David Rollins's Reviews > Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

Fortune's Formula by William Poundstone
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May 07, 13


A client gave me this book, along with an ersatz review of how investing is like gambling, and all we need is a slight edge to exploit with the power of leverage, and we'll be rich. I recall thinking, "Hoo boy, I have got some financial education to do."

Investing can be as risky as going to Las Vegas, or as safe as Fort Knox. It is not to be confused with trading. However, the mathematical theories behind arbitrage and derivatives can be confusing, and I was looking forward to a layperson's explanation.

I got it, but it was not what I expected. There was some history of the listed options markets, and how easy it was in the old days to exploit the ignorance of inefficient markets; mostly time and knowledge related, versus the "inside information" that is repeated again and again throughout the first part of the book. As someone who makes my living in the financial markets, this part made me wince.

Spoiler alert: I thought it was illuminating that the people who got rich off this scheme had largely abandoned it, choosing either to pursue it only theoretically, or to do so in much more illiquid markets, or to abandon it all together in favour of long term "buy and hold" investing.

Highly recommended; I ended up purchasing several copies as gifts for my more mathematically inclined clients, and for the stats geeks and quants among my friends.
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05/07/2013 marked as: read

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