Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
One of the most enjoyable ones. It provides a narrative on the history of scientific betting: starting from the the practices mobsters used to employ, through to counting cards, game theory and the development of information theory. It also brings various characters to light, for example Claude Shannon and Ed Thorpe, and how they were able play the financial markets with their theories. A must read!
The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward
Another must read for anyone in the field of Quant finance. Benoit Mandelbrot is the inventor of fractal mathematics. This book provides an enjoyable history of various developments in financial theory, such as the CAPM, Black-Scholes Option pricing and the efficient markets hypothesis. Mandelbrot then goes on to introduce the reader to the Fractal view of markets in a clear and enjoyable way.
The Quants: The maths geniuses who brought down Wall Street
Amazing book! This books starts by introducing the great Ed Thorpe, and then goes onto introduce a number of major hedge fund managers that derived a lot of inspiration from the “Beat the Dealer” godfather. It provides a great summary of a number of types of key concepts in mathematical finance and quant trading strategies. Scott Patterson is one of the best writers in the realm of these popular finance books and this one is certainly one of the best. Moreover, I was expecting another type of “this is a CDO” book, however, this was not it (although there was a small section on it). Instead, this book is more of a “Fortunes Formula” type book (see above), which is a much more fun and interesting read. It finishes on a great opening to “Dark Pools” as well, so I would recommend reading this one before.
Dark Pools: The rise of A.I. trading machines and the looming threat to Wall Street
This was a hugely enjoyable narrative on the creation of electronic trading exchanges and dark pools. In particular, it is told from the standpoint of: Archipelago and Island. Furthermore, it brings the readers attention to a bunch of immoral HFT trading practices through Haim Bodek’s story.
Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe
There’s been a lot of books written on the financial crisis; but this book was on our suggested pre-reading list at University for a course on the current financial crisis. It is told from the perspective from J.P. Morgan and written by the FT reporter and anthropologist Gillian Tett. I thoroughly enjoyed this book, and it gave a well reported background to the development to mortgage derivatives and the issue of moral hazard.
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
I read Fooled by Randomness after Black Swan, and given my review below I was ex ante very sceptical. However, I read the whole book on a flight back from Bali, and I can say that I thoroughly enjoyed it and would recommend to anyone in the trading profession. As Howard Marks says, however, it is probably one of the most important badly written books out there. It took me many discussion after with people I respect to really get the full wisdom that Taleb says in this book. This not being due to the fact of understanding, just because they are actually more subtle points that are very profound in the bigger picture. Nevertheless, I disagree with Taleb’s view that Economics is all rubbish; he comes across as having a bit of a chip on his shoulder here. I do agree with Taleb that efficient markets and all that kind of financial econ is subject to serious assumption errors, however, the behavioural finance movement, led by Shiller (which to be fair Taleb pays respect to) is in complete agreement, and this movement is now part of the mainstream. I therefore think he needs to target his contempt with economics and more generally practitioners, who are basically naive. Also, as a final point, Taleb comes across as a lot more humble in this book than Black Swan, which makes me warm to it a lot more.
The Black Swan: The Impact of the Highly Improbable
So I am yet to find a trader that doesn’t think Taleb is awesome after reading his books. I did enjoy reading this but it is a lot of the same message: expect the unexpected – and that it is wrong to assume a Gaussian distribution in a lot of finance and Economics because of feedback effects. I find Taleb very opinionated and I think that he comes off as ignorant on a some stuff, yes I agree that he has rightly pointed out that a number of people have failed to accept the lunacy of their assumptions, and in many cases have been ignorant of their obvious failures; however I believe that it is wrong to say that all models that are subject to a black swan are worthless and that Economics is a fraudulent subject. Nevertheless, as Taleb wrote these ideas before the financial crisis I think much credit is due. However, there is a lot of philosophical fluff around his key points, which I think is unnecessary. As a part solution to the Black Swan he suggests using the fractal mathematics developed by Mandelbrot, however he does not go into that much detail on its application. I thought this was shame as this was the most enjoyable chapter. Nevertheless, as with Fooled by Randomness there are some subtle profound ideas in this book that I did originally overlook and have now come to praise.
Anti fragile: Things that Gain from Disorder
Finally, I have finished reading the last of Taleb’s trilogy. I am glad I read them, and I would recommend others to also. I did however get wound up by Taleb a lot. The basic idea of this book I do agree with, which is that we should all take a step back and embrace the randomness in our lives, in doing so we are able to become more robust, then given this we need to devise a system that not only allows us to withstand all eventualities, but one that enables us to grow from it i.e. becoming “Antifragile”. Using these set of principles Taleb explains to the reader a number of his own life lessons, and as such he covers pretty much everything in everyday life. There is however an enormous amount of fluff around what he is trying to get at, for example he has about a 30 page chapter just describing a convex function. Nevertheless, Taleb’s works are certainly worth a read and have provided hours of debating fun with Economists.
Flash Boys: Cracking the Money Code
Great book about the practices of HFT! The US stock market is made up of many fragmented markets and as this book describes is subject to many immoral trading practices. This is the story of Brad Katsuyama and his team’s fight against Wall Street. It is their mission to understand the financial plumbing of this and they take on the battle to build a fair electronic trading exchange despite the opposition many of the big Wall Street banks. Furthermore, this book provides a hugely entertaining narrative on the increasing technological arms race of this industry and how maths and science geniuses take their place as the gate keepers of the financial markets. A must read!
The Big Short: Inside the Doomsday Machine
Boomerang: The Meltdown Tour
A finance classic! This book is a must read for anyone entering the world of investment banking. It is Michael Lewis’ own semi-autobiographical account of his journey climbing the ranks at Solomon Brothers (now a subsidiary of Citigroup). It starts with him leaving University, to going through the interview process, to completing the grad scheme, to being a geek and then onto a being a successful bond salesman. This book talks about the “Big Swinging Dicks” that defined the trading floors of the 1980s and the office politics that went on as the culture of greed and excess sought to attain bigger and bigger bonuses. Michael Lewis also provides am illuminating account of Wall Street back in the 80s, and how Salomon Brothers single-handedly created the market for mortgage bonds, and how it was eventually outdone by the junk bond market.
The Money Culture
The Undoing Project
Michael Lewis tells the story of Kahnemann and Tversky. Both characters are very interesting and have had a really interesting life story and had developed a very weird working relationship. Having read “Thinking Fast and Slow”, I was expecting a bit of a repeat, but it wasn’t. Michael Lewis gets more inside the personalities of these two great minds as opposed to summarising their academic research, which “Thinking Fast and Slow” does. There is a good discussion on prospect theory, framing and general economics refuting psychology, but this book is more about the characters. I did very much enjoy this read.
The Greatest Trade Ever: How One Man Bet Against the Markets and Made $20 Billion
Is this not the same story as the Big Short? That is what I thought after reading this; although I don’t know what came first as they both look to be published in the same year. Regardless, it was a great read and told the story of how a few traders saw the 2008 financial crisis coming and decided to short the US housing market by going long on Credit Default Swaps. Its key characters were Michael Burry and James Paulson and mentions a number of the other key characters that were in the Big Short.
More Money Than God: Hedge Funds and the Making of the New Elite
This book provides an excellent narrative on the history of the hedge fund industry in the US. Mallaby discusses the people, the development, key trades, and general concepts in the industry. It is quite a dense thick book, but each chapter feels largely as a standalone, so it is quite easy to put down and pick up again. To sum up this book it begins its story from A.W.Jones the first known hedge fund manager and the progression of old style traditional merchant banks to what are now publicly own investment banks. We are then taken from chapter to chapter discussing multiple hedge fund managers, such as: Michael Steinhardt, George Soros, Julian Robertson, Paul Tudor Jones, Ken Griffiths, John Meriwether, and Stanely Druckenmiller. There is discussion over the difference between the global macro type strategies, like the ones that Soros’s quantum fund used to run, we are walked through the events of various crises. There is a section on LTCM, the University Endowment Fund gurus, and the rise of the fully systematic funds. Particularly enjoyable for me was the Renaissance, Citadel and D.E.Shaw one, and their talk on rise of the Quants. There was also an excellent account of the QuantQuake and Citadels play during the financial crisis. At the end of the book there was also an excellent discussion about the hedge fund industry’s role in society and how it compares to the too big to fail doctrine for investment banks. Would definitely recommend this book.
When Genius Failed: The Rise and Fall of Long Term Capital Management
Great book about the fall of Long Term Capital Management. Not really more to say about this book really: if you want to know how it started, its bond arbitrage strategies, it’s thirst for leverage and how much arrogance and greed it’s partners had then this book says it all. The rise and fall of LTCM is a major event in the history of the financial markers and reading this book now illuminates that despite many years after the event, we still unknowingly misunderstand risk.
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
Everyone should read this book. It continues to surprise me how many retail punters think they can beat the market by looking at a few stock charts and reading the financial pages. Moreover, when they win they believe this is due to their own investment prowess as opposed to luck. This book takes us down a random walk down wall street: (1) it introduces us to the efficient markets hypothesis, and discusses market inefficiencies that can lead to investment opportunities; (2)it provides a nice succinct history on financial euphoria and global market trends; (3) it provides a very critical account of technical analysis; (4) introduces the random walk theory; (5) discusses modern portfolio theory, the invention of the CAPM, and smart beta investment (factor models); (6) and discusses the rise of behavioural finance. Having laid the foundations of some key topics in finance, Malkiel offers some excellent advice on how to manage ones own investment savings. He discusses pretty much everything one needs to know on what we should be doing to protect ourselves against all states of the world, while also trying to reach that return to see us through the years without “blowing up”. I can’t recommend this book any more and I will keep this as a standard reference manual whilst managing my own retirement savings portfolio.
The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal
I am a massive fan of Shiller and I think he is truly one of the most insightful economists to have lived. If you believe in the efficient markets hypothesis read this book; I think Shiller puts forth an extremely humble, academic, and well balanced discussion on efficient markets and he provides an extremely well written prose debating it. If you are interested in market’s (stock market, bond market and real estate market) then read this book!
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
This was a truly fantastic book, and I can’t recommend it enough! It puts together a fantastic argument on the failures of the macroeconomics and finance profession to adequately model animal spirits. They argue that such a description requires detailed understanding of confidence, fairness, opportunities of corruption, money illusion, and how the development of “stories” are also key. Moreover, to the trained economist they also provide a fantastic summary of the development of many key ideas, such as: IS-LM, AD-AS, Natural Rate Theory, the Phillips Curve, the role of monetary policy, and money illusion. They are able to link these together in a highly articulate way to put forth their case that the economics profession must take into account the behavioural aspect of economic agents, and not just their economic motives.
Finance and the Good Society
Phishing for Phools: The Economics of Manipulation and Deception
The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do about It
The New Financial Order: Risk in the 21st Century
End This Depression Now!
I have found many people in the finance industry to have complete disregard for Krugman, however I generally this he is awesome! Moreover, I find Krugman’s view on many things to be clear and well thought out and this book in my opinion is just that. Krugman has a clear IS-LM type view of the macroeconomy, and although a simplistic Macro 101 type view, this framework has been excellent in describing the events that have taken place since the 2008 financial crisis. Krugman uses this view to outline the “liquidity trap” and given this argues how to escape it, namely through aggressive fiscal policy. He also fights his anti-austerity view and provides concrete arguments of how aggressive austerity measures are exactly not what you want to be doing in the depths of a recession. Whether you like Krugman or not I think this book is a must read and is key to understanding the anti-austerity debate.
The Return of Depression Economics
Great Book! Krugman outlines with great clarity the currency crises that took place in the 90s and links these with Japan’s experience of a lost decade to show that depression economics is today more relevant than ever. In particular, he provides a great account of the tequila crisis, the Latin American debt crisis, the Asian crisis, the UK’s departure of the ERM, Japan and then ties all this together with the 2008 financial crisis. It’s interesting reading this now, many years after the crisis, and seeing just how right Krugman has been all along!
Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations
Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking
I read this book a while back now, and I very much enjoyed it; moreover I found Kotlikoff’s proposal of Limited Purpose Banking pretty cool. Basically he addresses the main market failures in banking: moral hazard and adverse selection and then goes on to argue how LPB is the cure. LPB is basically a method of breaking up the banks into essentially mutual funds, if you are already curious then you should definitely read it.
The Global Minotaur: America, Europe and the Future of the Global Economy
To be honest not a huge fan of this book, however, I still want to read Varoufakis’ second book given his role in Greece’s debt crisis. This book however, was part of Varoufakis’ broader theory that the US has established itself as the world superpower through its careful design and manipulation of other countries’ industrialisation phases and that role in world trade. Although Varoufakis puts forth a number of strong arguments, this reads a bit like a conspiracy theory as opposed to the nice economics of for example Shiller’s work. So I would say it is still worth a read, but there are a number of other books on this list you should definitely go to first.
And The Weak Suffer What They Must?: Europe, Austerity and the Threat to Global Stability
Adults In The Room: My Battle With Europe’s Deep Establishment
This Time Is Different: Eight Centuries of Financial Folly
Manias, Panics, and Crashes: A History of Financial Crises
Hall of Mirrors: The Great Depression, The Great Recession, and the Uses-and Misuses-of History
The Courage to Act: A Memoir of a Crisis and its Aftermath
The Age of Turbulence: Adventures in a New World
The End of Alchemy: Money, Banking and the Future of the Global Economy
The Shifts and the Shocks: What we’ve learned – and have still to learn – from the financial crisis
Thinking, Fast and Slow
Started off great, got really interesting, then got as bit boring. He then went into a very detailed discussion on expected utility theory and Prospect Theory, which is what won Kahneman his Nobel Prize; but then went on to try and bring this together into a unified framework. I think his work regarding prospect theory is awesome and deserving of much attention, and I think his fictitious System 1 and System 2 characters are a great analytical way to view the cognitive process, however I don’t think he did a great job in pulling it all together; although he did provide a great survey of the literature on experimental psychology and of course his utility theory discussion was excellent.
The Signal and the Noise: The Art and Science of Prediction
Started off quite well, fast paced and fun to read but then I found it very unoriginal and quite boring. Nate Silver basically just summarises a load of stuff that has already been well documented in the pop science literature. For example baseball stats, which has already been well written about in Michael Lewis’s bestseller Money Ball. There was a chapter near the end I quite liked on Bayes, and his argument that basically advocates the Bayesian approach to statistical forecasting. However, the chapters on poker, weather forecasting, baseball stats, and election results pretty darn boring. Would not recommend.
Alex’s Adventures In Numberland: Dispatches From the Wonderful World of Mathematics
Really interesting book! It covers a wide range of mathematical theory and is written in a pop-science kind of way, whilst still dipping in and out of some more formal explanation. For someone with prior maths training it is awesome. Topics included: (1) counting and the history of our number system; (2) base numbers, why do we use 10? why is time base 60? (3) geometry and shapes; (3) zero; (4) pi; (5) the development of algebra: (x,y); (6) mathematical puzzles; (7) series and progressions; (8) the golden ratio and fractals in nature; (9) chance: probability and statistics; (10) the normal distribution; and (11) infinity.
Messy: The Power of Disorder to Transform Our Lives
So not going to pretend I did not enjoy reading this book; especially as the opening chapter discussed Keith Jarrett’s Koln Concert; and there was some interesting discussion on Miles Davis and Jazz. However, The general concept of this book is entirely ripped off of Taleb’s Anti Fragile. Moreover, a lot of the stories were regurgitated from the Freakonomics’ Books, and Malcom Gladwell’s books. So very unoriginal but fun to read nevertheless.
Sapiens: A Brief History of Humankind
Really interesting book; I learnt a loads of cool things to add to my general knowledge. It covers things like: genes and the evolution of Homo-Sapiens, religion, politics, capitalism, the environment, empires, colonisation, data and then briefly discusses the future of Artificial Intelligence, which is the opening to the follow up book. One comment I do have though is on his discussion of Adam Smith and needs to take his argument with a pinch of salt. Adam Smith outlines the Invisible Hand in his Theory of Moral Sentiments, not just the misinterpreted segment in the Wealth of Nations. As such I think Harari has misused the theory, which is very bad scholarship.
Homo Deus: A Brief History of Tomorrow
Overall I enjoyed this book, but there was a particularly boring part in the middle where he talks a little too much about the sustainability of the meat industry, which fair enough is important, but he did this in Homo Sapients and I was looking more forward to his discussion on AI. Harari however provided a very well argued discussion on the failures of liberalism in today’s data religion regime and he provides an interesting discussion on the hypothesis that the Homo Sapien is essentially a data processing unit that is governed in some sense by an algorithmic type function. I don’t necessarily agree with his points but it was certainly a though provoking argument, and to the extent that human beings are relying on algorithmic processes and AI in today’s day and age it raises a number of interesting philosophical questions. This was just shame that it took to the latter part of the book to get to all this interesting stuff.
How Not to be Wrong: The Hidden Maths of Everyday Life
Having read Alex’s Adventures in Wonderland first I was expecting a bit of a repeat but it was quite different. This book is primarily concerned with stats and in particular: regression, correlation and causation, and inference. There is also a section on linearity, which is essentially a point that Taleb always bangs on about. Fun and entertaining read; picked up a few facts along the way but new a lot of it already.
Nerds on Wall Street: Math, Machines and Wired Markets
Great book, really enjoyed it, could relate to loads and learnt a lot about the development of technology and AI in financial markets. There was some cool chat on genetic algorithms, ensemble methods, neural nets and natural language processing. Has some awesome references in it and provides some great introductions to various pieces of literature. For a practising quant trader would highly recommend!
A Man for All Markets: Beating the Odds from Las Vegas to Wall Street
Wow, what a book! I guess if I could name one hero of mine I would say Ed Thorpe. From inventing card counting, to inventing the first wearable computer alongside Claude Shannon, to becoming a professor of Mathematics, and to becoming the first of the great quantitative investors. Thorpe has subsequently run several quant funds and has had amassed an enormous personal fortune. In this book he not only tells the story of his life and each of these achievements, he also provides a level of instruction to people and how they should think about things, about how they should manage their wealth. I have genuinely walked away after reading this book with the impression that Ed Thrope just got “life” and lived it to its maximal potential whilst respecting others and with a solid moral compass. What a guy!
The Most Important Thing: Uncommon Sense for the Thoughtful Investor
Amazing compact book full of incredible wisdom. For anyone that thinks Taleb is awesome this book is a must read. Unlike other books in this space, this book is instructive, almost like an instruction manual for the Talebian investment philosophy of understanding risk and and not being fooled by ones reality. I am a huge fan of this book and I think everyone should read it at least once. I will continue to refer to this book for advice as every paragraph in it is full of wisdom.
The Long and Short of It: A Guide to Finance and Investment for Normally Intelligent People Who Aren’t In the Industry
An excellent handbook for the British individual investor. John Kay is an excellent writer and economist. He has a very wise insight into the investment process, whilst respecting the Talebian philosophy he provides an excellent discussion of Value Investing, the efficient markets hypothesis the portfolio selection. A key point is that once one takes into consideration a roughly 2% return reduction from using a financial adviser you should read up, grow a pair, do it yourself and diversify. Don’t be a charlatan, be contrarian and respect the fact that you do not know, using these themes Kay’s account largely summarized what I had previously thought but in a fun to read prose that was also related to individual British investment vehicles.
Obliquity – Why our goals are best achieved indirectly
Obliquity was an easy reading short book about general topics relating to complex systems and how indirect, counterintuitive solutions can surprisingly be the most effective routes. Kay is an excellent writer and the discussion was all very much according to my opinion, but it was nevertheless a very unoriginal book that largely copied a number of discussions from Taleb, and therefore I would not recommend this book I also thought it was pretty unmemorable. Nevertheless, an easy tube read each morning.
I absolutely loved Principles and Dalio’s whole philosophy. Many of these principles I felt I shared before but never really aggregated them into some systematic framework but Dalio does just that. He provides a recipe on how to do that, and not only that, he provides instruction on how to systematically work through them, and provide incentive structures to assist you along the way. I think it is a fantastic system and have since built a number of personal algorithms and procedures into my daily life to ensure that I continue to drive towards reaching my goals by doing meaningful work and building meaningful relationships. I can’t recommend this book higher; this book has certainly been a game changer for the way I think. 10 out of 10.
The Selfish Gene
Fascinating book. This book begins with the introduction of DNA, and genes; every page turned was mind blowing. Then Dawkins goes into a heavy discussion of evolution and game-theory. Most of this was also very interesting, with lots of interesting anecdotes, however, there is a lot of discussion given to Axelrod and his work related to ESS and repeated games. I am no expert here, but having being taught by the great Game Theorist Professor Binmore, one should take Axelrod’s findings with a pinch of salt. Axelrod argues that an ESS can be forgiving, however the finite autometer in the real world that is an ESS is GRUDGE, or as Binmore calls it, GRIM; according to Binmore it is not forgiving. Nevertheless, it was still an incredibly interesting discussion. The book finishes on Dawkins’s introduction to his personally most prized work: “The Extended Phenotype”.
The Money Formula
This book is written by Paul Wilmott and David Orrell. Paul is a serious dude, he is a seriously renowned quant, starting the certificate of quantitative finance qualification (CQF), writing a 3 volume encyclopedia on quantitative finance, and also and introduction textbook. Paul lectures still at academic institutions, has ran his own volatility options based strategy hedge-fund, and publishes a quant magazine. This books is a short read being only 250 odd pages, but its awesome, taking us a brief overview of the state of the quant profession and the subject of quantitative finance. Most quants know who Paul is, and he really gets to the crux of the state of things. As Taleb reviews on the back: “This book has humour, attitude, clarity, science, and common sense; it pulls no punches and takes no prisoners”. Great book, highly recommend.
Cryptocurrency: The Future of Money?