for predicting markets and offers thoughts on why people keep trying to perfect them. Shocking in their obtuseness are the so-called Elliot Wave followers, who believe stocks operate according to an impossibly arcane series of numerical waves and cycles. The efficient-market theorists-many of whom believe the stock market is so inherently efficient that everything one needs to know about a company is reflected in its stock price-get the most thorough joshing from Paulos: never able to resist a joke, he tells one about how many efficient market theorists it takes to change a light bulb. "Answer: None. If the light bulb needed changing the market would have already done it." Playful and informative, Paulos's book will be appreciated by investors with a sense of humor.
    Copyright 2003 Reed Business Information, Inc.
  2. nitro


    I read this book in one sitting at Borders - it is short and well written.

    What he is describing is investing, not trading. Even there, he is not up to par with all the research.

    While I found the book interesting from an intellectual point of view, he has no idea what he is talking about as far as making excess returns from the market.

    I hate it when people expound a theory as fact. The conclusion he should have stated was that _he_ could not make excess returns from the market, not that it is not possible. _He_ should stick to indexing...

  3. ig0r


    LOL, it's 200+ pages, must've been quite a sitting
  4. Apparently you don't know how to speed read. 200 pgs. is nothing to do in one sitting-- it usually takes an hour and a half to two hrs. at most. I do it at BN from time to time. Its a great way to save money.
  5. ig0r


    I do know how to speed read (apparently not as good as you, it would take me about 4 hours to do 200 pages I think), but when I do I seem to miss too much; I like taking my time when I read, oh well.
  6. In that case, buy the book.
  7. wdscott



    Although I have not read the book, I would like to comment on the confusion many people have between the differences of investing vs trading.

    I agree with your comment that the author as well as most people can't seem to differentiate between investing and trading. I have a couple of friends in various fields who are JD, CFA, CPA's and when the topic of short term trading comes up, which I comment on, they think I'm nuts.

    Many heated topics arise with my CFA friends discuss EMH (efficient Market Hypothesis) and its supposed outcomes. I am not a finance major nor college graduate , but I do know this hypothesis does not include human behavior. A key element to auction markets and price discovery.

    Although I throw them a bone and agree that at a given point in time the market can be in equilibrium, most of the time, especially in the shorter intraday time frame, their is plenty of opportunity by the market being either above or below it's intrinsic value level.
    Wherein The ability to profit lies.

    Yes. you can make excess returns on a risk adjusted basis basis by short-term trading. I do it almost daily. Just because they don't know how to do it, I think frustrates the hell out of them.

    And will all those Ph.D.'s hanging on the wall, if they can't figure it out, it must not be possible.

    Dave Scott
  8. Wdscott: Successful attorney friend of mine (at the gym - read I'm a high school drop out - heh) and I brought up the subject of trading.

    He immediately said "Oh, that's gambling, I don't do that!"

    He then went on to say he's making 0.8% on his "investments," and he's happy with that.

    I'll staunchly defend this next view (mine): What most people don't realize is that the richest man on earth is a trader: Warren Buffett.

    I know, I know, investor! Nah, he trades, stocks, companies, currencies, etc. It's all in how one sees an investor versus a trader.

    True, he doesn't make 150 trades a day, nonetheless he makes numerous trades/exhanges/buys/sells throughout the year - that makes him a "trader" in my sight.

    An "investor" can have a stock position (read in IBM, ATT, etc) for 30+ years - that's an "investor."

    (Note: Bill Gates is technically the richest guy but only because he has 1000s of ppl working for him - versus WB who only has himself who trades - and CM, his auxiliary brain).

  9. wdscott



    You hit the nail on the head regarding Warren Buffet.

    At the time he was accumulating a large position in silver commodity futures, (gee I didn't know investor types speculate in such short term highly leveraged trading vehicles?) I was a series 3 licensed commodity broker.

    Upon noticing a huge positive increase in commercial net long positions, I started advising clients to start buying silver. It had been the largest such net long increase in the preceding 10 years!!!

    Please answer this following question?

    Q. How many clients bought even one(1) option or contract from me?

    you guessed (0)

    Q. How many clients wanted to buy options and futures when it was disclosed Mr Buffet was accumulating his positions?

    you guessed it.......every client I had !!!!!!!

    Upon telling them it was too late to purchase now that the news was in the market, and he was probably selling his position off...some clients switched to another broker and or closed their accounts.

    Q. How many of those clients who switched to another broker within my firm, bought at or near the top of that move?

    you guessed right again...... all of them

    I lasted about 10 months as a broker for this firm. I not into this kind of sales..

    In addition to having long term core positions in stocks like Am/Express, KO, Gillette, etc.... Buffet enjoys the following:

    Risk Arbitrage
    Commodity Futures Speculation
    Yield spread trades
    Statistical Arbitrage
    etc...... I think you get the idea.......

    He juices his yearly returns by performing these functions. Mr Buffet is a trader. And anyone who disagrees simply has to look at the records and facts.


    Q. How many contracts of silver does Buffet hold today. He has not made a disclosure to anyone in Berkshire as far as I know.

    A. Probably none.

    I think there are many things we as traders might learn from this very shrewd investor and TRADER....

    Dave Scott
  10. nitro



    I am no a speed reader - it took me something like 3-4 hours. When I open a book and sit to read it, I will sometimes just read it from cover to cover. I sometimes just forget to stop.

    When I was younger, I read "The Prince of Tides" in two (or was it three ?) sittings, with a couple of hours in between for some sleep.

    nitro :D
    #10     Jan 24, 2004