Jack Schwager has written three very informative, entertaining and inspiring books on some of the best traders and investors in the world. The books are set up in the form of interviews and the traders reveal -- quite a bit in most cases! -- their trading secrets.
We feel every investor and trader can benefit from the concepts presented in The Education of a Speculator. It was written in 1996 by Victor Niederhoffer, a well-known commodities trader and money manager. It is an informative and thought-provoking investment book.
Niederhoffer followed that up in 2003 with another book, co-written with Laurel Kenner, called Practical Speculation. This book, sort of an update to Education of a Speculator, is another well-thought out effort on investing, markets, strategies, investment advice and, of course, the psychology behind making serious money.
Another very-well written book is Nassim Taleb's Fooled By Randomness. One of the major themes of this book (written in 2001) is the inability of many traders to distinguish between luck and skill, or between patterns and streaks within randomness. Another convincing theme is an analysis of risk/reward probabilities of expected events. Highly recommended.
In 2007 Taleb followed up Fooled By Randomness with The Black Swan: The Impact of the Highly Improbable. This book is similar to Fooled By Randomness but more scholarly and serious.
In 2004, Benoit Mandelbrot, a mathematician and the father of fractals, wrote a very interesting book, The (Mis)Behavior of Markets, where he makes a solid argument against the Efficient Market Theory. Similarly to Taleb, he warns that the markets have far more "fat tail" (i.e., deemed unlikely and/or catastrophic) events than the bell-shaped distributions of price changes assume. This book has a good discussion of the fractal nature of markets. He also talks about some of the people who made significant contibutions toward the statistical understanding of market behavior.
Against The Gods, The Remarkable Story of Risk, by Peter L. Bernstein is an excellent treatise on the subject of risk and risk management. All investors should consider reading this book.
The Predictors by Thomas A. Bass is an interesting book about the formation of a "quant" investment advisory firm called The Prediction Company. This is not a "how to" book and no technical secrets are discussed, but what is fascinating is the amount of effort and logistics that goes into a quantitative trading methodology. You will also appreciate the furious, behind-the-scene, race being conducted by major Wall Street firms in the area of applying chaos theory, genetic algorithms and artificial intelligence to the financial markets.
After you have read this book you might be interested in a previous book by Bass, The Eudaemonic Pie, about the adventures of the principals of The Prediction Company before they turned their attention to the financial markets. In the sixties, while still in graduate school in physics at the University of California at Santa Cruz, they attempted to beat the casinos in the game of roulette by using physics to try to predict (with the use of a hidden, in-the-shoe, computer) where roulette balls land. Very interesting reading, with lots of psychological insight on gambling, risk and perseverance.
The Money Masters by John Train is a classic book similar to Schwager's but written a few years earlier. The idea of interviewing famous investors was probably first introduced here. Train interviews people like Warren Buffett, Benjamin Graham, John Templeton and others. These are the "old guard" in the sense that their trading style is based on value investing as opposed to the other books in this list that use quantitative techniques. Still, it is invaluable to follow the philosophy of these legendary investors.
Kessler's follow-up book, Running Money : Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score overlaps Wall Street Meat but it is mostly about Kessler starting and running a tech hedge fund in Silicon Valley. Lots of interesting insight on the hot companies in the Valley before and during the dot com bubble. Kessler's fund had a hard time raising the first $10 million but eventually, with the help of the tech bubble, his fund hit $1 billion in assets. Kessler's and his partner's great genius was to recognize that the bull market of the late 1990s wouldn't last and he closed the fund around 2001. The books also talks in plain language about the history of the Industrial Revolution and its parallels with the growth of technology in the 1990s, and argues that the current trade deficit is not a problem because we are exporting something that is hard to measure: intellectual property.
You can buy these books at a discounted price online from Amazon.com. Just click on a book's title for more information.
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