Finance books

So i went through a little finance reading binge in the last few months, about 5 books: the theme's that are constant throughout are:

• people are greedy and full of hubris in their ideas
• Hedge funds are greedy, but are somewhat better than banks since they use their own money, have various strategies and if the explode potentially do less damage.
• Investment Bankers are the worse since they are not as smarts as hedge funds (this feels like a theme in all the books) don't use their own money to gamble and mimic many of the strategies employed by the hedge funds (but not as well) nor do they understand strategies they are using.
• The collapse of LTCM traumatized the industry. Everyone love referencing it as the example of the perils of Hedge Funds and Banks financing hubris in modeling and planning.
• predicting the future is impossible, therefore correctly forecasting for risk remains is impossible, so in response laws around leveraging should be changes to mitigate systematic failures.

My Quick sense of the Authors was

• Sebastian Mallaby - thinks the hedge fun guys are really smart, but over compensated, and exploit an unregulated finance system
• Taleb & Lewis - think the entire system its self is systematically and structurally  fucked, and have no faith that anything can be done to stop the industry from peridoically destroying itself and the rest of us with it.
• Sorkin and Ferguson - are more interested in the narrative, history and development of this industry, but both tend to agree that reform is needed since these bankers are a danger to themselves and their countries.
• I will read Taleb and Lewis books again. Not so for the rest.

The Big Short: Inside the Doomsday Machine http://en.wikipedia.org/wiki/The_Big_Short

by Mike Lewis

Exceptionally informative book about the ins and outs of the mortgage industry, with a colorful cast of outsiders: the hedge funds who correctly prepared for the market crash in 2008. There is a great balance between getting an overview of the industry, the players involved, the dynamics of the business as well why these people where able to see the inevitable collapse of the home mortgage industry. On top of this, the cast of character never come across as "evil" or taking advantage of the system, if anything they come across as vindicated cassandra's to an industry that spent years ignoring them. Mike's a great writer and shortly after finishing this book I ordered "money ball" which is equally great.

Story: 10

Characters 9

Financial learning: 8

Life Learning: 4 (none of the people documented have anything close to a work life balance, only after they get their billions and have their heart attacks do they say hey i have a kid i should hang out with)

More Money Than God: Hedge Funds and the Making of a New Elite

By Sebastian Mallaby

Sebastian starts out by explaining how Hedge fund where a strange unpopular business for a long time, while there where a few successful outsiders, it wasn't that popular. Then George Soros + Co came along, they where really successful and made Hedge funds cool (also, he's apparently a fun person to right about since he takes up a large part of this book, i get it he broke the pound, he's eastern european has a theory, wrote and spoke lot but 25% of the book?...) .

The Core learning that Sebastian returns to is the hedge funds look and exploit an asymmetrical bet in the market. This means they invest in something big time if the rewards are vastly superior to the risks involved, while this doesn't seem like a revelation, they do this across all types financial products.

Also, there is this true quant hedge fun in Long island that's the real math "Pi" like deal: Renaissance Technology,  run by Jim Simons, and was, and probably still is, the most profitable hedge fund in the world (For the 11 years ending in December 1999, Medallion’s cumulative returns were 2,478.6 percent!!!). But apparently the author didn't have access to Mr. Simmons, and has no idea what he actual does and how he use's network and number theory to make a ton of money, though he would really like to, but the Math is really hard to understand - so we get 20 pages on Simon and 200 on Soros.

Story: 10

Characters 9

Financial learning: 8

Life learning: 4 (none of the people documented have anything close to a work life balance, only after they get their billions and have their heart attacks do they say hey i have a kid i should hang out with)

Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System--and Themselves

Andrew Ross Sorkin

Wow this is a greek tragedy of a book. Fast moving, hundreds of characters (like any epic only generals get back story) and tragic in the true greek theatre tradition: they can't adapt the realty of the new world, so they don't recognize their mistakes as mistakes, and they lead there armies to ruin. Reads like a Harry Potter novel, 800 pages in 4 days (It's a movie now, should have waited).. I learned nothing about finance

Story: 10

Characters 6 (bankers really aren't that interesting)

Financial learning: 0

Life learning: 5 (read all these lessons in the newspaper first)

The Black Swan: The Impact of the Highly Improbable

Nassim Nicholas Taleb

Besides from the periodic urge to find Nassim and smack him for his snakiness (not since Liberals Arts school, have i read so many passing remarks around classical authors) , this was a great book to read. It actually inspired me to read a considerable amount on statistics, take a class on modeling and number theory, as well as re read Nietzsche and Popper (Nassim loves Popper, but writing style, hubris and tact reads like Nietzsche or Wittgenstein). In a nut shell this books is about how humans, including those in finance, confuse knowledge, empirical prediction to disastrous results. Even worse, in many fields, like finance, data is always perceived as having and end and means in it selves, and never looked or analyzed is true stochastic properties - which is random and out side of the normal distribution. This lack of respect for the unknown, and randomness in general has disastrous effects for the finance and insurance industry, since they will be unprepared for the normal disruptive powers of randomness and black swans. Black Swans being events that are unforeseen and redefine the nature of a category or belief (as in all swans are white, until one experience's a black swan, and realize your very understand and definition of a Swan has to altered). The tale is around how people fool themselves daily, that data does not = all possible future events. He  takes us from Manderbolt to Hume, with Taleb riffing on the short coming of empirical based thinking, Math and the human mind.

The books read like a really long dinner conversation with a very smart friend (though be it, he is the asshole friend variety) and is a lot of fun, if you are into theory. My only problem is it ends with lots of complaints and little in the way of action  (though some - he's the only author in the lot that suggest ways to invest and live) . Also, he leaves out science totally from the discussion, which in frustrating, since science is foundation is on forecasting events, - i almost wanted a Taleb to give me a list where i could use statistic's in the following situations confidently, in these situations with great care, and never in these situation.

Story: 1 (they appear, but dinner time conversation: "my friend x did y isn't that charming and it illustrates my point")

Characters 0 (see above)

Financial learning: 7 (Up there with "Random Walk " and "The Intelligent Investor")

Life learning: 10 (anything the inspires me to get college credit in Math is good, no?)

The Ascent of Money: A Financial History of the World

Neal Ferguson

The first in the lot i read and very different. The book tracks the growth of the banking finance industry to the contemporary world of Hedge Funds. Very insightful fun history, from Venice's shipping industry in the renaissance, the creation of the Sovereign bond by the Medici family to pay for wars, the start of pension funds in Scotland by priests and the beginning of contemporary banking industry and currency trading with the Rothschild's. The narrative and tone of the book breaks down once it approaches Mr Ferguson life time, he experienced the 70's and the growth of the Hedge Fund industry and the collapse of Communism and the birth of state capitalism (China, Russia,etc) this side of the book feels weaker than the later part. It's also a very different story, shifting from a european/American sphere to Asia world wide which is narratively jarring. Overall, an insightful overview of the history of finance with not so much details on the contemporary robber barons (he particularly has it out for George Soros - do to that pound trade). I should have waited to watch the PBS documentary.

Story: 9 (it's mostly history! just stories)

Characters 6 (bankers really aren't that interesting - though more so when you give them a 100 years.)

Financial learning: 5 (Its history really)

Life learning: 6 (apparently I'm screwed, since I'm not a banker and the history really is about them using my money to get richer than i ever will be)