Probability and Investment reading list by Bill Schaeffer July 2, 2008

Probability and Investment reading list by Bill Schaeffer  July 2, 2008

1)  “Fortunes Formula - The Untold Story of the Scientific Betting System that beat the Casinos and Wall Street” by William Poundstone, Hill and Wang A division of Farrar, Straus and Giroux, New York, 2005

   Excellent introduction to the history of the Lottery, probability, Card counting, Betting strategies, conceptual models of the stock market and Insider Trading.   A fascinating read that you will not be able to put down.

2)  “Fooled by Randomness - The hidden role of Chance in Life and in the Markets” by Nassim Nicholas Taleb, Second Edition, Random House Trade Paperbacks, New York, 2004, 2005

   Excellent introduction to the psychology of investing by a professional securities analyst.   This guy does not run with the crowd and his book tells why.   Claims that all real wealth is made in a few significant events and not by a slow and steady accumulation.     All stock performance prediction methods are unreliable and the false sense of security a few successes produces leads to almost certain disaster.    You have to love an author that disdains Stock Watching, Stock Brokers, Cheating, Gambling, and ostentatious displays of wealth.

3) “A Mathematician Plays the Stock Market” by John Allen Paulos, Basic Books, New York, 2003

   Discusses the Psychology of Investing from personal experience and models of the stock market and investing.   Even though he is an analytically trained mathematician, he still got involved in the Stock Market frenzy of the late 1990’s and he lost a lot of money on WorldCom.    Talks about human behavior and psychological influences in the Stock Market.

4) “The Black Swan - the Impact of the Highly Improbable” by Nassim Nicholas Taleb, Random House, New York, 2007.

    Inspiring and alarming philosophical meditation on how we all generally fail to anticipate truly unpredictable events.    Examines the psychology and mathematics of predicting future events.  Written from the view of a brilliant, but cynical and cautious,  Securities Analyst.

5) “Chance - a Guide to Gambling, Love, the Stock Market, and just about everything else” by Amir D. Aczel, MJF Books, New York, 2004

   Good introduction to the mathematics of Probability and how to apply it to predict the likelihood of different future possibilities.

6) “Prisoner's Dilemma - John Von Neuman, Game Theory, and  the puzzle of the bomb.” by William Poundstone, Doubleday, New York, 1992.

    A biography of John Von Neuman, game theory, the stored program computer, the cold war, communism, and the Rand Corporation. Very good, but not quite as good as his other books. Poundstone is a good writer of math, history, biography subjects.

Factoid: Jon Von Neuman once proposed painting the polar ice caps with colored dye to absorb heat and raise the temperature of the planet. Apparently, he thought that global warming would be a good thing. Also, Von Neuman died at a fairly young age (late 50's) of prostrate cancer, the last months of his life were miserable and filled with pain and philosophical despair

7) “Why do Busses Come in Threes?  The Hidden Mathematics of Everyday Life” by Rob Eastaway Jeremy Wyndham, John Wylie & Sons, 1998.

    Amusing analytical look at different scenarios everyone is familiar with.   The mathematics of coincidences, rating systems, statistics and gambling.

8) “What the Odds Are.” Les Krantz, HarperPerennial, New York, 1992

      More of a book of trivia than a text book or tutorial.    Perfect light reading material as the whole book consists of short one, or two, column articles.  Topics include crime rates in different cities, health statistics, longevity facts, employment and population demographics.    Light hearted parlor entertainment.

9) “The Arithmetic of Life and Death” by George Shaffner, Ballantine Books, New York, 1999

   Enjoyable introduction to the probabilities of events occurring in everyday life.  

Copyright 2008

William A. Schaeffer