The (Mis)behavior of Markets - Mandelbrot

[petekoch]

One of the great things about reading Nassim Nicholas Taleb is that the content of his books is so engrossing, it makes me want more. I read Taleb's Fooled by Randomness: the Hidden Role of Chance in Life and in the Markets last year, which led me to read Randomness by Deborah Bennett, among others. This spring, I reread both.

About a month ago, I picked up Taleb's The Black Swan: The Impact of the Highly Improbable. For whatever reason (my own mood ???), I was somewhat turned off by the book. In the first few chapters, Taleb appeared to be trying too hard to depict himself as a Renaissance man. Well, I reopened the book last month and, once I got past Taleb's healthy dose of self-aggrandizement, I was totally absorbed. It's not so much about markets and stocks, but rather philosophy, epistemology and mathematics. But mostly, it's an attack on conventional Gaussian statistics (Bell curves, regression, standard deviation, etc).

Except for Hume, Russell, Popper and a handful of others, one of the few thinkers Taleb did not pan was Benoit Mandelbrot. In fact, he just about built an altar to him. Mandelbrot is most famous as the foremost proponent of fractal geometry, but, before that, he did some very serious work in finance.

I wanted to pick up a copy of his 1997 book, Fractals and Scaling In Finance, but I settled for The (Mis)behavior of Markets: A Fractal View of Risk, Ruin and Reward, which he co-authored with Richard L. Hudson, a former Wall Street Journal reporter. On the book jacket, the publisher calls (Mis)behavior Mandelbrot's "first book for lay readers on finance", so I think I landed on the right book after all.

Hopefully, no imaginary numbers, complex quadratic polynomials and all that rot.

BTW, in Black Swan, written in 2006,Taleb continually made reference to the banks and financials as examples of prospective negative Black Swans. He painted bankers as men in dark suits sitting on large piles of TNT. I don't know if he's back trading, but it's highly likely that his company made lots of green this year with Citibank puts.

My (current) avatar is, indeed, the 83 year-old Benoit Mandelbrot.

[raphbaph]

Great Book!
If you like what you're reading and don't mind some math read
Edgar E. Peters Chaos and Order in the capital markets.

There goes MPT for ya.

[petekoch]

Originally Posted by raphbaph

Great Book!
If you like what you're reading and don't mind some math read
Edgar E. Peters Chaos and Order in the capital markets.

There goes MPT for ya.

I truly enjoyed (Mis)behavior. I can't point to one thing that will help my investing, except knowing that Black Swans (or fat tails) are more common than advertised. Fractals, though, are terribly interesting.

According to Mandelbrot, the math for financial fractals hasn't been done yet and is a long way off (40 years??).
Hey, I'm patient and I plan to live forever. So far, so good.

(Thanks to Steven Wright for that one).

Just returned from the library. The Peters book isn't in the system. Rats!

[raphbaph]

Yes, it's hard to find. They have it on amazon, but it's costly.
I found it a the local university, in an odd corner. They where amazed that somebody would lend it.
:)