Capital Ideas: The Improbable Origins of Modern Wall Street Paperback – Illustrated, June 20, 2005

This book should be on your book shelf. I would critize the book in that although it recommends against portfolios of individual securities it does not warn the investor against professional portfolio managers.By way of example:Piscaqua Research in a study covering the period 1987-96 found that only 10 out of 145 major pension funds, or just seven percent, out performed a portfolio consisting of a simple 60%/40% mix of the S&P 500 index and the Lehman Bond index respectively.Or is it logical I ask for you to believe that you can predict which actively managed funds will out perform, or are you overconfident of your skills? If you are trying to find the great fund managers who will out perform in the future ask yourself: what am I going to do differently in terms of identifying the future winning fund managers, than did the pension plans and their advisors? And if you are not going to something different what logic is there in playing a game at which others with superior resources have consistently failed?If you a really serious in finding an investment technique that will provide you with reasonable return with less risk I suggest the following little book. This is a little book that I have written and contains the essential of how to invest. Just click on the title to find the book.  How to Make Money in the Stock Market-Buy 2,500 Different Stocks-Pay no Commission

This book does not disappoint and once again (the first book of his that I read, Against the Gods, was actually written after this one) Mr. Bernstein delivers a good work on modern Financial History and in a way in which the reader can easily see the dots connecting.The author naturally talks a great deal about the Efficient Market Hypothesis and arbitrage and many of their implications to professional practitioners (and to amateurs).It also spends a good amount of time on the problem and theories surrounding the pricing of securities and the roles of diversification and adjustment to risk levels.

This is a very nice book to read. If you are studying investments this will put everything you learn together for you in the time the ideas were developed; the people, the time and the thoughts that have developed some of the market theories to today.

"Poets are the unacknowledged legislators of the world....Let those who will, write the nation's laws, if I can write it's textbooks." (P. Samuelson, quoted by Berstein)Bernstein has written a fascinating pre-LTCM (pre 8/98) book on the history of econometrics and finance, beginning with the origins of the Cowles foundation as the consequence of Cowles' personal interest in the question: Are stock prices predictable? This book is all about heroes and heroic ideas, and Bernstein's heroes are Adam Smith, Batchelier, Cowles, Markowitz (and Roy), Sharpe, Arrow and Debreu, Samuelson, Fama, Tobin, Samuelson, Markowitz, Miller and Modigliani, Treynor, Samuelson, Osborne, Wells-Fargo Bank (McQuown, Vertin, Fouse and the origin of index funds), Ross, Black, Scholes, and Merton. The final heroes (see ch. 14, The Ultimate Invention) are the inventors of (synthetic) portfolio insurance (replication/synthetic options).This book consists largely of a pre-LTCM (pre-10/98) cheerleading for option-pricing mathematics based on lognormality, and corresponding synthetic portfolio insurance. Osborne and Mandelbrot are mentioned. The book is not error-free: e.g., Mandelbrot's ideas on stock prices are stated as being the origin of chaos theory (!), and Mandelbrot (of random fractals fame) is misportrayed as an `articulate proponent' of chaos theory! Another error (page 182): "..persistent forces are constantly driving the market toward (Modigliani-Miller) equilibrium." The evidence for the EMH is supposed to constitute the `proof' for this nonsense. So much for `proofs' in economics. So ingrained is the false, misleading and inapplicable notion of "equilibrium" in the minds of economists that it is hopeless to expect to educate them out of their own morass. Even Black, who was educated as a physicist as an undergrad, did no better:"When people are seeking profits, equilibrium will prevail." (F. Black, quoted by Bernstein)Among the interesting and entertaining stories that are told are: the displacement of Graham and Dodd's `value theory' by the EMH, the revolutionary role played by Wells Fargo Bank in using the `new finance math', and in creating index funds. The importance of the Miller-Modigliani `theorem, which `proved' that the (not-uniquely-defined) `value' of a corporation is independent of it's debt. Then, there is the wild-haired idea of `portfolio insurance', how to eat your cake and have it too (a free lunch, derived from the assumption that free lunches don't exist). No portfolio can be insured against extreme deviations, especially those that occurred in 10/87 and wiped out confidence in LOR (Leland-O'Brien-Rubinstein Associates). But this failure of finance theory produces no crisis for Bernstein, whose book is the history of heroes, not villains. His last chapter, which can be ignored by the reader without loss, is states his ideology: free market ueber Alles. Or: equilibrium will prevail, even without restoring forces ( I like to put it this way: there are no "springs" in the market). I did get something important from this book: the origin of America's spend-spend-spend ideology in the Modigliani-Miller `theorem'.If the optimal portfolio is not risky enough, borrow to finance it's purchase. (Wells Fargo's application of Tobin's idea, quoted by Bernstein)(This is a shorter version of a longer review that appeared in fall(...).

This is quite technical. Could be boring to some readers. I really enjoyed it.

For obvious reasons i.e. "how did we get into this mess", the origins of finance have come under scrutiny. This book provides an excellent historical perspective. It is not a heavy mathematical read, but more of a historic narrative, written from the perspective of an expert market practitioner. It leaves off in the late 1990's and therefore does not include the more recent excesses, but is a very good overview of the key developments that is well worth reading, even if you disagree with the direction finance has taken, it is useful to know how it got there.

the little known history of the origins of the theories and the minds that conceived them.

Need to finish it to give a better review.

Excellent history of the intellectual underpinnings of modern markets and in particular the birth of indexing. Must read for anyone interested in investing.

This classic book brings in plain English thorough descriptions of the development of concepts in finance, constrasting also clearly and without any rebuke the differences between Economics and Finance.Although it is NOT a textbook, this publication should also be very recommended to students, once the book has indeed supplementary content which should trigger a better comprehension of terms, expressions, and concepts. Who understands how and why the financial capital ideas unfolded will certainly grasp and retain better the financial tools and products.

In "Capital Ideas", Bernstein tells the story of the development of the mathematical theories underlying the parts of the financial sector concerned with portfolio management and trading. The book is well written and the language is clear. The history of the ideas is well presented as well. In this sense, the book does well what it sets out to do. However, ultimately, the subject matter is a bit too thin for an entire book, particularly as Bernstein does not particularly much consider the question of to how large a degree the theories are actually applicable to reality (this question is relevant, as the assumptions made in many of the theories are highly suspect).

Good for those interested in anecdotal stories of the hard time academics had in pushing their ideas. However this book seems to misunderstand the working of Wall Street, its very odd to assume that these ideas are the origins of modern Wall Street, as some authors have shown, the actual effect of papers like the Black Scholes model on the stock market is negligible which implies that investors had an intuitive understanding of how to price options way before this was formalized into a theoretical mode. This book is just about a bunch of academics going around and formalizing existing ideas, which is interesting in some respects but rather long and dull in others.Its hard to recommend this book because those interested in Finance, will not get good descriptions of the concepts so as to solidify their grasp.

A complete waste of time. Its more of biography than a CAPITAL IDEAS. i would rather recommend one read "BOGLE" Common Sense On Mutual Funds. whom the author of this book mentioned BOGLE endorsed. I doubt it.!!!