Five Relevant Trade Books

Here are thumbnail sketches of trade books that I have mentioned in class. If you have a trip coming up, you might stuff one of these into your backpack. These have been widely read and discussed in the "community."

Fortune's Formula : The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street, William Poundstone

This book is packed with amusing gossip about gambling, investing, and the Kelly principle. In some places, I frankly could not follow the mathematics, which does not mean that it is actually wrong, but it does mean that in his attempt to write popularly Poundstone has at times written obscurely. Still, I quite liked the book and someday may try to write my own --- more technical --- version.

My Life as a Quant : Reflections on Physics and Finance , Emanuel Derman

Derman now teaches at NYU, but he was one of the original quants. As the title indicates, this is an autobiography, and from my experience it has the ring of honesty. Like Fortune's Formula, this volume contains amusing tales of Bell Labs and Wall Street personalities, but it also gives a touching treatment of the agony of leaving the halls of hard science for the valleys of commerce. Anyone who is thinking about moving from science or engineering into a Wall Street position should spend some time with this book.

Fooled by Randomness : The Hidden Role of Chance in Life and in the Markets, Nassim Nicholas Taleb

One of Taleb's theses is that humans hunger too much for explanations for events that have no reliable explanations. You can test this thesis with your own experiment. Watch Market Wrap for a week and summarize the "reasons" given for the day's over all price movements. Unless you hit a lucky week, these explanations will be transparently inconsistent. A pleasing (and unusual) feature of this book is that is concedes that recognition of a class of errors is unlikely to make one much less prone to commit those errors.

Taleb is at his best when drawing connections between classical literary themes and modern foolishness; he is at his weakest when he draws his own generalizations Finally, the book is so packed with semi-random assertions that any well-informed reader will find numerous points for disagreement. Perhaps that's part of the fun.

Two more that I will mention later in the course. Sketches will appear in due course.

Running Money : Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score, Andy Kessler

When Genius Failed : The Rise and Fall of Long-Term Capital Management, Roger Lowenstein



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