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The Theory and Practice of Rational Investing, Harry M. Markowitz worries about a "great confusion" that reigns in finance - namely, "the confusion between necessary and sufficient conditions for the use of mean-variance analysis." This is a serious matter. Mean-variance analysis has been the cornerstone of portfolio construction since Markowitz's seminal 1952 article. Meanwhile, academics and practitioners have been in constant search of the next holy grail that will guide the allocation of capital. Consider the endless stream of articles proposing enhancements to mean-variance analysis or substitutes for it. Substantial bodies of literature discuss optimizers that incorporate higher moments or attempt to replace variance with alternative risk measures. Another takes account of investors' so-called irrational tendencies. I recall a former colleague saying, "Let's not re-implement Harry Markowitz's PhD thesis for the millionth time. We can do better." But we have not. What are the objections to mean-variance analysis, and are they well grounded? Markowitz has devoted Risk-Return Analysis to these questions, concluding that mean-variance analysis is central to finance for good reason. This book proceeds in unhurried steps from a set of incontrovertible premises to the conclusion that mean-variance analysis is the best tool available for addressing a wide range of portfolio-construction problems.

Resurrecting a 45-year-old book, Bill Gates included Business Adventures: Twelve Classic Tales from the World of Wall Street on his 2014 summer reading list. His enthusiasm ("Warren Buffett recommended this book to me back in 1991, and it's still the best business book I've ever read"-and claims it's Warren Buffett's favorite business book, too) was contagious. With prodding by Gates's team, the out-of-print book was reissued as an e-book by Open Road, and as I write this post it's Amazon's #1 best seller in commerce and #2 in books. John Brooks originally published these business stories in The New Yorker, so it goes without saying that they are well written. Describing the stock market as "the daytime adventure serial of the well-to-do," Brooks devotes the first chapter to a blow-by-blow account of the "little crash" and rapid recovery that occurred in the last week of May 1962. On Monday the Dow dropped more than it had on any day except October 28, 1929. By Thursday, after the Wednesday Memorial Day holiday, it closed "slightly above the level where it had been before all the excitement began." The infrastructure in place at the time could not cope with the overwhelming trading volume. On Tuesday, May 29, "there was something very close to a complete breakdown of the reticulated, automated, mind-boggling complex of technical facilities that made nationwide stocktrading possible in a huge country where nearly one out of six adults was a stockholder. Many orders were executed at prices far different from the ones agreed to by the customers placing the orders; many others were lost in transmission, or in the snow of scrap paper that covered the Exchange floor, and were never executed at all.