Investing, Money, and the Economy
Book notes by J. Zimmerman

Buy 'The Great Unraveling: Losing Our Way in the New Century' The Great Unraveling: Losing Our Way in the New Century
by Paul Krugman
Buy 'The Four Pillars of Investing' The Four Pillars of Investing : Lessons for Building a Winning Portfolio
by William J. Bernstein.
Explains how to construct an investment portfolio that will let you sleep at night, give you a return on your investment, and protect you from the sharks of the financial community.
Review of The Four Pillars of Investing.

Buy 'The Intelligent Asset Allocator' The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
by William J. Bernstein

The Great Unraveling: Losing Our Way in the New Century
by Paul Krugman (September 2003).

The Great Unraveling is well researched and well written, a selection of New York Times op-eds (written 2000-2003) by economist Paul Krugman. His essays intertwine interests in business, economics, and politics. It reports on the executive work of George W. Bush as "bad economics wrapped in the flag" and "blatantly based on bogus arithmetic."

Paul Krugman shows how and why he blames many financial problems on the Bush administration, which he sees as a "revolutionary power ... a movement whose leaders do not accept the legitimacy of our current political system." He questions the administration's motives on taxation and Social Security, and explores corporate wrong-doing, the recent stock market bubble, and the federal budget.

Krugman tells how the United States has lost its way, and how to get the country back.

The Power of Gold: The History of an Obsession
by Peter L. Bernstein (2000)

The Power of Gold tells the history of gold from Midas and Moses to the present obsessions with its glitter and its symbolism for wealth.

Against the Gods: The Remarkable Story of Risk
by Peter L. Bernstein (1998)

Against the Gods by Peter L. Bernstein is a fascinating history of "bringing risk under control [as] ... one of the central ideas that distinguishes modern times from the more distant past."

It is indeed, "a richly woven tale of Greek philosophers and Arab mathematicians [such as Omar Khayyam], merchants [such as John Graunt who compiled and interpreted birth and deaths in London from 1604 to 1661] and scientists [such as physicist John van Neumann], gamblers [such as sixteenth century physician and gambling addict Girolamo Cardano] and philosophers."

Its concepts include alphabetically:

  1. Chaos. (Chapters 12, 19.) Behind chaos theory is the idea that "much of what looks like chaos is in truth the product of an underlying order, in which insignificant perturbations are often the cause of predestined crashes and long-lived bull markets." As Kenneth Arrow has told us, "Vast ills have followed a belief in certainty." Bernstein continues, "The mean is always in a state of flux. The idea of a norm does not exist in chaos theory." Chaos theory apologist Dimitri Chorafas says, "The signature of a chaotic time series ... is that prediction accuracy falls off with increasing passage of time.".

  2. Game Theory. (Chapter 14.) Invented by physicist John van Neumann, game theory says, "the true source of uncertainty lies in the intentions of others". However, it also assumes a rarity - rational behavior.

  3. Numbers. By the way, the zero (0) was apparently discovered by the mathematicians of Indian, not Arabia.

  4. Probability. (Chapter 3.) Originally this meant "something worthy of approval" and later became (like the German wahrscheinlich) "something with the appearance of truth".

  5. Regression to the mean. (Chapter 9.) Francis Galton (first cousin to Charles Darwin) was "a social snob ... with a compulsion to measure". He discovered "the tendency of the ideal mean filial type to depart from the parental type, reverting to ... the average ancestral type".

  6. Risk.

  7. Sampling. (Chapter 5.) "We have to make decisions on the basis of limited data." Sampling is essentially risk taking.

  8. Utility. Daniel Bernouilli introduced utility as the unit for measuring preferences, and said that "utility is dependent on the particular circumstances of the person making the estimate". Bernstein notes that: "Rational people make choices on the basis of information rather than on the basis of whim, emotion, or habit. ... They are risk averse in the Bernouillian sense that the utility of additional wealth is inversely related to the amount already possessed."