Best Books For Traders and Investors
One of the questions I get asked regularly from my readers and finance students is for a list of good finance books suitable for traders, or for those learning about markets and investments. In addition as I write this, Christmas is just around the corner, and many of these books would make great gifts for the finance people in your life. There are so many great books on markets but I have focused here on a list of really enjoyable reads, so there are no textbooks on this list. These books are not just interesting and educational, but have exciting stories, and are a tonne of fun to read. Several of these are what I would call investment classics, and so people who have worked in markets for any length of time will possibly have read at least a few of these. They are in no particular order, they are all fun to read, of general interest, and if you are new to the field of finance, you will feel like an old pro by the time you have read them all.
I’m sure the comments section will be ablaze with comments saying “I can’t believe that you left this one out”, and I am really looking forward to reading the comments as hopefully others will suggest books that I have not yet read, or remind me of great books that I have forgotten. I’ll provide amazon links to each book, so that they are easy to find online.
My first recommendation is Roger Lowenstein’s book “When Genius Failed”. It is the story of the hedge fund “Long Term Capital Management” also known as LTCM, which was the hottest hedge fund of the early 1990’s. The geniuses in the title of the book are Myron Scholes and Robert Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for coming up with the Black Scholes Merton model for pricing options and who were also partners in LTCM. While this is a great book for finance geeks, as it is filled with some of the biggest names in the world of finance, and really explains a number of hedge fund trading strategies extremely well, it also just tells a really great and exciting story, of a pioneering business that did really well initially, and then collapsed. It is a book that I got my mom to read even though she would not be necessarily be the typical audience for finance books. If you are really excited about markets, and you have a friend who doesn’t understand why, you can give them a copy of this book to read. If you have already read this book, you should just check out any of Roger Lowenstein’s books, I have read most of them and they are all great. He breaks down complex topics into plain language and tells a great story.
OK, so next up we have “Reminiscences of a stock operator” by Edwin Lefevre. This is the oldest book on the list, first published in 1923. Almost every trader I know has read this book, and it is frequently quoted by traders. Reminiscences is a thinly veiled but still fictionalized account of the life of one of the most storied traders from almost 100 years ago, Jesse Livermore. It is put forth as being a work of fiction where the lead characters name is Larry Livingston, but it is heavily based on interviews Lefevre did with Livermore. Despite the book’s age, it continues to offer insights into trading and speculation. The book tells the story of Livermore’s progression from day trading to big time market speculator and market manipulator, with an amusing section on the benefits and disadvantages of trading with outsiders’ capital. The book is filled with the lessons he learned as he made and lost his fortune several times over.
The book is as relevant today as it was a hundred years ago. Livermore tells us: “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
Livermore’s undoing came at points where he ignored his own advice. After repeated warnings about tipsters, for example, Livermore allowed a tip on cotton to lead to a massive loss which grew even larger as he sat on his position hoping for a reversal — violating his cardinal rules.
Many readers are surprised to learn that Livermore, the patron saint of day traders, advocated less trading and more patience as he matured. In his early days, Livermore was dependent on scalping, as he got older he was able to lengthen his holding periods and could even afford to do nothing for extended periods when there was no opportunity in the markets.
OK, the next book up is Education of a Speculator by Victor Niederhoffer. I am a little bit biased here, as I used to work for Victor, and have been friends with him for around twenty years. I first read this book before knowing Victor, and I have probably read it ten times or more. The book starts out with Victor telling you that he will not give away any trading strategies, as doing so would make no sense, but then tells you all of the life lessons he learned growing up as a kid in Brooklyn, in his academic career, and all of the great ideas that he learned from all of the fascinating people he met along the way. It is a great autobiography, that takes you from Brooklyn in the 1950’s, Harvard in the 1960’s through to being a Partner at Soros’s quantum fund in the 1980’s and one of the top performing traders of the 1990’s. The book is filled with great stories, great ideas, and lessons that we can all apply. The book is one of my favourites of all time, and I consider myself very lucky to know Victor and to have learned so much from him. There is laugh out loud humour, wisdom about humanity, and a tonne to be learned from reading his books.
The next book up is by Jack Schwager, and it is his newest book, “Unknown Market Wizards”. In truth I recommend all of Jack’s books, but this one being the newest is also the one that relates most to the current market environment. The “Market Wizards” books are hugely influential in the world of trading, they are amongst the first books that I read that gave a deep insight into how a trader works and how they look at markets. Jack is a great interviewer and is a trader himself, he asks extremely insightful questions and really gets some of the best traders in the markets to open up and explain what they do and why they do it. When I was starting out I went through all of his books that were available at the time looking for ideas that I could test, and tips as to how I could improve my trading. These books are a must read for anyone learning how to trade.
Next up we have “Liar’s Poker” by Michael Lewis. This is a bit of an industry classic bringing us back to fixed income trading at Salomon Brothers in the 1980’s. In many ways this book is a precursor to When Genius Failed, as it introduces us to the John Meriwether and the fixed income arbitrage group at Salomon who went on to found Long Term Capital Management. It also shows us the genesis of Mortgage Bonds created by Lewis Ranieri when he worked at Salomon in the 1970’s. Through the creation of mortgage-backed securities, Salomon Brothers not only held a near monopoly on an entire section of the bond market for several years, but their creation was one of the first moves into financialization which changed the face of investment banking and led to the kind of products blamed for the financial crisis of 2008. Lewis writes a hilarious account of what it is like starting out on Wall Street, and the different characters you meet on a trading floor. Lewis describes himself as completely inexperienced and wildly overpaid, this book is catnip for burgeoning traders.
The next book up is “FIASCO”:, a hilarious and sometimes disturbing account of working at Morgan Stanley in the mid-1990s. Frank Partnoy, who later became a Professor of Law and Finance at Berkeley worked in the derivatives group at Morgan Stanley helping structure complex financial products. Partnoy explains in some detail how structured products were created and work around various regulations and restrictions all while getting AAA credit ratings. The book is an entertaining read, but also educates the reader on how derivatives work and how they are sold, it highlights the problems that they can cause for people who don’t understand them. You get a front row seat for many of the derivatives losses in the 1990’s like at Proctor and Gamble and Orange County.
Our next book up is “The Winner’s Curse” by Nobel prize winner Richard Thaler. Thaler is a professor at the University of Chicago and an innovator in the world of behavioral economics. He has worked with Kahneman & Tversky and has been key in defining the field of behavioral economics. “The Winner’s Curse” is not an academic piece, it is written for a lay audience, but it is a great introduction to financial anomalies which are of great interest to any trader. Conventional economics according to Thaler assumes that people are highly rational and unemotional, it assumes that they can calculate like a computer and have no self-control problems. This book walks you through the many biases that can be found in investor behavior and being aware of these is of massive importance to a trader. When you dig into it, almost every long-short strategy traded at major hedge funds globally, are based on some aspect of Behavioural Finance, which makes his ideas some of the most prescient in Markets today.
The next book up is the autobiography of Edward Thorp — “A Man For All Markets”. Thorpe is a mathematician, blackjack researcher and hedge fund manager. He first became famous with his book “Beat the Dealer”, which mathematically proved that the house advantage in blackjack could be overcome by card counting. He is one of the first quant traders, who developed an early approach for pricing and hedging options. He was one of the first investors to apply the Kelly Formula to sizing his trades. “A Man For All Markets” tells his life story, shares the lessons he learned growing up and how he developed his quantitative trading approach. It is educational, entertaining and inspiring.
Our second last book on the list is “My Life as a Quant” by Emanuel Derman a really interesting and enjoyable book, where Emanuel Derman tells how he went from Particle Physics researcher to Wall Street. He takes us from his years in academia to Bell Labs to Goldman Sachs where he led the quantitative finance group innovating in the pricing of derivatives and other complex securities. Derman’s honest descriptions of the pros and cons of Wall Street and the academic world are refreshing and chock full of humanity which will resonate with anyone who has worked in a serious capacity in both theoretical physics or in Financial markets. He talks about the salaries, the demands on your time, what the interviews are like, the intellectual freedom and so on. It is rare to find a book like this, or to even hear these topics discussed in informal conversations, so I totally recommend the book to anyone with even a passing interest in the world of quantitative finance.
Jim Rogers is an investment Icon, and commodities expert, having been trading and writing books about trading for decades. He has led an exciting life, and details many of his adventures and travels in a series of investment books, but “Investment Biker” stuck out for me as a particularly enjoyable read. Jim describes setting out on a cross the world tour with his girlfriend, on two motorbikes to analyze global investment opportunities based on his own “observations” about the situation on the ground in various (what would have been at the time) developing or relatively very undeveloped countries in 1994. Interspersed with notes on the motorcycle near-misses and repairs, Jim’s tales are rich in part because of his deep background in History, Geography, Politics, and Economics. He weaves this knowledge base into discussion around historical trade routes, the existence of infrastructure most conducive to trade, natural ports, navigable rivers, borders with amiable and/or wealthy neighbours, existing road or rail infrastructure, and lays bare the essential components for economic success for countries. The initial introduction of a stock market in a country: bullish. The lack of sufficient transport routes in an otherwise bounteous farming nation: bearish. Jim gives insights into the fundamental foundations of economic success, ideas which are of universal interest to market participants and business strategists. I remember reading this around 25 years ago, prior to working in the markets or even intending to work in markets, and its profound impact on my thinking about world economic disparities.
I hope you enjoy these books and if you have other suggestions of your Top markets suggestions, please add them in the comments below.
Amazon Links to Patrick’s Books:
Statistics for the Trading Floor
