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Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market into a Casino Hardcover – Mar 1 2011


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Amazon.com: 21 reviews
15 of 19 people found the following review helpful
Crapshoot Investing is a Gem March 16 2011
By Tibor E. Frekko - Published on Amazon.com
Format: Hardcover Verified Purchase
When Dorothy Parker uttered her famous declamation "What Fresh Hell Is This" just a few miles from the epicenter of all Capitalism, Wall Street, few knew the gods of The Street were paying rapt attention. While the iconic Parker was not referring to the market, they knew a good line when they heard one, and have been busy ever since heaping "Fresh Hell" on the investing public.

In his brilliant new book, Crapshoot Investing, James Mctague, the Washington Editor of Barron's, chronicles the effects of High Frequency Trading (HFT) from the crash of October 1987 to the more recent Flash Crash. Despite it's eye catching name, this is a serious book about a serious subject by a serious author. McTague is gifted in being able to write in a clear, concise and easy to read manner that propels the reader forward to the end without losing any of the original enthusiasm.

Due to high technology of super heated computers, collocation, and amazing algorithmic programs, information can be gathered, stocks bought and then sold all in a matter of seconds to milliseconds resulting in profits of a tenth of a cent to a cent per share traded. This seems pretty tame until one realizes some nine billion shares are traded daily and the yearly take is between two and twenty billion dollars.

Dark Pools and other esoteric vehicles of trading are exposed and brought to light. Government regulators are not spared. Hamlet had it right. "Something is rotten in ...". Supply your own term.

So what's a po' boy (girl) to do? One could do nothing, soldier on and hope a Bill O'Reilly type is looking out for the folks. Then there is the mattresss strategy so favored by Granny. One could sell it all, spend it all and let the Devil take tomorrow. But the one that makes best sense is to read and reread the last chapter where the author offers his advice on how you can keep the playing field more level.

Run, do not walk to your nearest bookstore or go on line to pick up your copy. Better yet, take advantage of this superheated technology and download a copy on your IPad or Kindle or other device and begin to read it immediately.
3 of 3 people found the following review helpful
Has High Frequency trading transformed the Stock Market? June 15 2011
By Steve Burns - Published on Amazon.com
Format: Hardcover Vine Customer Review of Free Product
This book needed to be written. While its main focus is whether or not high frequency traders caused the flash crash on May 6th, 2010, it goes much deeper than that.

It discusses many areas that have changed in the market over the past decade that I have not seen addressed in any main stream book.

Did the high frequency traders that were plugged directly into the exchanges computers cause the flash crash? Was it a mismanagement of an algorithm or something more systemic? One theory is that much of the trading volume today is simply high frequency traders scalping the market back and forth over and over. Once they step aside and do not buy the big sell orders come in and drive prices down dramatically. The big sellers misunderstood the volume and liquidity in the market and inadvertently crashed prices when all the volume disappeared or went short as a big order hit the book.

Many people that the author quotes in the book believe that regulators in their attempt to make the markets more fair for the retail public threw them out of balance. By draining away volume from the main exchanges and spreading it across many for the sake of the best prices, it unbalanced the market and made it hard to put in place circuit breakers in the midst of a crash. The regulators ran many market makers out of business by changing from fractions to decimals and replaced most of them with machines.

The book was very interesting showing how high frequency traders trade with no regard to the underlying businesses of stocks, trading them like chips on a roulette table, they simply game the stock for penny gains all day by programming computers with the odds of successful trades and front running orders by mutual funds and bigger money managers.

After twelve years of trading I have noticed changes in how the market performs and this book may explain a lot of the strange behavior where stocks become completely removed from any underlying business value or start an uptrend for no rational fundamental reason. Very interesting, informative, and enlightening book. I highly recommend.
3 of 3 people found the following review helpful
Required Reading for All Investors May 14 2011
By W. D. Barnum - Published on Amazon.com
Format: Hardcover Vine Customer Review of Free Product
The stock markets have changed, and not for the better, as far as the individual investor is concerned.

This book does an excellent job of explaining the "flash crash" and the major changes in the stock markets that made it not only possible, but likely.

Although I have an undergraduate degree in Finance, and an MBA, I feel this book was written in such a way as to be easily understood by most investors.

The author points out the failures of the SEC, as well as the advantages possessed by the High Frequency Traders and other players in today's market.

The author also supports the return of the "Uptick Rule", which I also support.

The author at the end of the book, does show there is some light at the end of the tunnel for the individual investor - if he takes a long term approach, does his research, and purchases stocks properly.
1 of 1 people found the following review helpful
Excellent reporting - but 'crapshoot' is the wrong word June 8 2011
By Doctor.Generosity - Published on Amazon.com
Format: Hardcover Vine Customer Review of Free Product
As an avid trader for the past 20 years, I can affirm that the stock market has become a treacherous place for the small individual investor, more so every day. There was a time when the other investors with whom one competed to spot the good deals were humans. Now they are computers, and they think a lot faster than you do. This very interesting book by Jim McTague, a Barron's editor, contains excellent investigative reporting of a few key developments by entities such as so-called 'high frequency traders.' This is a system, based on connecting a computer to the market, which jumps into the buy-sell process at a low level and observes your bid. It then buys and resells the stock to you at a slightly higher price than you would have paid otherwise. There is no risk; this is not investing but hacking the market, and should be illegal. McTague shows how incompetent regulation by government agencies in the hip pocket of the brokers has failed to protect the public from what are actually borderline scams and unfair manipulations. He then goes in detail into the so-called 'flash crash' of May, 2010 and traces it to global instabilities in the market caused by computer trading. This is scarey stuff and should indeed frighten the retail investor. Going into the financial markets without your own computational resources is like a medieval knight without steel armor - not a chance.

However, the book is oddly titled because what it proves is precisely that the market is not a 'crapshoot' at all. It's a rational, failsafe system by major brokerages and hedge funds with powerful tools to take your money from you by maintaining a digital edge you cannot hope to equal - there is nothing random about it. Using short term strategies, individuals are now pretty much guaranteed to lose to more sophisticated players over time. Yes, there are some things the little guy can still do successfully, such as anticipate that a certain company will do well over the next decade, and buy and hold. Sticking to the longer term is where humans still have an edge over machines. Even then, the computer traders will be able to divert some of your profits to themselves by overcharging you for your trades. The book is discouraging but well worth reading if you want to know how the stock market really works. Recommended.
1 of 1 people found the following review helpful
Must read for every investor, especially for those who invest into mutual funds. May 20 2011
By Stream Ripper - Published on Amazon.com
Format: Hardcover
Very interesting books explaining what high-frequency trading is, why the markets became so volatile, why prices of 1,500 largest capitalization stocks do not reflect their fundamentals.

The book is probably more important for those who invest into mutual funds. It explains why high-frequency traders make you pay more.

At the end of the book you may find some investements tips. They are probably not as good as something you can get from Jim Cramer, but still worth reading.

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