Last week I provided my reading list for developing the right character for work that I give to new members of my team. This week, I’ll give my reading list for the knowledge base they need to have in the financial industry. Some of the books are easy to read cover to cover whichever industry you are in, others are worth dipping into and out of, while some are very technical. If I’ve missed any good books let me know:
Classic investor’s view
Market Wizards 1 and 2 (Schwager) – both books contain probing interviews of successful investors. Some are still well known such as Paul Tudor Jones, Bruce Kovner and Jim Rogers, others less so. Lots of nuggets of wisdom to discover and some oddities (getting investment ideas from dreams)
Inside the House of Money (Drobny) – an updated version of “Market Wizards” with a more varied array of risk-takers, including Peter Thiel David Gorton and Sushil Wadhwani.
Liars Poker (Lewis) – a humorous take of life on the Salomon trading floor in the 1980s. You learn a lot about mortgages and the decadent culture of that era.
Alchemy of Finance (Soros) – a very thorough description of the framework George Soros uses for investing. He certainly is in the camp that markets are irrational.
Reminiscences of a Stock Operator (Lefevre) – first printed in 1923, this chronicles the rags to riches story of Jesse Livermore and his strategy of reading the odds of winning trades.
Warren Buffet’s Ground Rules (Miller) – probably the best book on Buffets value investing style. Why? Because it contains previously unpublished letters written by Buffet when he ran an investment partnership before Berkshire Hathaway. It’s like getting a curriculum on investing by the man himself.
markets ARE “irrational” books
Black Swans (Taleb) – Nassim Taleb is excellent at showing the futility of applying a normal distribution to financial markets. His basic point is that bad stuff happens more than models predict. Oh and he is scathing of economists.
The Misbehaviour of Markets (Mandelbrot) – Mandelbrot was a pioneer of fractals and sits in the same camp as Taleb in criticising the models that use the normal distribution. He’s a proponent of using power distributions that allow for crazy things to happen a lot more often.
Irrational Exuberance (Shiller) – an excellent overview of the main factors that drive markets to depart from fundamentals (eg cheerleading by the media, pension schemes etc)
Manias, Panics and Crashes (Kindelberger) – a history of the some biggest bubbles in history from the South Sea bubble to the Japanese property bubble.
Thinking, Fast and Slow ( Kahneman) – probably the best overview of all the biases of the human mind when it comes to making judgements.
techniques for investing in markets
Basic Econometrics (Gujarati) – this may be dated (I used it at Uni), but I think it is the best book on econometrics for those working in finance.
Evidence-based Technical Analysis (Aronson) – markets are full of people who openly or covertly use technical analysis (using market prices by themselves to predict market movements such as using moving averages). This book brings a more scientific approach to assessing which approaches to use. It is especially good on avoiding data-mining (analysing the data until you get the answer you want, rather than the data giving you the answer).
Expected Returns: An Investors’ Guide to Market Returns (Ilmanen) – written like a textbook, this has probably the best overview of the risks and returns of investments across multiple markets. It provides the right theory and practical insight for a solid foundation.
Bond Portfolio Investing and Risk Management (Bansali) – a very thorough and detailed look at how to manage bond portfolios
Exchange Rate Determination (Rosenberg) – written by one of my early bosses; this book translates economic theory to real world of currency markets.
Superforecasting (Philip Tetlock) – the best framework for predicting political events
How derivative markets work
Options, Futures and Other Derivatives (Hull)- the best introductory book for understanding the options market.
Dynamic Hedging (Taleb) – here he is again, but this on how to price and manage option books. This introduces the more practical dimension of trading options (compared to the Hull book). As usual he peppers the books with his opinions on a range of topics.
Volatility and Correlation (Rebonato) – not one for the light-hearted, but a very rigorous book on some of the more esoteric parts of the options markets.
Economic History and Development
The World Economy Since The Wars (Galbraith)– I had the pleasure of once meeting Galbraith: he was erudite and very tall. The book is a beautifully written chronicle of the main economic events in the twentieth century. His book on the history of economics is also worth written.
The Great Depression (Bernanke) – worth reading not least because it gives you in an insight into why Bernanke did what he did after the 2008 crisis.
This Time is Different (Reinhart, Rogoff) – a bit tedious to read, but good to dip into for the vast array of crises over the centuries.
Lords of Finance (Ahamed) – very well-written book of the main characters (central bankers) during the Great Depression.
China’s Economy What Everyone Needs to Know (Kroeber) – a very balanced and enlightening book about the development of China.
The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Pettis) – this provides the pessimistic counter to Kreober’s view of China. It also has the best explanation of how current account surpluses and deficits actually work.
Owning the Earth ( Andro Linklater) – a sweeping view of how land ownership and reform has driven the biggest changes in history.
The Creation of Inequality (Flannery and Marcus) – an anthropological take on inequality, which shows that only kin-based hunter gatherer societies have ever had equality
Banking in Crisis: The Rise and Fall of British Banking, 1800 to the Present (Turner) – most books on banking of fallen into a common pattern of decrying banking as pure evil and then going on to provide theoretical ideals. I accidently stumbled across this book, and couldn’t recommend it more highly for those interested in the banking industry. This book gets involved in the messiness of real life and looks at what institutional set ups worked best for banking in the past. The punch line seems to be to introduce double or even unlimited liability to bank shareholders.