|Not as portable as a Kindle, but much more satisfying|
These are some of my favourite books. They do not constitute the complete set of financial books. They are not necessary or sufficient to get through an interview for a <insert name of job in finance> position (try this list if that is what you want). Other, possibly better, books are available (you can get a comprehensive guide to trading books here and here amongst other places). Some of them are only vaguely to do with finance.
With that in mind, enjoy.
Popular finance 'storybooks'Books that tell stories rather than try and give you "facts".
Extraordinary popular delusions and the madness of crowdsThis is the Das Kapital or Art of War of finance books. Nobody has actually read all of it but everyone has it on their shelf. A couple of people might have read a couple of chapters, once. The first three chapters are the finance stuff (John Law, South Sea Bubble, Tulipmania) in any case. Really books like this used to need to exist to remind people that investors get carried away and bubbles happen which then burst. In my relatively short investing lifetime I have seen the dot com crash and the housing bubble- I can read more recent books.
The Great Crash 1929 (Galbraith).... Or if you do want a bit more history read this which is very brief (Galbraith being the least wordy economist of the twentieth century) and extremely entertaining.
Barbarians at the GateAn ex team member of mine was very disappointed by this book and thought it was very overrated. Perhaps its a generational thing; although I wasn't working in Wall Street in the 1980's when I was first became interested in finance the whole conflagration of Boesky / LBO's / Millken / S&L was the most interesting thing that had happened (I realise almost a decade separates these events but they kind of seem to have be associated emotionally with the 'Era of the first Wall Street film'). Since then we have had a whole lot of other bad stuff to get excited about and perhaps the shenanigans around what was then the worlds largest merger are nothing to get excited about. In particular the $53 million payoff to the losing CEO at the end of the book seems positively staid thanks to nearly three decades of above average inflation in corporate greed levels.
All I will say is that this is a book I have read at least a dozen times and could read once a year for the rest of my life. Its the most read book on my shelf apart from.....
Books by Michal Lewis: Liars Poker, Panic!, The Big Short, Boomerang and many more including Flash Boys which I haven't read yetYou have to admire the way Michael Lewis turned a short and relatively dull career in investment banking into a stellar career as an author and journalist. Particularly if, like me, you have had a relatively dull career in hedge funds and fancy yourself as an author and perhaps journalist. Of course everyone has read Liars Poker I suppose. Its also worth reading 'Panic' which is more of a compilation of other peoples writing about financial crisis of the last 30 years and incredibly amusing in places. Boomerang is a really funny and an excellent book about the sovereign debt crisis. The Big Short is okay, but not the best book on Paulson et als multi billion dollar CDO trade (the best book is below).
The bonfire of the vanitiesIts a fictional book but does a pretty good job of capturing the feel of the 80's and the behaviour of the sort of people who seem to end up in financial markets. This is my favourite part:
I'm already going broke on a million dollars a year! The appalling figures came popping into his brain. Last year his income had been $980,000. But he had to pay out $21,000 a month for the $1.8 million loan he had taken out to buy the apartment.... It came to $252,000 a year, none of it deductible... So considering the taxes, it required $420,000 in income... Of the $560,000 remaining of his income last year, $44,400 was required for ... maintenance fees; $116,000 for the house... in Southampton... Entertaining ... had come to $37,000 .... (and so it continues) - the abysmal truth was that he had spent more than $980,000 last year. There was not getting out from under the $1.8 million loan... without paying it off or selling the apartment and moving into one far smaller and more modest - an impossibility! There was no turning back! Once you had lived in a $2.6 million apartment on Park Avenue - it was impossible to live in a $1 million apartment.
And this is at a time when a million dollars a year was real money, even in the new york bond market. You can also read Wolfe's 'A Man in Full' which is about the downfall of a real estate speculator.
1990's and dot com crash
When Genius Failed the rise and fall of Long Term Capital Management
When things go wrong. Obviously after reading this nobody would ever blow up from being over leveraged would they? Nobody would ever blindly use the results of a model that relied on extrapolating correlations from relatively short periods of historical data? Only some kind of idiot would do that... I can only conclude that hardly anyone working in the CDO business in the early 2000's read this book.
The Predictors : How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street
When things go right. Not as cheesy as the subtitle suggests. This is the book that got me into the systematic investment game. Doyne Farmer www.oxfordmartin.ox.ac.uk/people/407 now at Oxford, is one of the more interesting people in the finance world and a great speaker if you get the chance to listen to him. Also worth reading (though a little less relevant to finance) the prequel: The Eudaemonic Pie, which is about betting on roulette wheels.
The Smartest Guys in the RoomThis is a book about Enron. No doubt that too is ancient history to most people in finance now. But its a great story. Why is it a great story? Great stories always have really cool bad guys. There are good guys too, but its the bad guys that make the thing work. James Bond is just a posh bloke in a suit with a gun. But its his evil super intelligent arch enemies, with just one fatal flaw, that make the films work. Andrew Fastow and James Skilling make great arch enemies (Ken Lay was just a bumbling idiot as far as I can make out). Like any great story its written so its still exciting even if you know what happens at the end (hint: its not a happy ending).
Traders, Guns and MoneyI always get these books mixed up. They cover much of the same ground (an insiders perspective on the 1990's derivatives scandals). If you must read a book on this subject, read either of them. But unless you have too much time on your hands, don't bother reading both. I would recommend one or the other, but I honestly can't remember which is which.
boo hooThe funniest book written about the dot com crash. Written by the weird bloke in the glasses who stood next to the ex model when boo.com was launched. Because Ernst (that's the guys name) is Swedish its really hard to know whether he is taking the mick or he genuinely believes / believed that this stupendously stupid and insanely overambitious web based fashion business would get off the ground. Either way its a hilarious read.
More Money than GodNot specifically about the 2000's but a very good about the history of the hedge fund industry and one of the best books to get a handle on this murky world.
The Greatest Trade EverThis is the Greatest Book On Paulson et als multi billion dollar short CDO trade. To be honest it is not that good but then books rushed out to cash in on a notorious news event even rarely are. So this is the best of a bad bunch.
Too big to fail
It is hard for me to recommend books about the financial crisis. Firstly there are hundreds of them. Secondly many of them suffer from the 'rushed out' syndrome. Thirdly I have read dozens of them and they have mostly merged into one. Fourthly as I lived through the crisis whilst working in the markets I feel to a degree that it will be hard for me to read a book which would tell me anything new. Finally none of them are that good. There is no book up there with Barbarians or Smartest Guys. Bethany Maclean's (who co-wrote Smartest Guys) wrote All the Devils are Here, but its not that exciting.
This book and the following few are the only ones I would really rate. Too big to fail comes closest to being the Credit Crisis' Smartest Guys; a readable narrative of what happened. I could never see myself reading it a dozen times, but .
The Gods that Failed: How Blind Faith in Markets has Cost us Our FutureThe Elliot / Atkinson book wears its left wing polemic badge with pride. Its much more amusing to read a good polemic than a balanced view, and whilst there are an awful lot of polemics on the crisis this is one of the best. Its also UK-centric which makes a change from the gazillions of American books.
Fools GoldThis is probably the best book if you don't want a polemic, but want to actually understand what happened (weirdo) specifically to get an understanding of the CDS market.
Ship of Fools: How stupidity and corruption sank the celtic tiger
Meltdown IcelandIreland and Iceland: where people really, really, really screwed up. If like me you are a big fan of schadenfreude, you will love these. Boomerang by Lewis is also worth reading on the sovereign crisis.
Non fiction books about investment and economics (not too much maths)
The long and the short of it
Simple but not easyThese are the two best books I have read on personal investment for people who don't know, or want to know, any more than the minimum to avoid being ripped off and to make the most of what they have. And lets face it anything else on top of that is a bonus.
Any book by Jack Schwager.... is worth buying. His 'Market Wizards' series gives a real insight into how professional traders actually trade. Market sense and nonsense is a very good book for amateur investors. And his 'Schwager on futures' books are pretty comprehensive (although properly belong in the section below). Unlike many authors in this space Jack is actually a proper portfolio manager who has looked after real money, and still finds time to write a pretty decent book every couple of years.
Beyond greed and fearQuite an old book now but a very good accessible introduction to the world of behavioural finance and relatively brief. I suggest you read Thinking Fast and Slow after this if you are in a hurry; otherwise reverse the order.
Thinking Fast and SlowNot just a great finance book. This book will literally change the way you think about thinking (see what I did there). Arguably it isn't necessary to read this to follow the behavioural finance literature. However if you care about whether behavioural finance has some kind of underpinning then its an absolute must.
Fooled by Randomness, The Black Swan, Dynamic Hedging - all Nassim Taleb
The CEO of the hedge fund where I used to have the pleasure of working hated Taleb. He really disliked the guy and I used to take great pleasure in expensing purchases of Nassim's books against company funds. Any book publisher of finance books probably also has a strong dislike for Taleb. Thanks to him there are hundreds of wannabe Talebs who think that the best way to write a book about finance that will sell gazillions of copies is to write like Taleb.
This is a little unfair. Long before Taleb George Soros decided that 'I am rich therefore I possess infinite wisdom' was not a false syllogism. The stories about the arrogant 'John' (a high spending, high yield trader) and the humble 'Nero' (a more conservative, barely disguised Taleb) in Fooled by Randomness ring a lot of truth. Dynamic Hedging should really be in the 'theory required' section below but it is a very good book about the philosophy of trading options - should you feel such a book is necessary in your life. The core message of Black Swan - the difference between known probability and unknowable likelihood - is not new but isn't badly told. Also I would rather read any Taleb book a thousand times than have to read the "The Alchemy of Finance" by Soros.
Having said that Taleb is clearly quite a smug bloke, and his books are a lot longer than they need to be. He also shares with Soros the misapprehension that his mostly common sense statements need to be part of some grand overriding grand theory of life. For example I notice on his website that four of his books have been turned ex-post into a tetraology (there was certainly no indication with the first two that they were part of one). There is also rather a lot of repetition; those short of time don't need to read more than one book by Taleb (I would suggest Fooled by Randomness; as with Harry Potter the sequels get longer and the quality dips).
The education of a speculatorVictor Niederhoffer is either an anti-Taleb or a Soros-Wannabe depending on your perspective. Young people won't have heard of him but he was a global macro trader, mate of Soros and extremely good squash player. The reason I use the term anti-Taleb is that his contrarian strategy is the exact opposite of the 'buying disaster puts' strategy run by Taleb. Although a wannabe Soros in terms of professional success (he has blown up several times and as far as I am aware is no longer managing money) his book is much better written. Its incredibly random and there is no attempt to impose a coherent worldview or grand theory of everything. Imposing such an overview would be a ridiculous thing to do anyway, but Taleb and Soros would have tried to do so.
But Victor comes across as someone with a pretty clear understanding of his limitations, which is refreshing. Also to be honest this book serves as a valuable public service because even without knowing what happened to the guy reading it makes you question very deeply if you want to be in the financial trading game given how stressful Victor finds it.
The Ascent of Money and other Niall Ferguson worksArguably a history book not an investment book. May not tell you anything new but such an elegantly coherent view of the world. It pains me to say it because he is almost as smug as Taleb (and better looking) but any of Niall Ferguson's books are worth reading. Except maybe the one about the Rothschild's. Unless you have a compulsive fascination with the history of nineteenth century banking its at least 500 pages too long.
Fortunes FormulaYou shouldn't be allowed to manage money unless you can demonstrate a good understanding of how much money you should be betting. The 'secret' is something called the Kelly criteria. This book manages to be an entertaining but also incredibly instructive book about the history of links between gambling and the financial markets.
A random walk down Wall StreetThis book has been around longer than me; and its like marmite you either agree with its efficient markets hypothesis creed or you don't. Certainly the later editions have drifted far from being a useful survey of the various inefficiencies to being yet another 'how to' on personal investment. If you find an earlier edition of this book in a second hand bookshop its worth buying, otherwise Expected Returns is a better use of your money.
Irrational exuberanceExcellent book by Robert Shiller on speculative bubbles.
Books about investment or economics (heavy - econometrics/ maths/ finance background required, or helpful)
Dynamic Econometrics- David HendryEconometric Guru Professor Sir David Hendry's one billion page long epic on time series econometrics. I still think that the error correction model is all you need to do pretty much any kind of forecasting (once you have corrected for any non linearity), thereby I can conclude that this is the only book on Econometrics you will need to buy. As you will have no money left after forking out the best part of sixty quid this is probably a good thing. You will also be unable to lift any other book or object of any kind after reading this one; the contents page alone is 22 pages long. Buy it now, and then you must read it, not just leave it on the bookshelf. As I discovered most domestic bookshelves cannot cope with its sheer bulk. Thank god there was never a hardback edition. It would have sucked the entire planet into its gravitational pull.
Okay enough "jokes", yes its a big book (though more like 900 pages than a billion) but its a great book.
Expected returns- Anti IlmanenIf I had the power I would buy up every other copy of Antti Ilmanen's opus and burn them. Then I would use my cosmic ray gun to delete the memories of anyone who had ever read it. I would then expect to become the richest man in the world using the trading strategies implied therein. Unfortunately it probably has sold quite a lot of copies so there is nothing in here that is going to give you a Sharpe ratio of 3.0. Not reading it however will reduce your Sharpe ratio by at least half, so you just have to own it.
Following the trend: Diversified Managed Futures Trading - Andreas ClenowThis book purports to be the only book you'd need to read to set up your own systematic CTA (managed futures hedge fund). I would humbly suggest there are probably a few more books you should at least leaf through before taking peoples money. Nevertheless this is a reasonable one to start with.
Trading systems and methods- Perry KaufmanThe only book here longer than Hendry's with a four figure page count. Nevertheless it really is the bible of trading signals and that is why everyone should buy it.
Systematic Trading - Robert Carver
This is probably the best book on finance ever written. Each of the 300 pages is worth paying the cover price. It is guaranteed that within days of reading this book you will be a billionaire. Even if you don't read it merely holding a copy on the train and pretending to read it will result in attractive people (gender according to preference) following you around and swooning whenever you turn round and glance at them. It is so well written that it would make Dickens and Shakespeare throw away their quills in disgust at their own inadequacy. The author is clearly a genius, and also incredibly good looking.
(If you've accidentally linked directly to this blog page you might want to look at the "about me" page before taking this review too seriously...)
Code completeFor all the 'quant-lites' out there (including me). Learn how to code properly. Highly accessible for amateur programmers without degrees in computer science (or in my case one third of a degree. Well perhaps one ninth if we are being pedantic). You should read this book at least every year lest you get into bad habits, particularly if like me you don't have anyone regularly peer reviewing your code.
Learning Python (Lutz - O'Reilly)Very good python book. Probably a bit verbose for an expert, but ideal level for a numpty like me. Not very good on specific applications; this is not a 'Learn just enough python to be able to hack together a Django web site' book. But then the book is long enough already (you can tell I have a dislike for long books).
By the wayNo there are no links above as I refuse to endorse Amazon.
And some films...
Margin callWithout question one of two films that comes closest to describing what it was like being in the middle of the 2008 financial crisis, or indeed working in finance. The following conversation for example speaks volumes (from http://www.imdb.com/title/tt1615147/quotes) - both from the content and the obsession with what other people get paid that seems to have been endemic.
Seth Bregman: Will, did you really make two and a half million last year?
Will Emerson: Yeah, sure.
Seth Bregman: How did you spend it all?
Will Emerson: It goes quite quickly. You know, you learn to spend what's in your pocket.
Peter Sullivan: Two and a half million goes quickly?
Will Emerson: All right, let's see. So the taxman takes half up front, so you're left with one and a quarter. My mortgage takes another 300 grand. I send 150 home for my parents, you know, keep 'em going. So what's that?
Peter Sullivan: 800?
Peter Sullivan: All right, 800. Spent 150 on a car. About 75 on restaurants. Probably 50 on clothes. I put 400 away for a rainy day.
Seth Bregman: That's smart.
Will Emerson: Yeah, as it turns out, 'cause it looks like the storm's coming.
Peter Sullivan: You still got 125.
Will Emerson: Yeah, well I did spend 76,520 dollars on hookers, booze and dancers. But mainly hookers.
Peter Sullivan: 76,5?
Will Emerson: I was a little shocked initially, but then I realized I could claim most of it back as entertainment. It's true!
FreefallThe other film that comes closest etc etc. Nice use of perspective to show how the film hurt ordinary people badly. Has the advantage of being British, being out relatively early (2009) and having Dominic Cooper / Rosamund Pike (delete depending on gender preference - or keep both - its a free world) in it.
Inside jobFirst of all I should say that I appreciate that having to watch a 105 minute long documentary about the financial crisis is probably most peoples idea of hell. In which case go and watch Freefall or Margin call instead. Having said that if you want to understand the mechanics of what happened rather than just have your prejudices reinforced then it is worth watching.
(The book is also very good)