CAPITAL IDEAS Capital Ideas traces the origins of modern Wall Street, from the pioneering work of early scholars and the development of new theories in risk, valuation, and investment returns, to the actual implementation of these theories in the real world of investment management. Starting with the French mathema-tician Louis Bachelier-who wrote about the unpredictability of stock prices in the early 1900s-Bernstein brings to life a variety of brilliant academics who have contributed to modern investment theory over the years: * Harry Markowitz, who wrote about optimizing the tradeoff between risk and reward * William Sharpe, who shook the pillars of the investment establishment by asserting that the market cannot be beaten * Fischer Black, Myron Scholes, and Robert Merton, who paved the way for the creation of financial derivatives and new ways of controlling risk * Franco Modigliani and Merton Miller, who extolled the central role of arbitrage in determining the value of securities Filled with in-depth insights and timeless advice, Capital Ideas reveals how the unique contributions of these talented individuals profoundly changed the practice of investment management as we know it today. Acknowledgments ix Introduction: The Revolution in the Wealth of Nations 1(16) PART I Setting the Scene 1. Are Stock Prices Predictable? 17(24) PART II The Whole and the Parts 2. Fourteen Pages to Fame 41(20) 3. The Interior Decorator Fallacy 61(14) 4. The Most Important Single Influence 75(16) PART III The Demon of Chance 5. Illusions, Molecules, and Trends 91(21) 6. Anticipating Prices Properly 112(14) 7. The Search for High P.Q. 126(23) PART IV What Are Stocks Worth? 8. The Best at the Price 149(14) 9. The Bombshell Assertions 163(18) 10. Risky Business 181(22) 11. The Universal Financial Device 203(30) PART V From Gown to Town 12. The Constellation 233(20) 13. The Accountant for Risk 253(16) 14. The Ultimate Invention 269(28) PART VI The Future 15. The View from the Top of the Tower 297(10) Notes 307(12) Bibliography and Other Sources 319(11) Name Index 330(3) Subject Index 333