A Mathematician Plays the Stock Market [Englisch] [Taschenbuch]

If you would like an objective view of the stock market, are comfortable with math and enjoy a little irreverence in your investment reading, you will love this book. The material is easily accessible for anyone who finds algebra not too taxing. Professor Paulos minimizes the formulas for you by using anecdotes, simple brain teasers and practical examples instead.

What makes the book delightful is his self-effacing sense of humor. I cannot remember reading another book in which a writer is as candid and funny about his own failings as an investor. Only Andy Tobias comes anywhere close. The book's running joke is the professor's disastrous obsession with buying WorldCom stock using borrowed money before it became apparent that the company's reported earnings had more to do with wishful thinking than reality. It is this example that makes the book also insightful for the reader because it shows how easily our emotions and instincts can lead us astray, even when we understand as much about the stock market as Professor Paulos does.

I have read dozens of stock market books that have attempted to explain the "numbers" aspect of stock-market investing. None of them covered as much ground or did so as succinctly as this book does. I was very impressed by the depth of reading that this book reflects. Although it is not an academic book, the rigor is impressive.

The basic point is that the stock market is a lot more complicated than anyone can hope to understand, and likely to be more volatile than almost anyone will be comfortable with. Professor Paulos provides potential remedies for both (index investing, diversifying active portfolios, and using derivatives as insurance against large risks).

One of the many brilliant math examples shows how some games cannot be won with "success" strategies, but if you can combine a certain two "failure" strategies you will be a guaranteed success. With that wonderful point, the idea of being a contrarian was better expressed than in anything else I have read on the subject.

By inserting himself in the book through the WorldCom example, Professor Paulos powerfully introduces the element of individual and market psychology. Although he is neither a psychiatrist nor a psychologist, the book abounds with material about the psychology of how the market works and why investors make mistakes. To me, the ultimate lesson here was that one's stock market approach has to be one that fits emotionally well . . . or you will never execute it successfully.

Ultimately, successful active investing requires you to correctly pick what everyone else will find irresistible not too long before that compulsion hits them. I came away, once again, delighted that index fund investing is available as a sure-fired way to outperform more than 90 percent of all professional portfolio managers while sleeping soundly at night.

After you finish enjoying the book, I suggest that you also think about where else you commit your financial resources in large measure more due to your emotions than to your sense of how to calculate an advantage. How could you change your approach in that other area to be more emotionally and financially rewarding?

When I first read this book some years ago I was fascinated by it and this is due to several reasons. First of all it is very entertaining. Whether or not Paulos tells the truth about his obsession with Worldcom stocks he certainly knows how most people think in terms of investing their money in stock markets (i.e. holding stocks forever until they recoup, which most of the time doesn't happen).
What I liked very much was his unconventional approach towards the mechanisms of market dynamics. He states that they are random. And most of the time this assumption delivers a better answer to the ongoings as the mystical interpretations that you hear on TV or elsewhere. We simply do not know what happens most of the time. Of course there is evidence that markets are not fully random (maybe thats the case with daily ups and downs but if you zoom out a little bit you will see correlations between certain time periods). But at least he admits that they are too complicated for us and makes fun of people who think they know better.
For me personally this was great introduction to another way of thinking not only about financial markets. Randomness plays a big role in our lifes and this book opened my eyes to this fact.
Although I disagree with him on certain topics this book is worth reading. It is intelligent and you must use your brain while reading it. For all those who are willing to do so, I highly recommend this book.