The title alone might turn advisors away from reading this book, and when you consider that the author, Benoit Mandelbrot, is a mathematician and scientist, the chances of The (Mis)Behavior of Markets being at the top of your reading list may be small. But it should be high on your list. The book is actually very readable and engaging throughout, and well worth your time.

Mandelbrot's main point is that risk of markets is grossly underestimated. He stresses that markets do not follow the bell curve but rather have many more "fat tails" and hair-raising price fluctuations. Market changes are not uniform grains of sand, he says. They are more like a mixture of sand, pebbles, rocks, and boulders. Some days markets hardly budge, and other days the markets leap a few percentage points.   More 

In college, everybody knew that Stevie was the smartest guy around. He wowed them in the honors Shakespeare seminar, beat the math majors at their own game (eventually picking up a math degree of his own, just for the fun of it), and was outright brilliant in his chosen field, economics. By the time he was a senior, he had outstripped the undergraduate curriculum and was taking graduate courses under the tutelage of the previous year's Nobel Laureate.

And then, he quit. Abandoned all plans of becoming an economist, deciding instead between law school (Harvard, naturally) or an advanced degree in computer science (MIT, naturally). I asked him, why? He had been so excited about economics, since the first day as a callow, pimpled freshman.   More 

Some observers, including Ned Davis, have pointed out that the U.S. stock market tends to have periods of 15 to 20 years when the market treads water-it goes up and down but pretty much remains at the same level.

We can see this using Ibbotson data about the U.S. stock market in the chart below. Note that, contrary to several other observers, we adjusted returns for inflation. (Click graph for larger image.)

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Not in terms of nominal share prices, that is. In "The Nominal Share Price Puzzle," a recent article in the Journal of Economic Perspectives, William Weld, Roni Michaely, Richard Thaler, and Shlomo Bernartzi observe that the average price for a share of stock on the NYSE--around $35--has changed little since the Great Depression. In real dollars, the average price has declined by more than 90%.   More 

Jack Hough has a fun piece in SmartMoney titled, "True or False: U.S. Economic Stats Lie"  If you care about understanding the economy, it's always good to dig into how our economic data are compiled and computed. There are variety of difficult and interesting issues attached to measuring basic concepts such as inflation and unemployment. These issues can cause the data to lead us astray.   More