Books for Investors

Being a well read financial advisor is critical part of helping clients succeed in their goals. Most of the time, I find myself staring at IRS publications, legal briefs, investment prospectuses, and other densely written technical publications. Reading these tends to dry the eyes and put one to sleep, so a change of pace is in order at times.

Of course, what a financial advisor finds interesting is probably outside the realm of what a typical reader would. During the Great Recession, I read hundreds of books. The two works of fiction I finished were Brave New World and 1984. My wife wasn’t too happy with those selections.

Still, I believe Mark Twain was right when he said “Truth is stranger than fiction.” The truth behind the Great Recession spurred my interest in economic contractions. Reading about the catalyst behind market corrections gave me insight on how to prepare clients for the inevitable.

Of course, not everything is all doom and gloom. The works I’ve read offer fascinating insights mankind’s culture, history and achievements. Others point out the absurdity of the man-made predicaments we find ourselves in at times. A more complete list of books I’ve enjoyed can be found by clicking on the goodreads link to the right. Below is a short list of some of my favorites.

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives

By Satyajit Das  2006

If you’re thinking a book on derivatives and option trading would be boring, you’d be wrong. How can wiping out the global economy ever be boring? Oh sure, option trading is a wonky subject. I’ve read many a dry book on the subject, but this one breaks the mold. It really does help you understand the mechanics of the derivative world as well as show you real world applications in a hilarious manner.

This book was written in 2006 and completely foreshadowed everything that was about to happen to the stock market. The author is a financial expert of some of the most arcane financial areas. He points out that Wall Street salesman hate experts more than anyone because experts can see through the pile salesmen shovel.

Over the years, this book has easily become my favorite on the subject of Wall Street. It offers a glimpse behind the curtain few others can match. It also tackles the immensely complicated and fascinating field of derivatives in a way that everyone can follow. This is a must read for investors or anyone entering the finance field.

Freakonimics:  A Rogue Economist Explores the Hidden Side of Everything

By Steven Levitt  2009

This is probably the most well known of the books I’d recommend. There’s good reason for that. Everyone seems to have read this. Even my wife, who only interest in economics is the fact she’s married to a guy interested in the subject, liked this book.

What makes this book so popular is that it takes a boring subject (numbers) and makes it fun. As a financial advisor, I enjoyed it because it gave an unorthodox look at how numbers can be used. Over the years, I’ve learned that statistics can justify almost anything depending on how you use them. This book helped me develop a critical eye when looking over numbers. After reading it, I started asking myself, “Is this right… or is this what they want me to see?”

This Time is Different: Eight Centuries of Financial Folly

By Carmen Reinhart and Kenneth Rogoff  2011

Another one of my favorite Mark Twain quotes is “History doesn’t repeat itself, but it often rhymes.” But this time is different they say. No… it’s not.

This tome complies that last eight centuries of economic data. The focus is on the chain of economic events that lead to the various manics, panics, and crashes. While the causes are different, they tend to ‘rhyme’.

For some reason, we have short memories when it comes to economic morass. Even now, we’re forgetting what caused the last recession. We have tulip mania over Bitcoin. Is this time different? Read this book and decide for yourself.

Guns Germs and Steel: The Fates of Human Societies

By Jared Diamond  2005

This is perhaps my favorite book, even though it doesn’t focus on finance. Instead, it focuses on humanities growth and expansion over the centuries. It explains the how and why of everything that happened in human history. The information inside will shift how you view the world we live in. The author’s follow up work, Collapse, gives amazing insight on the repercussions when societies fail to properly manage their economic resources.

The Big Short: Inside the Doomsday Machine

By Michael Lewis  2011

The author’s first book, Liar’s Poker, was meant to expose the dark side of Wall Street. Instead, it young want to be investment bankers turned it into the guidebook on how to behave if you want to land a Wall Street job. The author’s response has been to dig ever deeper into the bad behavior of bankers.

While I’ve enjoyed all of the many books this author has penned, The Big Short sticks out the most. That’s mostly because of the fact it’s the only one that was turned into a movie. The movie is great… it’s basically the only movie I’ve ever seen that explains these complex issues without boring everyone to death. If you’ve already seen the movie, and you should have, reading the book will give you deeper insight into what happened.

And yes… the book is just as entertaining as the movie.

Freedom from Fear: The American People in Depression and War, 1929 – 1945

By David Kennedy  2001

Ahead of the 2008 election, as Wall Street collapsed on itself, Time magazine ran a story about Fed Chairman Ben Bernanke. Having been appointed in February 2006, he would be the person in charge of navigating the Federal Reserve through the Great Recession. Time’s photo of him was him standing in front of his book collection. Freedom from Fear was on that shelf.

Rarely will I mark up or make notes in a book. Freedom from Fear is one of those exceptions. The parallels between 2008 and 1929 were astounding. Politicians were making the same proclamations, almost word for word, almost 80 years apart. The American people behaved at the beginning of the Great Recession much the same as they had as the during Great Depression. And yes, bankers had acted in almost the same way ahead of both.

What I’ve learned

This time is different seems to be the motto of every overconfident investor right before flying to close to the sun. Only through the study of history can we learn how to avoid the hubris that has befallen others. In a time where the death of expertise is touted, we need to remember that opinions are, at best, educated guesses. They have no place over fact.

It’s become fashionable to label everything we disagree with as ‘fake news’. It’s perfectly reasonable to question the information presented to you, but when your finances are on the line, I’d rather be vaguely right than precisely wrong.

When it comes to understanding the world, don’t stay in your comfort zone. Make sure to understand as many different viewpoints as you can. Be open to change. What was one day’s fact may be disproven on another. There’s nothing wrong with that. Humanity has been trying to come up with answers throughout history. All we can do is pass along the best information we have at the time.

 

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