Reading books is a smart alternative to “learning by doing” and especially when you are in the business of managing money, it certainly pays making friends with top minds in the business. However, not all books are made equal and neither is our spare time infinite to peruse through most of the titles on the shelf. Being a lousy socializer has its own virtues; I get loads of time making friends with eminent dead (and alive too). This blog lists out the few investment books that I have read or intend to read and carries my recommendation (review in few cases) on the same.

This blog is also a vent for me to publish my cynical take on investing and all that crap and noise associated with it. This, however, should not imply that the idea behind the blog is to separate the chaff from wheat (I have no clue what they look like). On the contrary, the thoughts and the recommended books will only add to the already smoky scene. These thoughts however would be very sporadic and will address issues of “fundamental nature” rather than “current noises”.

Also included in the blog are links to resources which provide quality content for free (more or less). Feedback sans the four letter word f*** (and other words of similar disposition) are welcome

Legends (Book Rating)
$$$$$ - Beg, borrow or steal but do read
$$$$ - A must read
$$$ - Certainly worth your dollars and time
$$ - Charity will be a better alternative
$ - I do not read/review trash

Tuesday, July 24, 2007

Fortune's Formula

Book Title: Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
Author(s): William Poundstone
Rating: $$$
Comment: A formula for fortune – no ways, smart trading/betting strategy – definitely yes

Author’s Bio (from the book’s jacket or elsewhere):
William Poundstone is the bestselling author of nine nonfictions books, two of which (Labyrinths of Reason and The Recursive Universe) were nominated for the Pulitzer Prize.

Review:
There are lots of interesting themes in the book. If the world of crime and gambling, development of information theory, nexus between Wall Street and crime, etc, are something that excites you, this book should make an interesting read. However, the theme suggested by the book’s title gets lost somewhere in all this plot building.

The “Fortune Formula” is built around an apparently simple sounding gambling/trading rule developed by John Kelly, a scientist with Bell Labs. Edward Thorp, an MIT mathematics instructor, applied the rule to trading on Wall Street. Thorp successfully managed millions of dollars through his market neutral (warrants, convertibles, etc) hedge fund and is claimed to have relied on the Kelly’s rule for placing his bets/strategies. As applicable to horse racing, Kelly’s rule, in simple terms, suggests that the bettor should diversify his bet by betting his capital on all the horses based on their probability of winning. The catch in the rule is the estimation of the probabilities, which, of course is totally subjective. The Kelly’s rule do suggest avoiding the game altogether if the bettor does not have a superior assessment of the probabilities vis-à-vis other players.

The author has dedicated a lot of pages to Claude Shannon (another Bell Labs scientist) and information theory, which in my opinion was completely unwarranted and was a big drag. Chapters on LTCM and feud between efficient market economists and Kelly advocates were quite interesting. What makes the book exciting is the surrounding plot of illegal world of gambling and crime.

All in all, the author does very little justice to the main theme and should make an average read. Certainly worth the reader’s dollars but not his time.
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