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Top Articles - A Mathematician Plays The Stock Market By John Allen Paulos
Everyone who invests their hard-earned money in the stock market should be concerned with the truth of falsity of the efficient market, random walk theory.
According to many financial academics who have studied the data, stocks and the stock market tend to move at random. All relevant information about a company or the economy as a whole is reflected in the current price. Buying the stock of just one company is akin to making a bet in a casino.
According to many financial academics who have studied the data, stocks and the stock market tend to move at random. All relevant information about a company or the economy as a whole is reflected in the current price. Buying the stock of just one company is akin to making a bet in a casino.
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
You will win some, you will lose some. Eventually, the transaction costs of paying your broker will more than eat away at your profits.
Therefore, the best way to play the market is to buy a broad index fund such as the S&P 500. You will then profit as all stocks gradually go up due to the long term growth of the U.S. economy.
However, most people who risk their money in the stock market have never even heard of it. Many have heard of it but
Therefore, the best way to play the market is to buy a broad index fund such as the S&P 500. You will then profit as all stocks gradually go up due to the long term growth of the U.S. economy.
However, most people who risk their money in the stock market have never even heard of it. Many have heard of it but
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
hink it doesn't apply to them. Most people still pay brokers, read newsletters, and listen to investing shows on cable TV. That is, they still think they -- or somebody whose advice they listen to -- can "beat" the market.
As a mathematician, Paulos brings a trained math professional's viewpoint to the issue. But much of the value of this book comes from his experience as a stock investor who got totally sucked into losing a lot of money on one
As a mathematician, Paulos brings a trained math professional's viewpoint to the issue. But much of the value of this book comes from his experience as a stock investor who got totally sucked into losing a lot of money on one
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
of the high tech/telecommunications giants of the late 1990s-2000 bull market, and which went bankrupt with the revelation of massive accounting fraud -- WorldCom (ticker symbol WCOM).
So Paulos illustrates a lot of common investor errors by using himself as a bad example. As WCOM's price went down, he kept buying. He bought on margin and, as the price continued to drop, met margin calls. He bought calls. He spent hours of his life in Internet
So Paulos illustrates a lot of common investor errors by using himself as a bad example. As WCOM's price went down, he kept buying. He bought on margin and, as the price continued to drop, met margin calls. He bought calls. He spent hours of his life in Internet
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
discussion forums writing and reading posts about WorldCom.
So his errors inspired him to write this book examining the stock market and its behavior both from both his professional and personal experience. He makes informed speculation about the value of technical analysis and fundamental (or value) stock analysis. He gives the standard random walk theory explanations for why these techiques cannot in the long run make investors any more money
So his errors inspired him to write this book examining the stock market and its behavior both from both his professional and personal experience. He makes informed speculation about the value of technical analysis and fundamental (or value) stock analysis. He gives the standard random walk theory explanations for why these techiques cannot in the long run make investors any more money
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
than simply buying and holding index funds.
He gives the standard random walk explanation for investors such as Warren Buffett who have long records of beating the market -- they're simply coin tossers who happen to have a long record of flipping winning coins. If enough people flip coins, most will have average results but the laws of probability state that someone will flip an extremely large number of heads or tails.
This is true, but it s
He gives the standard random walk explanation for investors such as Warren Buffett who have long records of beating the market -- they're simply coin tossers who happen to have a long record of flipping winning coins. If enough people flip coins, most will have average results but the laws of probability state that someone will flip an extremely large number of heads or tails.
This is true, but it s
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
ems awful funny that people such as Warren Buffett, Peter Lynch and others who have proven market-beating records are also people who work very hard at it.
It is a coincidence that the most famous coin-flipper of all, Warren Buffet, was a hard-working business person as a little kid? That he saved his money through his childhood, then studied investing as though his life depended on it and that he knows more about most companies than any 5 othe
It is a coincidence that the most famous coin-flipper of all, Warren Buffet, was a hard-working business person as a little kid? That he saved his money through his childhood, then studied investing as though his life depended on it and that he knows more about most companies than any 5 othe
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
r stock analysts? That he reads more company balance sheets than most of us read emails?
My own explanation is this: the ability to pick winning stocks is part innate ability, part intelligence, part analytical ability, part the motivation to learn all you can, and so on. These abilities have a high, nonrandom correlation with the proven stock-picking records of those who possess these combinations of traits.
The traits plus motivation to pick
My own explanation is this: the ability to pick winning stocks is part innate ability, part intelligence, part analytical ability, part the motivation to learn all you can, and so on. These abilities have a high, nonrandom correlation with the proven stock-picking records of those who possess these combinations of traits.
The traits plus motivation to pick
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
winning stocks are randomly distributed through the population just as is intelligence. But only a few people have enough of these traits plus enough motivation plus enough opportunity (would Buffett have been quite so successful if he hadn't taken Benjamin Graham's class in college?) to beat the market. (Buffett not only took Graham's class, he was the only student Graham ever gave an A to).
Paulos explains how con artists can use Internet cha
Paulos explains how con artists can use Internet cha
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
t rooms to "pump and dump" and "short and distort" to defraud investors. They choose a thinly traded, penny stock company. They buy a lot of shares of it. Then they use a variety of logon names to spread rumors and talk about how great the company is and how the stock price is going to go to the moon, and so on. Once enough people have bought the stock to raise the price substantially, the con artists sell their shares at a nice profit. They can
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
also do the same by short selling a company's stock and then talking it down in the Internet.
This book is not light reading. Sometimes he doesn't explain his math as well as I wanted. Be prepared to think a lot.
Toward the end of the book Paulos makes an interesting point regarding the possibility of buying stock that's been fraudulently misrepresented -- that doesn't change the odds. Think about this -- you've got to bet on a coin toss. You
This book is not light reading. Sometimes he doesn't explain his math as well as I wanted. Be prepared to think a lot.
Toward the end of the book Paulos makes an interesting point regarding the possibility of buying stock that's been fraudulently misrepresented -- that doesn't change the odds. Think about this -- you've got to bet on a coin toss. You
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
know the coin is biased, but you don't know whether it's rigged to come up heads or tails. Your odds of winning are still 50-50. Because you can pick either heads or tails and either heads or tails could be the coin's bias.
His point is that you can buy a stock or sell one short, and if there's some fraud involved, you don't know which way it's driving the stock.
That's an academic abstraction, in my opinion. In the real world, most people buy
His point is that you can buy a stock or sell one short, and if there's some fraud involved, you don't know which way it's driving the stock.
That's an academic abstraction, in my opinion. In the real world, most people buy
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
stock (or go long) rather than sell short. Plus, in the real world, if your brokerage records may be investigated it'd be a lot easier to say that you bought Microdotcom at 10 cents in hopes it would go up to 15 cents rather than have to explain why you sold Microdotcom short in hopes it would go down from 10 cents. I doubt many brokers would even allow you to sell short the type of very small company stocks that are subject to Internet frauds r
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
unning down their stock prices.
Plus, since only a relatively few people in the country own shares of Microdotcom to begin with, you have to convince a sizable fraction of them to sell their shares. It'd be much easier to convince some of the vast millions who haven't yet bought that company to buy some of its shares.
So I am certain that many more investors are burned through being convinced by pump and dumpers to invest on the long side than
Plus, since only a relatively few people in the country own shares of Microdotcom to begin with, you have to convince a sizable fraction of them to sell their shares. It'd be much easier to convince some of the vast millions who haven't yet bought that company to buy some of its shares.
So I am certain that many more investors are burned through being convinced by pump and dumpers to invest on the long side than
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
are burned by short and distorters who convince them to sell short.
Also, the fraud associated with WorldCom, Enron, Tyco and other such companies has nothing to do with Internet cons. Executives who manipulate the stock prices of their own companies do so to make themselves wealthy with stock options. That rules out rigging the books to make the companies look less profitable.
(That form of double bookkeeping does exist, but primarily in sole
Also, the fraud associated with WorldCom, Enron, Tyco and other such companies has nothing to do with Internet cons. Executives who manipulate the stock prices of their own companies do so to make themselves wealthy with stock options. That rules out rigging the books to make the companies look less profitable.
(That form of double bookkeeping does exist, but primarily in sole
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
proprietor and partnerships, where the owners want to reduce the taxes they must pay.)
So I feel positive that in the real world fraud burns investors on the long side much more than it does to the short. Therefore, stock price manipulation, whether done by con artists or by corporate executives, is much more likely to distort the "efficient" market price of a stock to the high side than to the low.
Paulos has a less accusatory attitude towar
So I feel positive that in the real world fraud burns investors on the long side much more than it does to the short. Therefore, stock price manipulation, whether done by con artists or by corporate executives, is much more likely to distort the "efficient" market price of a stock to the high side than to the low.
Paulos has a less accusatory attitude towar
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
the fraudulent corporate executives than many writers. While he should accept responsibility for his own errors as an investor, and he made many, detecting the accounting deceit in fraudulent financial statements was impossible for him.
It's too bad Paulos doesn't consider the obvious solution: If he'd invested for income, he never would have bought WorldCom in the first place. That would have protected him from all the accounting fraud firms,
It's too bad Paulos doesn't consider the obvious solution: If he'd invested for income, he never would have bought WorldCom in the first place. That would have protected him from all the accounting fraud firms,
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
because executives that are so busy ripping off the company and inflating the stock price to take advantage of stock options, don't want to pay out the company's profits as dividends to the company's mere shareholders.
Investing for income saves you from John Maynard Keynes's famous "beauty contest" analogy. Years ago, British newspapers ran beauty contests where they published pictures of many women (stocks), and readers could vote on who was
Investing for income saves you from John Maynard Keynes's famous "beauty contest" analogy. Years ago, British newspapers ran beauty contests where they published pictures of many women (stocks), and readers could vote on who was
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
most beautiful (buy those most likely to go up in price). However, the only voter to win was the one who best predicted the beauty contest winner. (You make money in the market by predicting that many other investors will buy a company's stock, thus raising the price.) Guess wrong about what other investors think about a stock, and it doesn't matter how "beautiful" the company is to you -- its price goes down and you lose money.
Boards of direc
Boards of direc
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
tors who value their shareholders enough to pay them dividends, are much less likely to be cooking the books. And even if they are, it can't be on such a grand scale, because they still have to pay out some real, hard cash. And even if the stock price does eventually go down, shareholders at least did collect dividends.
Not investing for dividends -- that was Paulos' biggest mistake as an investor, though he doesn't mention learning that lesson
Not investing for dividends -- that was Paulos' biggest mistake as an investor, though he doesn't mention learning that lesson
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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