Somehow, I forgot a few books you should definitely check out:

The Black Swan and Fooled by Randomness by Nassim Taleb

The Misbehavior of Markets by Bernard Mandelbrot

All three deal with the same problem:  faulty probability models being used by financial wizards, who assumed that they could quantify risk along normal distributions.  The Mandelbrot is the most technical (he's the mathematician who brought you fractals), so read the Taleb first.

Here's an article about Nassim Taleb's investment strategy by Malcolm Gladwell, which is a little light but gives you a rough idea of what he's getting at.