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My Trading Book Reviews

Category: Trader biography
Published: 1923
Read: 1993
Reviewed: May 2010

First published in 1923, Reminiscences of a Stock Operator is a fictionalized biography of stock and commodities trader Jesse Livermore, who made and lost many multi-million dollar fortunes during his lifetime. The book tells the story of Livermore's adventures in day trading in bucket shops, being a market speculator and manipulator, and trading on Wall Street. There has been no modern equivalent to this book, partly because there couldn't be. The value of the book is based on the fact that the lessons and advice in the book were written almost a century ago - proving that they are timeless and universal. It book is widely considered to be the best book ever written about trading.

Although some of the stories are out-dated and irrelevant, the book is filled with countless insightful quotes and insight regarding market behavior and investor psychology. I'm not going to write anything else because the book has been referenced so many times that I can't think of anything original to add right now.

Category: Trader interviews
Published: 1992
Read: 1994
Reviewed: Jun 2010

This is the sequel to the Jack Schwager's classic, "Market Wizards". It features interviews with futures traders, hedge fund managers, former Turtles, options traders, and trading psychologists (Charles Faulkner and Robert Krausz). Stanley Druckenmiller is probably the most famous name.

Some readers think that this book is not as good as the first. They claim that the skill level of the traders is inferior, and that the strategies are merely derivative of other traders'. I disagree. I think that this entry in the Market Wizards series is just as strong as the first - and is also a 5-star book. Even if these traders are not necessarily pioneers, they have still been trading the markets for decades and are far superior to the supposed "super traders" who simply achieved a great 5-year track record that you often see interviewed in other books.

Also, some readers like to Google the traders in the book to see how they have done since the publication of the book. I don't think this has much value. If someone blew up after the book came out, that doesn't devalue any useful advice they had. Here are some interesting stories from the book:

  • Randy McKay's experience in the Marines and his views on war.
  • Randy McKay walking into a Merrill Lynch office and asking for the the least experienced broker - and then giving him $1 million.
  • Bill Lipshutz's experience with working with John Gutfreund.
  • Interesting trading stories from: Randy McKay (buying the top in gold, his Canadian dollar trade while on vacation), Bill Lipshutz (the Philadelphia options mispricing, his dollar trade during the G-7 meeting), Munroe Trout (trading the S&P trade during the Iraq war), Soros' yen trade during the Plaza Accord, Joe Ritchie's silver options trade.
  • Gil Blake's explanation of sector fund inefficiencies.
  • Victor Sperandeo's experience with attempting to train traders.
  • Mark Ritchie's boiler room experience.
  • Jeff Yass' analysis of "Let's make a deal".
  • Charles Faulkner's case study of the guy who who traded for excitement.
  • Gil Blake's muni bond fund timing strategy.

Here are some interesting quotes:

  • Jack Schwager: "By not wanting to trade, I had inadvertently transformed myself into a master of patience."
  • Jack Schwager: "Markets will often do whatever confounds the most traders."
  • Jack Schwager: "There are a million ways to make money in the markets. The irony is that they are all very difficult to find."
  • Bill Lipshutz: "Another important consideration is the evaluation of the best way to express a trade idea."
  • William Eckhardt: "[Indicators are] close to zero in terms of their profit expectations. What these patterns make during market consolidations, they lose during trends."
  • William Eckhardt: Indicators look better with the eyes than they really are.
  • William Eckhardt: "As a general rule, avoid those things that give you comfort."
  • William Eckhardt, on designing a trading system: "If the performance results of the system don't sock you in the eye, then it's probably not worth pursuing... as a general rule, be very skeptical of your results. The better a system looks, the more adamant you should be in trying to disprove it."
  • William Eckhardt: "You can be very promiscuous in your research, but not in your trading."
  • William Eckhardt: "Good systems tend to violate normal human tendencies."
  • William Eckhardt: "The majority of people trade worse than a purely random trader would."
  • William Eckhardt: "Even though money management is more important than the price model, mathematically, it's the more tractable problem."
  • William Eckhardt: "Trading size is one aspect you don't want to optimize. The optimum comes just before the precipice. Instead, your trading size should lie at the high end of the range in which the graph is still nearly straight."
  • William Eckhardt: "System trading has gone from a fringe idea to bring in new kind of orthodoxy.... what began as a renegade idea has become an element of the conventional wisdom."
  • William Eckhardt: "An old trader once told me: 'Don't think about what the market's going to do; you have absolutely no control over that. Think about what you're going to do if it gets there.' In particular, you should spend no time at all thinking about those roseate scenarios in which the market goes your way, since in those situations, there's nothing more for you to do."
  • William Eckhardt: "Trading is also highly addictive. When behavioral psychologists have compared the relative addictiveness of various reinforcement schedules, they found that intermittent reinforcement - positive and negative dispensed randomly (for example, the rat doesn't know whether it will get pleasure or pain when it hits the bar) - is the most addictive alternative of all, more addictive than positive reinforcement only. Intermittent reinforcement describes the experience of the compulsive gambler as well as the futures trader."
  • William Eckhardt: "The market behaves much like an opponent who is trying to teach you to trade poorly....This illusion is well founded. The market does behave very much like a tutor who is trying to instill poor trading techniques. Most people learn this lesson only too well."
  • William Eckhardt: "The markets go up and down. So in some loose sense of the word there are cycles. The problem is that you can fit sine waves pretty closely even to purely random patterns. If you allow cycle periods to shrink and expand, skip beats, and even invert - as many of these cycle theorists (or, perhaps more accurately, cycle cranks) do - then you can fit cycles onto any data series that fluctuates."
  • William Eckhardt: "If a betting game among a certain numbers of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses."
  • William Eckhardt: "The market likes to lull you into the false security of high success rate techniques, which often lose disastrously in the long run. The general idea is that what works most of the time is nearly the opposite of what works in the long run."
  • William Eckhardt: "What feels good is often the wrong thing to do."
  • William Eckhardt: "There is such strong competition in the systems trading niche that the trader has to develop systems as fast as he or she can to merely stay in place....That's why I'm willing to accept systems with somewhat lower theoretical performance if I think they have the property of being different from what I believe most other system traders are using."
  • William Eckhardt: "The people who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades. They are also able to feel the pain of losing. If you don't feel the pain of a loss, then you're in the same position as those unfortunate people who have no pain sensors. If they leave their hand on a hot stove, it will burn off. There is no way to survive in this world without pain. Similarly, in the markets, if the losses don't hurt, your financial survival is tenuous. I know of a few multimillionaires who started trading with inherited wealth. In each case, they lost it all because they didn't feel the pain when they were losing. In those formative first few years of trading, they felt they could afford to lose. You're much better off going into the market on a shoestring, feeling that you can't afford to lose. I'd rather bet on somebody starting out with a few thousand dollars than on somebody who came in with millions."
  • Randy McKay: "Trading has not only become much harder, but it has also changed. In the 1970s, the price moves were so large that all you had to do was jump on the bandwagon. Timing was not that critical. Now it's no longer sufficient to assume that because you trade with the trend, you'll make money... you also have to pay a lot more attention to where you're getting in and out. I would say that in the 1970s prognostication was 90 percent and execution 10 percent, whereas today prognostication is 25 percent and execution 75 percent."
  • Howard Seidler: "It's important to distinguish between respect for the market and fear of the market. While it's essential to respect the market to assure preservation of capital, you can't win if you're fearful of losing. Fear will keep you from making correct decisions."
  • Monroe Trout: "It's amazing what you can do when you have real money on the line."
  • Munroe Trout: "I sincerely believe that the person who has the best daily Sharpe ratio at the end of the year is the best trader."
  • Al Weiss: "By charting the markets you're merely converting human psychology into graphical representation."
  • Al Weiss: A "highly individualistic approach doesn't lend itself readily to generalizations."
  • Michael Carr: "In my opinion, a large segment of the population should never trade the markets."
  • Richard Driehaus: "Most people believe high turnover is risky, but I think just the opposite. High turnover reduces risk when it's the result of taking a series of small losses in order to avoid larger losses."
  • Richard Driehaus: "There are no universal decision rules."
  • Richard Driehaus: When it comes to charts, "I look at the total image. It's more the visual impression than whether the stock breaks a particular point."
  • Richard Driehaus: Most investors "look at all movement as negative, whereas I look at movement as a constructive element."
  • Gil Blake: "I rehearse the process of losing."
  • Gil Blake: "If you break a discipline once, the next transgression becomes much easier."
  • Gil Blake: "It's also important to have a blend between an artistic side and a scientific side. You need the artistic side to imagine, discover, and create trading strategies. You need the scientific side to translate those ideas into firm trading rules and to execute those rules."
  • Gil Blake: "Do your own thing (Independence); and do the right thing (discipline)."
  • Gil Blake: How can the markets be beat? "Certainly not by buying the answer."
  • Tom Basso: "As long as you learn something from a loss, it's not really a loss."
  • Tom Basso: "When I come to work each day, I know that the risk and volatility in my portfolio is exactly the same as it was yesterday, last week, and last month. So why should I let my emotions go up and down from if I'm in exactly the same exposure all the time?"
  • Tom Basso: "You have to enjoy trading, because if trading is a source of negative emotions, you have probably already lost the game, even if you make money."
  • Victor Sperandeo: "When you're trading large, you need to have an especially short fuse in regard to cutting losses."
  • Victor Sperandeo: "Besides trading, there is probably no other profession where you have to admit when you're wrong."
  • Victor Sperandeo: Most people "don't approach trading as a business."
  • Linda Bradford Raschke: "It's better to have the wrong idea and good timing than the right idea and bad timing."
  • Linda Bradford Raschke: "I've also found that it's my smallest positions that cause my biggest losses, because they tend to be neglected."
  • Linda Bradford Raschke: "Develop your own routine for taking periodic market readings."
  • Linda Bradford Raschke: "I believe that I can go into any market with just a quote machine and out-trade 98 percent of the other traders."
  • Linda Bradford Raschke: "My favorite exercise for novice traders is pick one market only. Without looking at an intraday chart, jot down the price every five minutes from the opening to the close. Do this for an entire week. Be in tune to the patterns. Where are the support and resistance levels? How long does each intraday price move last? You won't believe how much you can learn from this exercise."
  • Linda Bradford Raschke: "If you ever find yourself tempted to seek out someone else's opinion on a trade, that's usually a sure sign that you should get out of your position."
  • Mark Ritchie: "A lot of dishonesty in this business begins when people are dishonest with themselves."
  • Mark Ritchie: "If I protected open equity with the same care that I protected closed equity, I would never be able to participate in a long-term move. Any sensible overall risk control measure could not withstand the normal volatility in such a move....If you get too careful about not risking your gains, you're not going to be able to extract a large profit."
  • Mark Ritchie: "Always trade at a level that seems too small.... keep each position size so small that it almost seems to be a waste of your time."
  • Mark Ritchie: "Most people come into this business without a willingness to lose money."
  • Joe Ritchie: "The notion that the market will trade at its precise theoretical fair value implies that someone will hold it there without getting paid. Why would anyone do that?"
  • Joe Ritchie: "Just because all the information is in the market doesn't mean that one trader can't use it better than the next guy."
  • Blair Hull: "People have a basic need to be recognized.... the people who want to be recognized as the greatest traders are probably not the greatest traders. Egos get in the way of the process."
  • Blair Hull: Most traders are too interested in who's buying or selling.
  • Jeff Yass: "I learned more about option trading strategy by playing poker than I did in all my college economics courses combined."
  • Charles Faulkner: The difference between "toward motivation" and "away from motivation".
  • Charles Faulkner: "Trading actually tends to attract people who are ill suited to the task -- those who are enamored with making lots of money; people who are willing to take high risks; individuals who seek excitement or will react to the world with emotional intensity."
  • Charles Faulkner: "The best predictor of success is simply whether the person is improving with time and experience."
  • Charles Faulkner: "Many traders unconsciously acknowledge their lack of progress by continually jumping from one system or methodology to another, never gaining true proficiency in any. As a result these people end up with one year of experience six times instead of six years of experience."
  • Robert Krausz: The most surprising thing that he discovered about human behavior is "how ready we are to fool ourselves".
  • Jack Schwager: "Good trading should be effortless....Hard work refers to the preparatory process -- the research and observation necessary to become the trader -- not to the trading itself."
  • Jack Schwager: "I think one reason why so many people try to pick tops and bottoms is that they want to prove to the world how smart they are."
  • Jack Schwager: "Don't worry about looking stupid."
  • Jack Schwager: "Don't talk about your position."
  • Jack Schwager: "If the innate skill is lacking, hard work may provide proficiency, but not excellent."
  • Jack Schwager: "Losing is an intrinsic element in the game of trading."
  • Jack Schwager: "While I enjoyed the cerebral aspects of market analysis, I didn't particularly like the visceral characteristics of trading itself. The contrast between my motives and the activity resulted in very obvious conflicts."
  • Jack Schwager: Different indicators are like nonprescription sunglasses: "They change the view but don't necessarily improve the vision. The bottom line is that these methods seem to work only because the people who use them have developed some sort of intuitive experience about price."
Category: Trader interviews
Published: 1998
Read: 1994
Reviewed: Jun 2010

Market Wizards quickly became a modern classic after being published in 1988. The book carries interviews Jack Schwager conducted with some of the best traders in the world. Unlike most other books which proclaim to have interviews with the best traders, these traders really are some of the best in the world, and are not just traders that have had a good five-year record.

Each interview talks about the backgrounds and experiences of each trader. There are traders from different markets (commodities, equities, currencies, bonds) and different trading styles (technical, fundamental, macro, quantitative, systems, trend, counter-trend). There are common themes to all of the interviews - mainly discipline and risk management. Although the book serves mainly as an insight into the mind of the trader and is light on material directly relating to trading strategies, there is still enough indirect advice which can help traders strengthen their techniques. The interviews were also conducted shortly after the crash of 1987 and the first-hand accounts of how each trader handled the crash added value to the book.

There were plenty of entertaining and educational stories about individual trades, including: Michael Marcus's Hong Kong gold trade when he heard about the invasion in Afghanistan on TV, Tony Saliba's Teledyne calls, Tom Baldwin's crash of 87 position, Jim Rogers' gold trade and his short crash of 87 trade.

Despite the fact that these really are world-class traders, most of them earned their money in the 1970s and 80s, a relatively more primitive period when simple technical analysis was very successful and the markets were more volatile, trendy, and predictable. This was also a time when the trading products were so new that you could profit simply from the market's general ignorace, especially with options in the 1970s and stock index futures in the 1980s. Because of these factors, the stories may not be as relatable as stories from traders who make a living in today's markets. This is not a criticism of the book, just an observation. Incidentally, the various stories in the book collectively function as a historical account of markets during the 1970 and 80's. Here are some of the valuable quotes and advice from the book:

  • Michael Marcus: If you get in trouble on a trade, just get out of the trade and clear your mind. You can get break back in later if you want to.
  • Michael Marcus: "If we saw surprise price move against us but we didn't understand, we often got out and looked for the reason later."
  • Michael Marcus: "If you can trade one market, you can trade them all."
  • Michael Marcus: "For most great traders, early failure is more the rule than the exception."
  • Bruce Kovner: "Don't get caught it a situation in which you can lose a great deal of money for reasons you don't understand."
  • Bruce Kovner: "The less explanation there is for a price move occurring, the better it looks."
  • Bruce Kovner: Don't personalize losses.
  • Bruce Kovner: "There is probably no class of trades with a higher failure rate than impulsive (not to be confused with intuitive)."
  • Richard Dennis: "If you take something that has a 53% chance of working each time, over the long run there is a 100% chance of it working."
  • Richard Dennis: "The trading experience is so intense that there is a natural tendency to want to avoid thinking about it once the day is over."
  • Richard Dennis: What is the biggest public fallacy about market behavior? "That markets are supposed to make sense."
  • Richard Dennis: When talking about the deficit Dennis says, "We tend to think that since it is not a problem now, that means it won't be. We expect continuity in our lives, but the economy, and certainly the markets, are more discontinuous than continuous."
  • Ed Seykota: "Everybody gets what they want out of the market."
  • Ed Seykota: Being bullish and not being long as illogical.
  • Ed Seykota: Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading days as a function of equity change.
  • Larry Hite: "We let the law of large numbers work for us. In a sense, we are trading actuaries."
  • Larry Hite: About systems trading: "When I get together with other traders and they start exchanging war stories about different trades, I have nothing to say. To me, all of our trades are the same".
  • Larry Hite: "Everyone who has ever told me that the markets are efficient is poor."
  • Larry Hite: "Never bet your lifestyle."
  • Michael Steinhardt: "To make money in the markets, you have to be willing to get in the way of danger."
  • Michael Steinhardt: "It is almost a cliché that the crowd is always wrong - so the guy who stands against the crowd must always be right. Well, life doesn't work that way."
  • Michael Steinhardt: "People's confidence in their ability to predict secular trends has greatly diminished. In 1967, it would be typical to see a report by a brokerage firm estimating McDonald's per-share earnings up to the year 2000. Those people thought they could estimate long-term earnings because companies were growing in a stable and predictable way. They believed in America and steady growth. Today, stocks don't lend themselves to the same type of secular analysis."
  • Michael Steinhardt: "All great traders are seekers of truth."
  • Jim Rogers: "I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up."
  • Jim Rogers: Investing is really just good common sense.
  • Mark Weinstein: "Trade the market, not the money." This is in reference to an episode where Weinstein put on a soybean trade to try to make $350,000 in profits in order to purchase a castle in France.
  • Mark Weinstein: "Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame."
  • Jack Schwager: Avoid losses but do not fear them.
  • David Ryan: Instead of looking at the relative strength, look at the trend of relative strength.
  • William O'Neil: In a bull market, watch the leading stocks for clues. If they break down then the market may be turning soon.
Category: Introduction to stocks
Published: 1996
Read: 1998
Reviewed: May 2010

Written by Michael Sivy, an editor for Money magazine, this is an introductory investing book which ambitiously attempts to covers all aspects of investing in stocks.

Sivy covers such topics as:

  • Macro investing topics - different asset classes (small cap vs large cap), asset allocation, diversification, basic economics, personal risk tolerance
  • Different investing styles - growth stocks, value stocks, and income investing
  • Miscellaneous topics about stocks - earnings expectations, stock buybacks, spinoffs, takeovers, insider buying, closed-end funds, technical analysis

This book is an excellent primer for anyone who wants to learn how to invest in stocks. It will answer almost all of their basic questions that beginning investors have (e.g. "how much should I put in foreign markets?"). Considering the breadth of topics covered, the book is very well-organized. For each topic covered, Sivy gives a concise list the key relevant points while also backing them up with reliable academic studies and statistics.

Some readers have been turned off by the book's writing style, which is very dry compared to the witty quotes from Warren Buffett and the entertaining writings of the Motley Fool. Admittedly, the textbook-like feel to the book does make it read like an encyclopedia. But this is a good thing because beginning investors don't need to hear colorful stories - they need the fundamentals branded into their minds first.

The biggest criticism from readers is that the content is too "by the book". They say that the author doesn't give any experience-based, savvy advice (like Motley Fool does) because the book's statistics-driven research is coming from someone who is a writer and not a battle-tested professional investor. This is not a valid criticism though because the purpose of the book is not to teach you how to become a master stock picker. Its purpose as an introductory book is to try to lay a strong foundation of knowledge regarding the fundamentals of investing. One of the problems I have with beginner investing books is that they are often dangerously narrow in scope. This applies even to the classics like Lynch, Zweig, and Buffett. When beginners read those books, they often underestimate the scope of analysis that needs to be done. For example, when beginning investors hear Peter Lynch talk about how he goes to the mall to scope out companies with hot-selling products, these novices often think that is all the analysis that needs to be done. Sivy's book, on the other hand, offers a comprehensive overview of different investing strategies, so beginning investors will have a well-rounded understanding of stocks before they begin doing bottom-up research on individual stocks.

Sivy does, in fact, give some advice that is not strictly by-the-book, such as "Don't reach for yield", "Don't confuse a company with its stock", and "Don't do anything that makes you fundamentally uncomfortable". This last recommendation flies against the often-espoused advise that recommends that you always keep x% of your money in stocks and y% in bonds.

Another valuable comment he made was a macro prediction he made, presumably around 1996: "I'd say we're only about halfway through the good times. I guess that mean that we should start worrying around 2005." It might have just been a lucky call, but I think it was more skill than luck.

There are only a couple of problems that I had with the book. The first is that he occasionally gives advice that is weak. For example, he recommends you use a full-service broker to buy ADRs because your broker will know more about them. This advice is ridiculous. But, given the scope of the book, these occasional hiccups are barely noticeable. Not to mention, it's not a bad idea to err on the side of being too conservative when giving advice to beginners.

The second problem I had was his omission of any kind of risk management or money management principles. Although he offers specific exit strategies for each investing strategy (e.g. when to sell a growth stock), these tactics manage risk only on the trade level but not on a portfolio level. Sivy simply relies on the gospel of the buy-and-hold philosophy that says everything will be fine in the long run.

But even though the book is light on certain subjects (like market psychology and money management), a beginning book can't cover all aspects of investing. A beginner will need to read at least 2-3 books to get a well-rounded understanding before moving on to intermediate stuff.

Category: Wall Street insider
Published: 1989
Read: 1996
Reviewed: Jun 2010

Michael Lewis describes the few years he worked on Wall Street for the investment bank Salomon Brothers after graduating from Princeton as an art history major. The book concentrates on the traders of the firm and talks about some of the new markets that developed during the time - mainly mortgage trading and junk bond trading.

The book covers the different experiences Lewis went through - his hiring, the training program, being a successful bond trader, the bonus ritual, and working in London. His brief career, coincidentally, paralleled the fall of Salomon Brothers during the mid and late 1980s. The book profiles the key players of the firm, including CEO John Gutfreund, John Meriwether, and Lewis Ranieri.

The book is well-written, comical, and informative. It quickly became a classic and virtually invented the whole "Wall Street insider" genre. It was the first book to expose the ridiculous inner workings of investment banks - from the inexperienced newbies doing million-dollar trades, to the pervasive culture of pathological cluelessness and immaturity.

But even though the book is still relatable today, it has become a bit dated by now. These days, Wall Street is populated by quants and MBAs, rather than the shoot-from-the-hip types.

Category: Entreperneurship
Published: 1997
Read: 1998
Reviewed: Sep 2009

This is a collection of interviews with the biggest technology visionaries in the business world, including: Bill Gates, Andy Grove (Intel), Steve Jobs (Apple), Steve Case (AOL), Bill Hewlitt (HP), Michael Dell, Steve Cook (Intuit), Ken Olsen (Digital), T.J. Rodgers (Cypress Semiconductor), Charles Wang (Computer Associates), Ed McCracken (Silicon Graphics), Trip Hawkins (Electronic Arts), Sandy Kurtzig (ASK), George Eubanks (Symantec), John Warnock & Charles Geschke (Adobe). Although the book profiles the biggest players in the technology industry, it is more of an entrepreneurship book than a general business book, and will appeal mainly to entrepreneurs and managers. It gives readers advice on how to grow a company from a small or medium company into a large company.

The book is laid out in Q & A format and each section reads like a long BusinessWeek interview. At first glance it might seem that there is no point in reading books like this since you can get the same kind of content from reading magazines but a few things jumped out at me. First, the answers are a lot more comprehensive than you see in magazines, which are squeezed for space. Second, the subjects tended to be lot more open and less paranoid about saying something controversial. They're not afraid to take shots at people (for example, Steve Jobs states outright that he thinks John Scully ruined Apple). And third, magazines tend to focus on short-term news that loses its value quickly, whereas the discussions here tend to be more macro-focused and principles-based. Here are some of the more interesting quotes:

  • Steve Jobs on managing: "People are package deals; You take the good with the confused."
  • T.J. Rodgers on long-term strategy: "The only safe harbor is competency."
  • T.J. Rodgers on why he doesn't get into politics: "Why would I want to be a wealth allocator with no value-added - or negative value added - when I can be a wealth creator?"
  • George Eubanks on innovation: "At some point incrementally better just doesn't work."
  • George Eubanks on different people's goals and skills: "Do you think Jerry Rice wishes he was quarterback?"
  • Steve Case: "Bright marketing just kills a bad product faster."
  • Scott Cook: "If you have a lousy idea, financing won't turn it into a good one."
  • Scott Cook: "[Customers] can't verbalize what they want, particularly when it comes to new stuff."
  • Charles Wang: "The time to rebuild foundations is when you don't have to. Otherwise you end up with a euphemism called re-engineering."
  • Andy Grove: "You can't treat your people like an expense item."
  • Ken Olsen, on being an active business person during retirement: "Sitting down and watching television or playing golf rates much lower on the list of accomplishments."

Category: Marketing
Published: 2002
Read: 2005
Reviewed: Sep 2009

This book illustrates 7 rules on how to become a cult brand, including: creating communities, selling a lifestyle, being inclusive, and more. Along the way, the book also profiles 9 examples of some of the biggest cult brands around today, including: Oprah, Star Trek, Apple, Harley Davidson, the VolksWagon Beetle, the World Wrestling Federation, Jimmy Buffett, Vans Shoes, and Linux. The book is rather short (160 pages) and serves as an introduction to cult branding. Some readers who were looking for something more detailed were disappointed. While this is understandable, some of their criticism was unwarranted. One Amazon reviewer wrote:

"I bought the book but it was a waste of money because there was no informational meat to the marketing."

As the book points out, the idea of cult branding is based on the fundamental principles of psychology and sociology - that people are social beings that have a need for security, belonging, and social interaction. This means that cult branding is more of a philosophy than a technique. Complaining that this book didn't spoon-feed you marketing tips is like reading a philosophy book about the finding the meaning of life and saying "yeah, but they didn't tell me how". The purpose of philosophy is not to give you the answers, it's purpose is to teach you how to ask the right questions. Cult brands ask their customer how they "feel" when using their products, while other companies don't care how you feel - they simply ask if you are "satisfied". A cult brand offers an emotional experience, and not just a tangible product or service. Another Amazon reviewer wrote:

"Sure I picked up some nifty tidbits about how big companies have done some "revolutionary" things, but it really comes down to customer service and doing what's right rather than what could create the highest profit margin."

This person completely misses the point. There is nothing "revolutionary" about motorcycles (Harley Davidson) or shoes (Vans). This person is like 99% of small business people give who give no thought at all to branding. They are usually task-oriented people who look at branding as a strategy that is solely reserved for global companies. They don't realize that a cult brand can be something as simple as a local restaurant.

As an investor, this is a good example of a business book that can educate you about an issue that you probably don't pay enough attention to. Branding is a concept that many investors give little (if any) thought to when doing their analysis. You often hear investors talk about a certain stock being attractive because it is "such a great company". But learning about cult branding can help clarify why some of these companies are so great. People who simply chalk it up to great management or operational efficiency are sometimes not fully grasping the concept of cult branding. Perhaps the following fact will explain it better: since the publication of this book in 2002, Apple's stock has gone up 51-fold and their market cap has gone up by over a third of a trillion dollars. They didn't accomplish this feat simply because of "customer service", as the previous simple-minded review said. They did it because their status as a cult brand allowed them to charge 3 times as much as their competitors for commoditized electronics. This is why, when I value a company, I usually add a premium to a company's P/E ratio if they have a world-class brand.

Category: Businessperson autobiography
Published: 1992
Read: 1999
Reviewed: May 2010

This is the story of Sam Walton, which is told through his own words as well as interviews with many people who worked with him during his early days, when his success was built on old-fashioned hard work and energy. He talks about his youth, a time when he possessed an uncommon entrepreneurial spirit and spent time selling magazines and working odd jobs. He moves on to talk about his work history before Wal-Mart, during the early days of the five-and-dime stores when he worked at J.C. Penny and Ben Franklin. He then talks about various operational aspects of Wal-Mart, such as: the financing of early stores, taking the company public, building a management team, and its relationships with vendors like Proctor & Gamble. The book covers different business concepts, such as: merchandising, distribution, business strategy, hiring, logistics, and management principles.

The book shows how Walton's innovative thinking and sharp business acumen led to Wal-Mart developing into a market leader. Walton had a clear gift for merchandising and used it to become a leader in determining which products sold best at the local level. And although Walton didn't like technology at first, Wal-Mart became a leader at integrating technology into their business in order to optimize logistical issues like inventory control and product ordering. One story talks about how Walton would fly around in a small plane and get an aerial view in order scope out the best locations for new stores. When you see how Wal-Mart's innovation allowed them to surpass their larger competitors like K-Mart and Sears, you appreciate that Wal-Mart's competitive advantage (whether fair or not today) was justly earned.

Today, Walton tends to be a very polarizing figure. He is a hero to free-market ideologists, but a villain and the father of big-box retailing which put many mom-and-pops out of business. Although one Amazon reviewer pointed out that he was "willfully blind to the negative effects of his creation", a valid counterpoint is that he (or anybody for that matter) could not have possibly imagined the influence that his company would eventually have. While reading this book, you get the feeling that Walton's singular focus on beating competitors was the result of an innocent, child-like excitement about being the best at what he did. He was like a kid with a lemonade stand who sold the lemonade at the lowest price - but then the next thing you know, you are the biggest company in America. There was no evidence that his dominance was part of a premeditated master plan. And while he does overstate his relationship with his employees (his "associates"), he also had a history of being unnecessarily generous with his store managers by sharing profits with them and giving them autonomy, which I assume was not too common at the time.

Many people like to point out that the irony of the book's title, "Made in America", when very little of what Wal-Mart sells is actually made in America. To be fair though, this is the story of Wal-Mart during its entrepreneurial and mid-sized phase - back when it didn't have the global footprint that it does today. And in defense of the accusations that Wal-Mart destroyed business, today's hyper-competitive economy is much more of a zero-sum game than the positive-sum game that it used to be. Wal-Mart's early growth didn't come at the expense of mom-and-pops as much because the American economic pie was growing much more, whereas today an extra dollar of sales is more likely to come from market share gains, rather than organic economic growth.

Although the social debate about whether Wal-Mart is a good or bad for America is not done yet, I think the argument should be done outside the scope of this book, considering that Walton has been dead for almost two decades now.

Category: Businessperson autobiography
Published: 1987
Read: 2000
Reviewed: Sep 2009

This was Donald Trump's first book, written in 1989. It begins with a "week-in-the-life of Donald Trump" section where he details his real-life daily routine. He then talks about his youth and growing up with his father, Fred Trump, who was a successful real estate developer himself. After that, each of the book's chapters focuses on the details of key deals he made (the Commodore, Trump Tower, Atlantic City, Hilton, Central Park South, the USFL, Wollman Rink, and West Side Yards).

There were many lessons and stories that were educational, such as:

  • Evaluating and structuring a deal (be willing to walk away if the price isn't right).
  • How crucial it is to stay within budget (especially when working with contractors who are ready to take advantage of you).
  • Financing a deal (avoiding the middle manager bureaucrats at the banks and talk to the head guys who understand a business' vision).
  • Dealing with political figures (like the mayor of New York).
  • Negotiating with banks (a lesson which many of the recent amateurs would have benefited from).
  • The complexity of the deals (having to deal with lawyers, the press, politicians, architects, bankers, the counterparty, the families members of the counterparty, and other stakeholders)

And although you won't hear too much about his failures, that is due to the simple fact that, he didn't really have any up until this point.

There were also a few random quotes that stuck out as helpful:

  • "Sometimes your best investments are the ones you don't make."
  • About motivation: "I wasn't satisfied just to earn a good living. I was looking to make a statement."
  • The critics mostly write to impress each other.
  • "Often, the easiest part of the deal is price."
  • "If there's one thing I've learned about the rich, it's that they have a very low threshold for even the mildest discomfort."

This book is unique because it allows the reader to get an inside look at the inner world of a genuine deal-making mogul. It's rare to get a completely candid look at deals like Trump's because deal-making is essentially about people, and it's not as easy to get a mogul to divulge details about the people he's worked with, as it would be to get him to divulge the details of his stock portfolio. And Trump never holds back his personal opinion about the people he's worked with. In a publicity-driven world where celebrities are tossed softball questions in all their interviews, his candidness is a refreshing (and increasingly rare) trait.

Although Trump has always been a guru, at the time this book was written he didn't have the self-promotional air about him that he does today. Below, he admirably cautions newcomers who think they can copy his success in the real estate market:

"[U]nlike the real estate evangelists you see all over television these days, I can't promise you that by following the precepts I'm about to offer you'll become a millionaire overnight. Unfortunately, life rarely works that way, and most people who try to get rich quick end up going broke instead."

One thing in the book that made a big impression on me was a picture in the middle of the book of Donald inspecting a building with his father when Donald was only 12 years old. This picture shows the level of passion that Trump had for real estate. People like to paint Trump as just a "money guy", but this 52-year-old snapshot illustrates the depth and breadth of Trump's real-estate skills and knowledge.

It should be noted that this book is a biography and not a "how to" book. Nonetheless, some people incorrectly stated that the book had no useful tips. This is because some people are too lazy to use inductive reasoning to extract lessons from stories and don't have the ability to learn anything unless the lessons are laid out in a bulleted list. In this book, the lessons are in the form of little comments that Trump says in passing. They are not in chapter headlines or bolded text that says "Make sure you never do this!!" These useful stories are fleshed out in complete detail and are far superior to the vague, over-simplified stories you hear from the fake real estate gurus on TV.

There are a couple of reasons why Trump's lessons are not easily laid out. First, Trumps invests by using his instincts rather than some easily-definable, objective criteria. Second, all of his deals are unique. One deal may be about a financing issue, but the next deal may be about air rights, or zoning issues, or dealing with contractors, or dealing with architects. These kind of lessons can't be easily consolidated into generalized rules. This is why the book is called the "Art" of the deal, because what Trump does actually requires a large amount of creativity and vision. I have the same attitude about my trading - that it is an art form. But whenever someone asks me for trading advice, they are usually disappointed that it doesn't come in a CliffNotes format.

Another reason the book's lessons are lost on many readers is because Trump's large real-estate deals are mainly focused on people issues. Therefore, his advice won't be as relevant to everyday real estate investors who mainly deal with non-people issues like getting a bank loan or fixing up a house. Trump, on the other hand, has to deal with people who are: trying to screw him, hard to work with, or kissing his ass. And it is precisely because these issues deal with people that make his lessons so valuable - because people issues are timeless and universal. This is why the book retains its value after all these years and doesn't read at all like it was written 23 years ago.

Category: Wall Street insider
Published: 2000
Read: 2002
Reviewed: Jun 2010

This book recounts the journey of two MBA students (from Wharton and Harvard Business School) as they get recruited by Wall Street and work as investment bankers at Donaldson, Lufkin & Jenrette. The book covers: the recruitment process, their summer internship at an investment bank, their acceptance of an offer, and their first few months on the job which involve a lot of late hours and demeaning work. Even though this book is highly-entertaining, it also manages to educated the reader about all of the fundamental aspects of investment banking, including:

  • the hierarchy of power at investment banks (managing directors, senior vice presidents, vice presidents, associates, analysts)
  • the types of valuation used (relative valuation, DCF)
  • the functions of investment banks (raising capital, advising businesses)
  • the process of drafting a prospectus for an IPO
  • how investment banks solicit business
  • doing a road show to sell an IPO to prospective investors
  • the due diligence process

The book is very humorous and is full of stories about the ridicluous routines involved in the day-to-day life of a junior investment banker. A couple of notable stories were the purposefully time-wasting revisions to a write-up of a prospectus, and the author's adventures in dealing with the people at the in-house copy center. Although the book comes off as overly cynical and makes one wonder if some of the adventures were exaggerated, I get the feeling that the spirit of the book is not inaccurate.

Even though this was not the purpose of the book, the book makes you contemplate the philosophical issue of the relationship between your career and your values. Although most employees do not endure the level of dysfunction that investment bankers do, I'm sure that many people can relate to the long hours, lack of personal life, unhealthy working conditions, soul-sucking work, and disillusions of eventually "making it".

Category: Wall Street insider
Published: 1999
Read: 2001
Reviewed: Jun 2010

Published in 1997, F.I.A.S.C.O. (which stands for "Fixed Income Annual Sporting Clays Outing" and refers to a corporate outing the author went on) details the author's experience with getting a job as an emerging markets derivatives salesman on Wall Street. He began at investment bank First Boston and left to go to the more prestigious Morgan Stanley. He illustrates the different types of derivatives (PERLS, PLUS Notes, BIDS) and talks in detail about the various derivatives deals that he worked on, including the regulatory process, technical details, and marketing of the derivatives. There were a few random topics which were interesting, including: the profile of Morgan Stanley president John Mack, a brief history of First Boston and Morgan Stanley, his interview at Bankers Trust, and the annual bonus process.

This book talks in depth about the high-profile losses at Orange Country, Kidder Peabody (Jospeh Jett), and Proctor & Gamble. It does a good job in showing how and why derivatives blow-ups happen, specifically the lack of knowledge about the fundamentals of derivatives by most of the people involved with them. Although the author describes derivatives in a tongue-in-cheek manner as "financial gizmos that suddenly become worthless and then appear on the front page of the Wall Street Journal", this is not an altogether inaccurate description.

This book is more serious than the other books by Wall Street insiders (like "Monkey Business" or "License to Steal"). It is more about the products and processes than it is about colorful personalities. It blends details of real-life derivative deals with educational tutorials. The book talks about the need for greater regulation and presciently talks about the failure of the ratings agencies like Moodys to see the risks of derivatives.

"What makes CMOs especially dangerous is that although they're extremely risky, they can appear quite safe. One deceiving and dangerous aspect of CMOs is their credit rating; AAA. Because payments on most CMOs are guaranteed by an agency of the federal government, the companies who rate the bonds' credit quality, Standard and Poor's and Moody's, assign most CMOs their highest credit rating. But this AAA rating is misleading. Although an agency of the federal government is unlikely to default on its guarantee, default is only one of the risks associated with CMOs. Investors in CMOs can and do lose money for other reasons, including the risk of prepayment of principal. These additional risks are not captured by the AAA rating. . . . Because mortgage payments are so unpredictable, even the most sophisticated investment banks that actively trade mortgages have suffered significant losses."
Category: Trader autobiography
Published: 1999
Read: 2001
Reviewed: Jun 2010

In "Pit Bull", Marty Schwartz (of Market Wizards fame) tells the story about how he went from practically nothing to becoming one of the best traders around. Despite the book's all-too-common misleading subtitle which promises trading lessons, there are none included - it is strictly a biography. Even though Schwartz does include a section at the end of the book about the methods he uses, it is mainly just a list of canned indicators without any context.

The book opens with a description of his first trade in Mesa Petroleum options. It then jumps back in time when he worked as an analyst at E.F. Hutton, while also trading his personal account on the side. After being frustrated about not being able to trade full-time, Schwartz sits down with his wife Audrey and creates a plan to build up his grubstake so he can finally quit his job and trade full-time.

After he built a bankroll and quit his job, he bought a seat on the American Stock Exchange in order to trade options. After making a million dollars trading gold options, he eventually moved on to the S&P futures, where he basically became a scalper and made 7-figure annual profits for many years.

His personal profile grew after he won the US Trading Championship, so he decided to start his own fund. But the stress led to him having major health problems which forced him to have life-saving heart surgery. After his investors pulled out half their money, he closed down his fund and moved to Florida in order to live a low-stress trading lifestyle.

The book is full of interesting adventures (like the incident where he almost got into big trouble when one of his analysis reports got leaked) and exciting trading stories (like his positions during the crash of 87 and war in Iraq). My biggest complaint about the book is how immature Schwartz acted. In addition to his generally immature behavior (when he says things like "IBM's moving. It's time to get on the Big Blue train", or his juvenile rivalry with "Porky"), there are many examples of his behavior which perpetuate the inaccurate myth of the high-spending, high-stress trading lifestyle (like his move to an expensive apartment in New York and buying expensive art, or panicking that the world is going to end and pulling his gold stash out of the banks).

Despite his off-putting demeanor, it would be a stretch though to say that his story was a sensationalized account, since he made serious profits and built an admirable record using mostly his own money. But considering that he went from nothing to greatness, his story could have been (and should have been) a lot more inspirational and a lot less entertaining. His story would have had a lot more value had he shown the trademark humble attitude that most successful traders have, and engaged in fewer superfluous activities like hobnobbing with the industry heavy-weights and entering trading competitions.

Some readers have wondered how talented of a trader he really was, since a lot of the money he made was based on a few factors that are no longer in effect (the S&P/bond pattern he took advantage of, his simplistic indicators that he depended on, and the fast-moving and easy-trending markets of the 1970s and 80s). He also shows a lack of intelligence when he thinks that he can run a $70 million fund by scalping. In response to these critics, I believe that his success was based on a core talent as a discretionary day trader who could read psychology and momentum really well. You often see this scenario with talented traders who say they rely on canned indicators. Most people believe the success of these traders was due to their indicators, when in actuality they are really talented at reading the price action and using their judgment - their indicators are really just incidental.

Category: Investing strategy (stocks)
Published: 1989
Read: 1993
Reviewed: Aug 2010

This is Peter Lynch's first book. Part biography and part tutorial, it is considered a classic by everyone in the investment community. After a brief description about his life before Fidelity (he was a caddy, went to Wharton, was in the army), he quickly gets to the main point of the book - that individual investors have an advantage over institutions when it comes to investing. To prove his point, Lynch details all of the disadvantages that institutions face when they invest money (like restrictions on what stocks they can buy, or how many they can buy). Hence, he recommends that you stop listing to investment industry "pros" and learn how to invest your money yourself.

Lynch then teaches readers how to become their own stock analyst. He explains the different types of companies (low-, medium-, and fast-growth, cyclicals, turnarounds, asset plays, spinoffs) as well as key numbers to look at (P/E, debt, dividends, book value, hidden assets, cash flow, growth rate, inventories, earnings). He also explains the best time to buy and sell each type as well as the metrics to use to analyze each type. He also talks about the personal qualities needed to become a successful investor.

He also gives some random advice about buying stocks. He says to favor companies: that have a dull name, that do something dull or disagreeable (sin stocks) or addictive, that institutions don't own and analysts dont follow, that has a niche, or that has insider buying or is buying back their stock. He says to avoid: hot stocks and industries, "diworsification" (when a company expands into areas that it shouldn't), any company that is "the next" (e.g. "the next Microsoft"), stock market rumors, and options.

One of the book's central themes is that a company's long-term stock trend will correlate with it's long-term earnings trend. Another theme is that investors should do hands-on research in order to get to know the company better. They should use the company's products themselves or, at the very least, talk to people who do.

Lynch talks about some of the great growth stocks that he owned, such as L'eggs (a recommendation from his wife), The Limited, and Chrysler (a turnaround). He also points out certain stocks that he missed, such as mutual fund company, Dreyfus - a company that operated in the very industry he worked in.

Here are some interesting quotes and useful points:

  • From Warren Buffett: "As far as I'm concerned the stock market doesn't exist. It is there only as a reference to see if anyone is offering to do anything foolish."
  • "There seems to be an unwritten rule on Wall Street: 'If you don't understand it, then put your life savings into it.'"
  • Cyclicals are the most misunderstood of all types of stocks.
  • "When someobody says 'Any idiot could run this joint', that's a plus as far as I'm concerned, because sooner or later any idiot probably is going to be running it."
  • "Logic is the subject that's helped me the most in picking stocks."
  • "All the math you need in the stock get in the fourth grade."
  • "There was no ticker tape above my cradle."
  • Picking the wrong stocks in good markets will make you broke.

This is one of the books that I recommend to beginning investors because it does a very good job of conceptualizing the process of stock investing. Beginners tend to look at investing as a very abstract process and they often have a difficult time understanding what investing in stocks even means. This book does an effective job of teaching investors how to do research a company, and to center their research around the company's earnings. It is easy to read and is worth the 2 dollars and 3 hours that it costs to read. It should be noted though that this book teaches general principles as opposed to specific techniques, so readers looking for more "actionable" information may be disappointed.

Although this book is definitely good, it has also lost some of its value over the last 20 years. Most of the content is still relevant (do your own research, etc) so it still serves as an adequate introductory book to new investors. But the book's concepts are no longer revolutionary, and there are newer books on the market with fresher content that convey the same ideas.

There are some specific things that I disagreed with or simply didn't like. (1) I don't think that investors should call investor relations or visit headquarters. Calling investor relations gives investors a false impression that they somehow have control over how the company is run. And visiting company headquarters is simply not an efficient use of time. But even if it was, beginning investors, who are a particularly impressionistic group of people, wouldn't even know what to look for. Most of them would probably be seduced into thinking that a company's expensive building means that it is a good company to buy. (2) Buying when the fundamentals are improving often means that you are buying way too late. If you were to buy Bank of America after it's fundamentals improved after the financial meltdown, you would have bought the stock at $15 instead of at $3. (3) Lynch's books have always been too narrow and have underweighted crucial investment concepts like valuation and investor psychology. Because of this, some investors interpret Lynch's advice too literally and think that going to the mall is all you need to do to be a good investor.

Lynch also commits my most annoying pet peeve when he preaches about how the market can't be beaten but then immediately turns around and teaches you how to do it. He does this apologetically, but this self-awareness doesn't negate his hypocrisy:

"After all that's been said, I don't want to sound like a market timer and tell you that there's a certain best time to buy stocks....However, there are two particular periods when great bargains are likely to be found."
Category: Wall Street Insider
Published: 2006
Read: 2010
Reviewed: Jul 2010

After working at Coopers & Lybrand, and then MCI in the investor relations department, Dan Reingold decides to make the jump to Wall Street and become a telecom stock analyst. He starts at Morgan Stanley before moving to Merrill Lynch, and then on to Credit Suisse First Bank. The book describes the rise of WorldCom and the integration of the smaller telecom companies like LDDS. The author gives details of his personal interactions with many of the key players of the era before they became famous, specifically analyst Jack Grubman (when Reingold was an investors relations person with MCI) and with Bernie Ebbers (before Worldcom had become big).

The book's greatest strength is it's insight into the life of a stock analyst - the conflicts between the investment bankers and the analysts, the bonus culture, the long hours, the traveling, and the politics. The book also benefits from the greater macro story - the sharp rise and ultimate fall of the telecom stocks in the 90s (which was a microcosm of the general Wall Street mania of the that decade) - and all of the associated events (the WorldCom scam, and the rise of the powerful analysts like Grubman)

This book has a seriousness to it that other "Wall Street insider" books don't have. That's because most books in this genre aren't really written by true "insiders", they are written by outsiders who happen to get a transitory glance from the periphery of Wall Street. They typically come in two varieties: books that tell comical stories (like "Monkey Business") or books written by green outsiders who wiggle their their into a Wall Street job (like "Riding the Bull"). In Reingold's case, the author was not just some entry-level MBA who became an investment banker for a year or two. He was a high-profile and well-respected analyst (for whatever that's worth).

Some readers like to throw Reingold in with the rest of the Wall Street scum. They say that he should have spotted the WorldCom fraud. I don't agree. Analysts aren't auditors. And even though he kept quiet about the questionable conduct that he witnessed, he also drew explicit lines which he wouldn't cross. Overall, he was pretty honorable.

Category: Company biography
Published: 1998
Read: 1999
Reviewed: May 2010

This is the story about America Online, from it's early days as an online gaming company called Control Video Corporation (CVC), to it's later days as a huge online media company.

The book opens with the interesting conversation that Steve Case had with Bill Gates when Gates proposed that Microsoft buy out AOL. The book goes on to cover various topics, including: AOL's desperate attempts during the early days to forge strategic alliances to distribute their products, their mass-marketing campaign that pushed them ahead of Prodigy and Compuserve, their acquisition of Netscape, their financial problems, the building of their of management team (like Bob Pittman), dealing with customer churn, their notorious downtime, their volatile stock price, their accounting and billing issues, dealing with online porn in a family-friendly environment, and the personality of Steve Case.

Before the book gets into any of these topics though, it tells the story of Bill Von Meister - an unknown character in the story of AOL. This was the best part of the book. Von Meister was the founder of many high-tech firms and was the inventor of various telecommunications technologies, one of which was the forerunner to AOL. He formed one company based on technology that would improve the routing of long-distance telephone calls, another company based on technology for delivering information across FM band, and another company based on technology that could send studio-quality music via satellites and cable lines to users in the home. But it was his interest in moving information that became the catalyst for creating a company based on a technology that transferred information over telecommunication networks - a "home information utility" he called it - which became a forerunner to AOL. Von Meister thought this utility he could complete various tasks, such as making airline reservations (think Expedia), creating restaurant reviews (think Yelp), and viewing banking information. After this company got bought out by Readers Digest, he adapted his business strategy to concentrate strictly on video games. The video games would be used as a "trojan horse" to give customers access to all the other information-based services such as email, etc. He predicted that "it could be one of the greatest business stories of all time". Pretty damn impressive.

The story of Bill Von Meister also serves as an example of how not to be an entrepreneur. Von Mister was the archetypal "genius-inventor" who created great products but was unable to translate his innovations into any kind of success. True to form, Von Meister died broke with huge debts and medical bills. People like him are so enamored with the greatness of their inventions that they expect the whole world to knock on their door when they release their product to the public. They and usually perplexed when venture capitalists don't fawn over them. And if they do get funding, they have adversarial relationships with their investors because their newfound company is often bleeding money because of a lack of management skills, operational experience, and financial discipline (overspending). Ultimately, their complete inability to focus on customer needs - instead of technological features - usually led to unmitigated failure. I think we all know people who, at one time or another, have confidently talked about how easy it would be to run their own business, while being completely unaware of the fact that they don't have any innate skills when it comes to the basic functional areas of business, like financing, marketing, or business strategy. Von Meister serves as a case study about how technical knowledge and vision have a negligible effect on the success of a business in the absence of business skills.

Although this book doesn't have many lessons for an investor, it can help you ponder the long-term implications of technological innovation. The book talks about how Von Meister's music service scared the record companies into thinking that the music industry would disappear. This was all the way back in 1981. And when talking about their interest in AOL, the Tribune said: "The potential growth of online services presented a challenge to all newspaper interests. If information became widely distributed electronically, the underpinnings of the traditional media business might face a difficult challenge." Knight-Ridder also stated that they were planning for an age with electronically-delivered information before there were even devices to do it. This was back in the late 1970's. This kind of insight into how the information age was going to inevitably affect traditional media companies would have given alert investors plenty of lead-time in profiting from internet investments (such as the 90% drop in newspaper stocks in the mid 2000s, or, obviously in AOL stock itself).

Steve Case was one of the biggest visionaries of the last few decades. But he will probably never get his place in history, like Bill Gates and Mark Zuckerberg will, because his legacy will always be tainted by the all-too-easy criticism of AOL's strategy mis-steps, poor customer image, and big stock drop after its merger with Time Warner. This is unfortunate.

Category: Economics
Published: 1987
Read: 1998
Reviewed: May 2010

This book, referred to as the most important political book of the decade, is an 800-page exposé of the Federal Reserve published in 1987.

The first part of the book details the economic crisis of the late 1970s when inflation was running wild and no one knew what to do. To regain control of the economy, the Fed adopted a very aggressive policy and switched their game plan from using interest rates (Keynesian theory) to using the money supply (monetarist theory).

The second part of the book covers a variety of money-related topics, many from a philosophical viewpoint, including:

  • The history and purpose of money itself ("The payment of interest was the core of the capitalist dynamic - it mobilized idle wealth for productive enterprises.")
  • The morality of lending ("The moral offense [of charging interest] was profit without work. The usurer sold time - which belonged only to God.")
  • The political aspect of banking ("Bankers were not ordinarily thought of as a progressive element in American politics, yet banking itself functioned on the premise of progress, on a working believe that reliable gambles could be made on the future.")
  • The philosophy of banking ("the essence of finance was, therefore, an exchange across time -- transactions between the past and the future . . . Wall Street, for all its bewildering complexities, was as simple as that -- the meeting place where past and future agreed on terms and the money changed hands.")
  • The relationship of money to religion (the comparison of the Federal Reserve to a religious institution whose "official secrecy naturally enhanced the mystique", and the observation that fiat money was based on faith - just like the church.)
  • And many purely economic issues, like monetary policy, inflation, and consumer spending.

Naturally, the book also gives an inside look at Fed, including a brief history of central banking, the creation of the Fed, the Fed's operations (such as FOMC meetings), and the Fed's relationship with member banks and politicians (particularly during the turbulent Carter and Reagan years). This book also focuses on the human element of the Fed, including the most recent chairmen at the time (Paul Volker and William Miller), the composition of the Board members, and their relationship with each other.

The book's third section then shifts back to the real world. It picks back up in the early 1980s as the economy is mired in a severe recession, with manufacturers, home builders, small businesses, and farmers getting hit especially hard. The economy eventually picked back up and, as everyone knows, it became morning in America again. The book then quickly touches on such post-recession topics as: the Latin America debt crisis, the passing of the baton to Greenspan, and the stock market Crash of 1987.

One of the best things about this book is that it looks at issues from a historical and multi-disciplinary perspective. So many books make static observations about events without giving them any context. But to gain a true understanding of a subject, a book needs to respect the scope and breadth of related issues and how they helped shape the way things are today.

Although the subject of money relates to so many areas of life, the book does take on an air of contrived sophistication at times. The book's lessons are also less relevant today because the rise of Fed-watching, which has become one of the most popular financial past-times over the last couple of decades, has raised everyone's comprehension of the subject matter.

Although the book is very introspective about many monetary topics, it does not get philosophical about whether the Fed itself should exist, which is a very popular and particularly relevant topic today. Readers who are interested in that debate should check out the highly-regarded book, "The Creature from Jekyll Island". In addition to being philosophically-neutral, "Secrets of the Temple" is also less instructional, and is more of a narrative about the Federal Reserve during the Volker years. Even though it sprinkles plenty of lessons on top of the stories, someone looking for an education about the more technical aspects of the Fed, would be better off with a different book.

Category: Wall Street story
Published: 1991
Read: 1994
Reviewed: May 2010

James Stewart, a Pulitzer Prize-winning writer for the Wall Street Journal, tells the story of the insider trading scandals on Wall Street during the 1980s and the players who were involved (Michael Milken, Ivan Boesky, Martin Siegel, and Dennis Levine). The book is a well-written and very detailed story that reads like a crime fiction book. It's funny looking back at these stories now because these were some of the biggest Wall Street scandals at the time but seem to pale compared to the losses from the scandals that came later, including: dot-com (Blodget, Meeker, etc) , Enron/Worldcom, Madoff, and the mortgage meltdown. The book is unapologetic about it's attitude about Milken being a villain. Some readers may object to this, since Milken was also responsible for the creation of some legitimate financial product innovations that have become a permanent part of the financial landscape (not to mention his philanthropic work). But this book is strictly about the insider trading scandals, and is not a broader biography of Milken.

Category: Trader autobiography
Published: 1994
Read: 1995
Reviewed: May 2010

This book details Jim Rogers' motorcycle trip around the world from 1990-1992. The book's subject matter is about 80% related to his travels and 20% related to investing, which disappointed many readers who were looking for more investing-related information.

First, when reading a book like this, many readers like to go back and audit the accuracy of any predictions that were made (in this case, Rogers correctly called the continual drop in the Japanese market, while being incorrectly bearish on Ireland). The problem here is that any investor has the ability to change their opinions (and their positions) at any time, so grading an investor based on historical predictions is never fair.

Next, many readers considered his thin observations and lack of detail about some of the countries he traveled through to be a disrespectful cultural slight. They interpreted his dismissive attitude about some of the countries to be a moral judgment or an indication of superiority. But I disagree. The point of his travels was to form investment opinions, not to interact with people and learn more about their culture. His arms-length analysis and non-social behavior may seem to come off as condescending at times, but this is only because his top-down analysis (which is strictly observational) is done up close and personal, instead of from an office building in Manhattan.

As far as problems I did have with the book, Rogers does come off as a know-it-all and proposes overly-simplistic answers to complex problems. ("There is a simple, low-cost way to solve the whole problem of the gold standard and it's discipline on money - eliminate the capital-gains tax on gold.") He also comes off as an alarmist by claiming that the fiscal situation in the US is so bad that he was sure that we were going to have exchange controls by the end of the 1990s.

His economic philosophies are also overly simplistic and biased. He annoyingly recommends free markets as a fix for everything. He naively believes that the systematic economic ills of the Unites States (high budget deficits, political corruption) are a result of innocent incompetence that shouldn't exist within "true" capitalism. Hence, he dismisses the costs of these problems because they would contaminate his idyllic capitalistic philosophies. His inability to recognize the costs of his capitalistic idealism is revealed when his blind trust in his partner leads to him to almost getting ripped off. This naiveté would be more tolerable if Rogers were not such a well-traveled and generally intelligent person, but someone like Rogers should have known better. When Rogers does attempt to address these obvious criticisms of capitalism, he correctly refers to how the politicians have "sold our destiny", but refuses to realize that the corporations (the most capitalistic of creations) are the ones who have bought it. The politicians constitute the "sell-side" of the corruption process while the corporations are the "buy-side", and, as Rogers knows, it takes two participants to make a market. I much prefer Soros' philosophy of imperfect markets.

The key question from reading this book, given that it is about international economics, is "how will it help my international investing"? The answer, disappointingly, is "not much". One of the reasons is because Rogers often enters emerging markets when they are in their embryonic phase. He opens investment accounts at brokerage firms in developing countries where the stock exchange has just recently opened and may have only one employee. On more than one occasion, he even has trouble just being allowed to open an account in order to deposit money. An average investor should obviously never get involved in these type of ground-floor foreign investments because they are way too complicated and risky. Admittedly though, the proliferation of new investment products like emerging market ETFs and mutual funds makes these kinds of direct investments less relevant.

Another reason that I can't relate to his style of international investing is that his investment analysis it too political and historical. Attentive readers will notice how the text is relentlessly peppered with the word "statist". This is because his obsession with capitalism dictates that his investment decisions be driven purely by his economic ideology. His interest in getting in on the ground floor of a country's growth phase is done less for the assumed reason of maximizing profits, and more because he enjoys getting a read on when a country will be changing over from being socialist/communist to being capitalist. Personally, I'm less interested in "bottom-picking" the political trend changes of a country and am more interesting in monitoring already-established economies. Our differences are neither good nor bad.

There are many useful aspects to the book. (1) The observations of Russia serve as a rare, real-world study of communist economics. (2) His travels seem to occur during a period of transition in many countries. Therefore, the reader is able to learn about some of the leading indicators that a country is about to enter a growth phase. For example, a country's effort to create a stock market is an indicator that a country is maturing economically and is building a financial infrastructure. (3) The effect of politics and bureaucracy on economic growth, especially in developing countries (4) His acute social and historical observations. (5) And, of course, his random nuggets of wisdom about investing and economics.

Category: Investor autobiography, investing strategy
Published: 1986
Read: 1993
Reviewed: May 2010

This book by Martin Zweig is considered to be an investment classic. In the first part of the book Zweig gives an interesting and detailed account of his childhood, high school years, college years, and young professional days. All of these stories either are within the context of investing, or, at the very least, show how his life experiences led to personal growth that contributed to his success.

Next, the bulk of the book is devoted to detailed (yet easy-to-understand) blueprints to his personal market timing model. His model combines his Monetary Indicators (Prime Rate indicator, Fed Indicator, Installment Debt) with his Momentum Indicators (advance/decline line, up volume indicator, 4 percent indicator) to come up with a Total Indicator.

The last part of the book covers other topics outside his model, including:

  • sentiment indicators (mutual funds cash-to-assets ratio, the bullishness of investment advisors, the number of ads in Barron's ads, the number of secondary offerings)
  • seasonal indicators (holidays, days-of-the-week, particular months, end-of-the-month, presidential cycles, year-end tax selling)
  • predicting bear markets (deflation, high P/E, inverted yield curve)
  • how to scan the market for stock picks
  • stop orders and shorting

Zweig, who has a PhD, conducts his fact-based research with detached objectivity. His professor-like style is a refreshing break from the self-promotional style of most investment gurus who are solely concerned with building their personal brand in order to sell more books. Most investment books don't require a follow-up, yet most successful authors shamelessly cash in on their newfound "author equity" to write useless sequels just for the money. The irony is that Zweig's book is one of the few investment books that warrants a sequel, yet didn't get one. I would be interested to know if Zweig still uses this system as before (doubtful), or made refinements (likely), or threw it away (unlikely).

If this were 1993, I would probably rate the book 5 stars. But my rating is based on how much of a useful resource this book is today. Most of those who first read this book back in the early 1990's probably think that it still retains its full value. But I disagree. Zweig's book is not a timeless book in the way that "Reminiscences of a Stock Operator" is. It came out at a time when there were very few good books related to investing, but, as of today, most of the strategies in the book are either now well-known or not as accurate. The two best aspects of the book as of today are his random investing advice (e.g. "the biggest gains in bull markets tend to come in the first 6 months") and his personal biography, which is interesting and inspirational.

My first critique is that one of the premises of the model (that tighter monetary conditions lead to an underperforming market) is now questionable. It has been pointed out that Zweig's market timing model has not performed well since publication. I believe that the markets have adapted since the book's publication, partly because the Fed has become more pre-emptive, so the stock market has become less reactionary and, by definition, more anticipatory to changes in interest rates.

My second critique is that his famous market timing model seems largely irrelevant, even to Zweig himself. It has also been pointed out that Zweig's stock picking screens have performed very well since the book's publication despite his timing model's underperformance. This doesn't surprise me because, with my own trading, I constantly keep an eye on the general market but rarely let the market influence my decisions regarding individual stocks. If I think a stock is a buy then I will buy it - even if I think that the market will go the other way. For me (and apparently Zweig also), the general market is more of a background indicator - something to be constantly monitored but is not a big influence on my trading. If this is indeed the case, then it's apparent that the book's generous attention paid to the timing model was a result of misguided focus. In hindsight, it looks as if his timing model may have been more of an academic exercise, rather than a core piece of his overall investing strategy. Perhaps the mathematics behind the model should have been moved to an appendix and the book should have given more weight to his stock picking criteria. However, the model is still relevant for those who use it to for long-term market timing, like 401k investors.

Another important point to ponder is that the bulk of the book is essentially a trading system. And even though Zweig's system isn't computerized, it has been back-tested and optimized in the same way that a computerized trading system would be. This means that those who are following Zweig's system have now unwittingly become a "systems trader" - more specifically, an inexperienced systems trader who is trading someone else's system. This situation carries a few particular dangers.

First, you are now dependent on someone else's system - someone who is also not updating or supporting the system. Zweig won't be around to give you help if you need it. You should think about whether this is a position you want to be in for the long-term.

Second, many investors have never bothered to learn about the characteristics of the system (i.e. how the system's inputs and assumptions affect the return of the system) because they are blindly following the system simply based on Zweig's reputation. Blindly following a trading system's signals is fine (even recommended), but only when you completely understand how the system works.

Third, because the system's signals are long-term, it will take a long time to tell when the system stops working.

One of the most important lessons that should be learned from reading this book is one that most readers will probably miss. The lesson is that Zweig's system was not the reason for his success. The reason was the recognition by Zweig that, in order to be a successful investor, he had to do first-hand original research and personally develop his own strategy, instead of relying on other people for the answers. Therefore, investors who decide to use Zweig's system instead of coming up with their own research are actually missing the key point of the book. I remember one time around 1996, back in my "search for the Holy Grail" days, I became inspired by Zweig's theory on how interest rates affect the market. So I tested a system in Tradestation going way back (to 1934 or so) that traded the Dow Jones based on a moving average crossover of the Fed Discount Rate. The system impressively beat the buy-and-hold over the first 60 years or so - up until the mid-1990s. But when the Fed raised rates in 1994-1995 after the economy started picked up, the system got caught short even though the Dow went up from 4000 to 8000 or so. I didn't end up using his system, but his experience of building a system based on his own thinking taught me how to do my own thinking.

Category: Trader interview, market theory
Published: 1995
Read: 1996
Reviewed: May 2010

This book is comprised of a series of edited interviews with George Soros, and is broken up into 3 parts. The first part is about his investing. He talks about his family history, investment philosophies and theories, his early times as an analyst on Wall Street, and the Quantum Fund. He talk about how his theories were related to some of his real trades, specifically the Japanese stock market, the Mexican market, and the British Pound.

The second section deals with his views on (and participation in) politics. He talks about philanthropy, the geopolitics of Europe, diplomacy, and open societies. The third section of the book deals with philosophy and talks about some of his personal writings.

This book was fun for me to read since it was about hedge funds back when hedge funds were pure - before they were contaminated by Wall Street. Since this book is about Soros the person, and not Soros the investor, a significant portion of the book is devoted to politics and philosophy, and not investing. Although these topics are not out of place, most people will be less interested in this stuff since they are more interested in his investments.

Since Soros talks about his theories (specifically his theory of reflexivity), this book could be considered a more philosophical version of Alchemy of Finance. Hence, this book will appeal to traders/investors looking to ponder their personal investing philosophies. Although Soros tries too hard at times to make every statement sound profound, the timeless philosophical topics he brings up lends the book substantial (as well as lasting) value. This is due to the fact that a majority of traders will always lose money. When novice traders are unable to achieve success, it is best for them to step back and ask fundamental questions, like "why do I trade?". But most don't do this, and this book can help with that.

Consequently, the most important lesson that can be extracted from Soros's market philosophies is that it is important to HAVE market philosophies. When I wrote my "How to Become a Trader" checklist, I said that one of the first things you should do is to write down your philosophies about the markets. This catches some prospective traders off guard since it is something that they've never thought about.

Category: Personal finance
Published: 1998
Read: 2004
Reviewed: May 2010

This book profiles the lifestyles and financial habits of Americas wealthy. The book compares people who are good at accumulating wealth ("PAW"s or Prodigious Accumulators of Wealth"), with people are bad at accumulating wealth ("UAW"s or "Under Accumulators of Wealth"). The book lists the 7 factors of wealthy people: (1) they live below their means (2) they value financial independence more than status (3) they devote time to wealth-building activities (4) their parents did not provide economic outpatient care (5) their adult children are economically independent (6) they are proficient in spotting market opportunities (7) they chose the right occupation.

The book covers various topics, including: case studies of wealthy people, a quiz to see if you have good wealth-building habits, a rule of thumb that tells you how much wealth you should have, surveys that reveal how much wealthy people pay (on average) for specific items (like watches), advice about spending money on cars, advice regarding parents and children, recommendations for future high-earning professions, and wealth profiles of the self-employed.

There were a few random observations and pieces of advice I found useful:

  • Comparisons of levels of wealth by country of origin, and explanations about the differences.
  • Have goals for different time frames - 5, 10, 20 years, and lifetime goals.
  • For high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative.
  • Some interesting theories about why doctors are bad with money.
  • About real estate: "God continues to make more people, but he doesn't make more land."
  • Entrepreneurs are not just wealthier because they have higher incomes, but because their attitude of self-reliance when it comes to generating income spills over into a self-reliance with money issues in their personal life. Employees are the opposite, the dependence on others for income spills over into their personal life, where they don't know how to handle any money-related issues themselves.
  • The typical first-generation affluent American is a business owner. He has a high net-worth but often low self-esteem. The low-status, high net-worth parent often lives vicariously through his well-educated adult children who occupy high-status professions.

Many readers point out that the extremely frugal wealthy people profiled in the book are not having any fun. A reviewer on Amazon phrased it best when he said, "What is their definition of the good life? Being the richest person in the cemetery?" Although this appears to be a valid point, the extreme behaviors profiled in the book are used simply to illustrate the book's points, since the law of cause and effect is most clearly illustrated through extreme examples. The authors aren't recommending that you should mimic them - they're just letting you know what they did to get where they are. It is implied that if you prefer to choose a point in between and find a balance between financial security and enjoyable consumption, then that is a personal choice which only you can decide on.

Overall though, this book is quite repetitive and is over-saturated with tables of data. The whole genre of millionaire books would also be more enjoyable to read if they stopped acting as if their lessons were so revolutionary (although this book is not as bad as "The Millionaire Mind").

The biggest weakness of this book (and the whole genre) is that it doesn't bother exploring the actual reasons as to why people overspend. It points out that purchasing things to increase your status will make you poor, but it needs to dig deeper into the psychology of this behavior. This is because most hyper-consumers over-spend because they want to, and not because it hasn't occurred to them to save their money. Their desire to spend originated from somewhere.

Another major gripe I had with this book is that it has a major omission with regards to the drivers of wealth. One of the biggest factors of wealth is having people skills. This is a point that "The Millionaire Mind" didn't miss, as one of their most important wealth-building factors was "getting along with people". This book partially addresses the idea of people skills by recommending that you learn how to "leverage" the work of others, while pointing to business owners as an example. Although this example is a valid one, maximizing your wealth through other people doesn't necessarily need to be done through a hierarchal relationship. People who simply have a positive worldview and are generally likable end up developing invaluable people skills and social connections which are similarly conducive to building wealth. The rewards for being good with people are just as applicable to a manager or salesman who makes $80,000 per year as it is to an entrepreneur who makes $80,000.

Category: Investing strategy
Published: 2001
Read: 2005
Reviewed: Sep 2009

This book is a collection of 1-to-2 page anecdotes about investing from a successful stockbroker, John Spooner, who (from what I read) manages over $600 million at Smith Barney. The lessons in the book are essentially fictionalized case studies of investor behavior based on Spooner's relationships with his real clients. I picked up this book and flipped through it at a book store because it has one of the all-time best titles of any investing book. This is because one of the biggest problems that prospective traders and investors have is that they often aren't really serious about learning about markets or making money.

Within the book there were some pieces advice and observations that were really great:

  • Beat-down sectors or stocks always fall more than you think.
  • It is a red flag if a company fires its accounting firm or if the CFO quits.
  • The box manufacturing industry is a good economic indicator.
  • It is best to value your private investments at zero.
  • Take time at the end of the year to just sit and reflect.
  • His healthy cynicism towards foreign investing.
  • You make big money by being concentrated.
  • "Never bet on the most likely to succeed from your school days. In most cases, that was his or her finest hour. But be prepared to bet on, and ride with, the people who bear the scars from their past, who are driven to prove something."
  • Any investing style or strategy that has acquired a nickname (like "Asian Tigers" or "Dogs of the Dow") has become so popular that it is probably no longer a good investment.
  • Spooner's good estate planning advice.
  • Good calls on Exxon and Iron Mountain stocks.
  • Don't give stock tips.
  • In new ventures, back people and not products.
  • You need to be more creative with your money these days.
  • Retired people do not put enough of their money in stocks.
  • Reading newspapers about topics in your area of expertise is a waste of time because they usually get everything wrong, and you usually know more than the writers do.

I also disagreed with Spooner in many places. But this was expected given that Spooner is very opinionated. This is also natural whenever someone publishes a "break the rules" investing book. But this book is bothersome, with regard to both content and style, because its great advice is offset by some advice that is plainly irresponsible.

With regard to style, some of Spooner's stories are told with a very self-indulgent tone. For example, he talks about his meeting with someone he referred to as a "so-called financial advisor". I'm not sure why he felt the need to include the undeserving jab of "so-called". In a world full of financially illiterate people, financial advisors provide a legitimate service. This particular financial advisor recommended that Spooner sell some of his American Express stock so he would be more diversified. Spooner then recounts the diatribe that he shot back at this advisor about how the way to get wealthy is to take a bold stake in a company that you really believe in. If Spooner wanted to tell this story in order to teach the reader an investing lesson (such as the downside of over-diversification, or the importance of making independent decisions), then that's fine. But I don't think this was the case. I think his gratuitous re-telling of the whipping that he gave to the financial advisor served no purpose other than to boost his ego.

Another example of his condescending attitude is where he denigrates a day trader who had some brief success and went out and bought a BMW and a condo by the water. It's not a mistake Spooner choose a "poser" to pick on instead of a professional day-trader who treats his trading income as a legitimate income and not a winning lottery ticket. Not to mention, taking cheap shots at failed day traders from 1999 became a cliché a long time ago.

Some of Spooner's other self-indulgent stories have absolutely nothing to do with investing, like the stories that contain nothing more than name-dropping, such as the time where he acted rudely to Alan Greenspan when they were on the same flight together. Spooner clumsily attempts to tack on some wisdom at the end of these stories in order to justify telling them.

As far as the content of the book, here are some examples of his atrocious advice:

  • He advices talking to someone at 7-11 to see which soda is selling best. → This is taking the Peter Lynch principle way too literally.
  • His advice on internet stocks: "You buy a little America Online, a tad of EBay, a drop of Yahoo, and anything else that catches your fancy, no matter how pricey it seems to be." → Buy internet stocks no matter what the valuation?
  • "People with something to hide also make the best investors. Insecure people, so conscious of their own image, are great at judging people. You understand what you're trying to hide, so you detect it in others." → This is wrong. People who are insecure almost always have completely distorted images of themselves as well as the world, and are usually bad judges about absolutely everything.
  • "If the fad moves into a third better be prepared to take some profits and look for the next 'hot' area." → This is bad advice. One of the biggest mistakes amateurs make is getting into "hot" areas. Although Spooner's observation that fads have a limited life is true (think: Crox), amateur investors will always be incompetent in this area and should stay away from investing in fads.
  • He advises to buy a stock because it is splitting. → Buying stocks because they are splitting is one of the most amateur mistakes an investor can make.
  • If you buy a stock tip from a source, he advises you to always keep in touch with the source so you will know when to sell it. He then added, "Never fly blind in the market unless you enjoy losing money." → He was implying that if you stop getting updates from a tipster that you are flying blind. But the truth is that trading off stock tips AT ALL is flying blind.

One of my biggest pet peeves is when someone claims that it is impossible to time the market, yet goes on to teach you how you can do it. Spooner does this very blatantly. On one page he says: "If you buy something on the bottom I say it's probably dumb-ass luck." It is idiotic to make a statement that gives the impression that market timing is so difficult, and then turn around and give a quick-and-dirty tutorial about how to successfully jump from fad to fad.

Spooner's book is the kind that teaches you how to break the rules of investing. The problem is that you need to know the rules before you can break them - and the kind of investors who this book is targeted to don't already know them. And that's the main problem with this book - that it is highly hypocritical. But it's hypocrisy almost borders on being malicious. He targets the book to amateurs who are prone to just "fool around", but then relays irresponsible stories to his highly-impressionistic readers. In one chapter, he tells the story about how he received bad service from CompUSA when he went there to buy a laptop, so he went home and shorted CompUSA stock and used the profits from the trade to pay for the laptop. This kind of story gives readers the impression that the market is like a carnival game where you just throw some money down and win a prize. He constantly tells investors to buy stocks with solid fundamentals, but then tells them to jump from fad-to-fad and buy internet stocks at any price.

There is no doubt Spooner has tons of stories that the investment world could learn from, but his hypocritical advice makes this book almost dangerous to read.

Category: Trader interviews
Published: 2000
Read: 2002
Reviewed: Jun 2010

This book carries interviews with 18 of the most successful mutual fund managers. The author talks to them about their jobs and their stock-picking criteria. With the exception of Bill Miller, none of them are very well-known. One thing that needs to be pointed out right away is that any book published around 2000 where money managers talk about how great their records are has to be discounted to some extent due to the large returns in the late 90s.

Because the interviewees are all mutual fund managers, the content and tone of the book are shaped in some important (and mostly negative) ways.

(1) Mutual fund managers usually only employ fundamental analysis and not technical analysis, so the book will appeal more to long-term investors, than to traders who are either short-term traders or use technical analysis.

(2) Because mutual fund managers are always in the market, there is very little about market psychology or investor psychology. This is because mutual fund managers simply don't care if the market drops because they are not going to switch into cash or lose their own money (so they are less interested in exit strategies or risk management).

(3) Another negative aspect of mutual fund managers always being in the market is that many of them are permanently (and blindly) optimistic. Bruce Behrens, when talking about the high market valuations around 2000, said that "the valuation shift, in my opinion, has been rational growth". Then, David Alger said that he bought Cisco at 60 times earnings, looking for the stock to go to 70 times. He also said that he thought that the internet stocks were attractive and that the Dow would be at 20,000 in a few years (i.e. by 2004). The apathy exhibited by these fund managers about valuation will hurt readers, most of whom are probably ignorant about valuation already. Some of these perma-longs are also, by extension, unwitting cheerleaders for corporate management. Bruce Behrens actually says that "Bernie Ebbers has been a master".

(4) Too much time is spent on the story of the actual mutual funds (like how they grew assets), as opposed to the stocks they hold.

(5) The fund managers are blatant cheerleaders for actively-managed mutual funds. Most of them don't recommend indexing at all, which is pretty ignorant considering that it is mathematically impossible for the majority of mutual funds to beat the market even before fees (let alone after fees). Then, when talking about the prospects for short-term traders, David Alger makes the completely ignorant and biased remark about how "you'll do well for three months, then you'll have one or two really terrible trades and lose all your money." Nice scare tactics.

Although these examples of biases and self-promotion are annoying, they are entirely expected and easy to brush off. So when the fund mangers actually do get around to talking about their investment criteria, the book is actually quite strong. There is a lot of the common advice for fundamental long-term investors (look at free cash flow, look at the business model), as well as plenty of unique insights. Here are some of the useful comments from the book:

  • Behrens: Doing some soul-searching will help you figure out your investment philosophy.
  • Behrens: "People don't want to pay you to lose a quarter of their money."
  • Behrens: "I have seen how one-issue oriented Wall Street can be."
  • Birken: Large companies do better in low inflation environments because large companies will have a higher productivity in an environment where there is no pricing power.
  • Birken: A company that requires a lot of capital is worth less than a company that doesn't, even at the same level of earnings. A company with higher debt is worth less than a company with lower debt even at similar earnings.
  • Calinan: "There's a certain mentality, a certain optimism you must have to be a growth investor."
  • Calinan: Small cap investing is far too labor-intensive for most individual investors.
  • Calinan: Large cap growth funds tend to act the same, but the disparities between small cap growth funds are huge.
  • Calinan: High turnover mutual funds tend to generate large year end distributions.
  • Christopher Davis: "The worst thing in the world is to think that your circle of confidence is bigger than it is."
  • Christopher Davis: "A lot of success in investing comes form humility."
  • Domini: Newer industries are less discriminatory and more meritocratic.
  • Lawson: "Many times investors really don't know what is going on in larger companies, because they are made up of so many different divisions."
  • Lawson: "If I can find a 40-cent dollar, that's wonderful."
  • Neal Miller reads 300 magazines in order to get a read on the social pulse.
  • Spiros Segalas: "Be appreciative of your limitations and know what you don't know."
  • Howard Ward: "The stock price that is rising rapidly is frequently a leading indicator of an upside earnings surprise."
  • Howard Ward: "People need to really get a sense as to when it's a good time to cut their losses and move on. You don't want to be a martyr about your ideas."
  • Bill Miller: "Most people, for whatever reason, seem more psychologically attuned to find companies that are growing, have great prospects, or for whatever reason have something people can get excited about. Valuation tends to be a much less important factor for most people than it is for me."
  • Bill Miller: "We do scenario analysis of the companies [that we own]...We try to map out the possible futures, assignment probability weightings to them, and figure out which ones appear to be most likely. Then we determine the value under that scenario."
  • Bill Miller's philosophy about the different theories of truth.
  • Robert Torray said he was "satisfied with finding only two or three new ideas a year."
  • Robert Torray: "Time dilutes both the advantage and disadvantage of the entry price."
  • Observations about companies: (1) Be careful buying companies that have cost-sensitive parts. (2) A company that sells a lower-priced product can sell to the wealthiest person in the world, but also to some of the poorest.
  • Observations about industries: (1) HMOs tend to be managed by highly promotional people and only grow through acquisitions. (2) Health-care is not really free enterprise at work. (3) Waste management sells a service no one wants, but is forced to buy. (4) Commodity companies have no power over what they charge in the marketplace.
Category: Wall Street insider
Published: 1999
Read: 2003
Reviewed: Jun 2010

This is an inside look at one man's experience of being a sleazy stockbroker. The author, who remains anonymous, starts off working for a brokerage firm he code-names "Harvard", a large and respected Wall Street brokerage firm. Even though the firm is not a chop-shop (i.e. boiler room), it acts similar to one. The author initially works as a qualifier who cold calls potential customers to see how much money they have before handing them off to a broker who is licensed to sell them stock.

After not getting promoted to the broker level at "Harvard", he moves to a more sleazy firm he refers to as "Junior College". Here, he makes a ton of money by getting his clients to buy microcap stocks which his firm is also a market maker. Not only does he make huge commissions, but he also gets a portion of the bid-ask spread. Because the spreads are so wide on small illiquid stocks, the clients may end up losing 20% of their money just from commissions and spreads. He also talks about his interaction with the "Dirty Dozen", a group of brokers who break the law by manipulating and "parking" stocks.

In a quest to work in a more legitimate environment, he starts working at (and becomes a partner in) a new startup firm. The firm eventually deteriorates into another scammish enterprise, so he quits Wall Street and moves away and becomes a more traditional financial advisor in a small town somewhere. He later learns that many of his former partners at the startup firm were indicted on charges.

This book is fairly straightforward and has a breezy writing style. Some of the stories and themes get a little tiring though. Even though most people realize that Wall Street is not a bastion of honesty, it is still a bit surprising though that these boiler room techniques were used at the more respected firms. Speaking of which, hiding the real names of the firm that he worked for devalued the book somewhat.

There were a couple of interesting comments he made:

  • "Guys who score real high on their Series 7 never make good brokers."
  • "When it came time to talk to rich people on the phone, they [the cold callers who failed] choked. They thought they weren't as good as the people they were calling up, that they had no right to talk to them."
Category: Trader interviews
Published: 2003
Read: 2004
Reviewed: Jun 2010

This is Jack Schwager's third installment of the Market Wizards series. This one concentrates solely on stock traders, with the most popular ones being Steve Cohen and D.E. Shaw. Ari Kiev was chosen to contribute to the traditional closing interview on trading psychology.

There some interesting stories, including Mark Cook's nightmare Cities Service trade, the description of D.E. Shaw's mysterious firm, Jeff Bezos, and some of the personal histories of the various traders. Here are some of the interesting quotes and ideas from the book:

  • Stuart Walton: "I always find that the hardest thing to do is the right thing to do."
  • Stuart Walton: On being surrounded by other traders: "I found that having another opinion in the office was very destabilizing."
  • Stuart Walton: "Prices move before fundamentals."
  • Stuart Walton: "Start each day from last night's close, not your original cost."
  • Steve Watson: "My favorite theme for a short [sale] is a one-product company, because if that product sales, they have nothing us to fall back on. It's also much easier to check out sales for a one-product company."
  • Ahmet Okumus: The efficient market hypothesis is ridiculous "because different market participants would do research of varying quality. The market price will reflect the average assessment of all investors."
  • Mark Minervini: "Losing all your money is one of the best things that can happen to a beginning trader."
  • Alphonse Fletcher: On managing other people's money: "It is not worth the trouble having an investor who would be a distraction."
  • Steve Lescarbeau: "I think that a physical science degree is as good as if not better than a financial degree because it trains you to be analytical. If there is anything I am really good at, it's being a researcher."
  • Steve Lescarbeau: "Let's discriminate between a market timer and what I consider myself - a market reactor. A market timer says, 'The market is too risky here. I think the Dow was going down to 8,000 during the next three months.' They have a view about what is going to happen. They prognosticate the market. I do not attempt to prognosticate the market. I react to what happens in the market...I make no predictions. I have absolutely no idea what is going to happen."
  • Dana Galante's short-fund strategies.

Overall, this book is much weaker than the other two Market Wizards books, which are both classics. Many of the traders' strategies are based on structured trades (like private deals) which are not relevant to the at-home trader. And many of the traders interviewed do not have the level of accomplishment that warrants a Market Wizard status, with Steve Cohen and D.E Shaw being exceptions.

Category: Trader psychology
Published: 1996
Read: 1998
Reviewed: Sep 2010

This is a book about trading psychology, more specifically, how intuition relates to trading. The book is split into 3 parts: (1) a summary of teachings and strategies about intuitive trading (2) interviews with teachers of intuitive trading, with each one dealing with a particular area of psychology (like chaos or Zen) and (3) interviews with traders.

The author, Robert Koppel, has written a few other trading psychology books, all which seem less-than-mediocre. Even though this book is better than his others, it is still mediocre. It deals with topics which have been already covered in the psychology trading literature (like left brain vs. right brain thinking) and is definitely a superficial treatment of its subject matter. The interviews with the "teachers" end up giving readers the impression that the author has no original insight to offer.

There were only a couple of really interesting sections of the book, including the story about Mulmat's pork belly trade, and the theory about why doctors make bad traders. Here are some other interesting ideas and quotes:

  • Arthur Schopenhauer: "Every truth passes through three stages before it is recognized. In the first it is ridiculed, in the second it is opposed, and the third it is regarded as self-evident."
  • "No single trade is worth not being able to trade tomorrow."
  • Successful traders understand the difference between loss and losing.
  • To develop your intuition, "strategy and technique must be learned only to be forgotten."
  • "Nobody trades the market. Everybody trades their own personal belief system."
  • Bill Williams' 5 levels of trading.
  • When you become an intuitive trader, "Your focus becomes not to make money but to find out who you are."
  • Trading is "the most naked psychotherapy in the whole world."
  • "Very often traders confuse patience with an inability to act."
  • "Most traders have a tendency to think of preparation as intellectual or academic in nature. They like to "study" the markets, to judge the economics of a particular market. They forget, in the final analysis, that the bottom line of trading is that it is up to their mind and their emotions and their control to take action when the time is right!"
  • "Traders unquestionably tend to over-intellectualize trading."
  • "One trader I interviewed... truly believed that the only reason that the bell rang at 7:30 every morning at the exchange was to enrich him and his family."
  • Whenever someone talks to a guru about the secrets of trading, they're hoping for a complex answer.
  • "There is a whole industry of individuals who represent themselves as gurus and keep promulgating the notion to the public that there is one objective answer to successful trading."
  • "Being confident in one's likelihood of success and being confident of a particular trading position are quite different."
  • Traders are "independent thinkers, and they are people who know to manage their time and structure their lives. They don't require a lot of rules. They are comfortable in their own skin."
  • "You have to have an affinity for trading to be successful. I don't think anybody can do anything well just because they decide to do it."
  • "You cannot enter into a trade as a day trade then turn it into a position trade because there is a loss on the trade. The internal logic of the trade must stay consistent."
  • The record of your trading is "the ultimate psychological report card."
  • "Our beliefs are the lenses through which we see the world."
  • "Many people have an incorrect perception of trading. They think you just start trading and fill your wheelbarrow up with money."
  • "The psychologically rich keep getting richer and the psychologically poor get poorer."
  • "Do not just try to break bad thoughts or habits - replace them."
  • "You learn to ski by skiing. You learn to trade by trading."
  • "Performance goals will energize you faster than outcome goals."
  • George Leonard: "To take the master's also have to be willing to spend most of your time on a plateau, to keep practicing even when you seem to be getting nowhere."
  • Think in probabilities. Act in certainty.
  • "Trading is not about proving something - to yourself or anyone else."
  • As a trader, each day you "will be put to a test of my own making".
  • "I don't believe you can lose the lottery. I mean, they might not take your ticket, but psychologically speaking, you don't lose."
Category: Trader psychology
Published: 2003
Read: 2003
Reviewed: Aug 2010

This book is a collection of articles dealing with trader psychology that were taken from the "Mind over Markets" newsletter and website. This book covers "traditional” areas of trader psychology (such as: stress, mood, having a positive mindset, confidence and self-esteem, keeping it simple, thinking in terms of probabilities, having a winning attitude, being flexible, taking action, taking responsibility, motivation, self-sabotage, recovering from a bad day) as well as topics covering behavioral finance (such as: framing effects, illusions of control, sunk costs, insufficient justification effect, mere exposure affects, fundamental attribution error, false consensus effect).

Although this book covers a plethora of topics, it's weak in a couple of areas. First, there are so many topics covered that the author doesn't cover them with any kind of depth (nor does it make any attempt to with the book having only 137 pages). The book best functions as a reference resource that lists issues to go and research somewhere else. Secondly, the author doesn't relate the concepts of psychology to trading too well. Other trading psychology books (like "The Disciplined Trader") back up their psychological theory by giving real-world examples of trades. Although this book does make some references to trading, the connections are way too generalized and vague. Some of the advice (like "don't dwell on mistakes" and "take responsibility") is so generic that it could have been taken from any given self-help guide.

There were a few interesting discussions throughout the book, such as: how pessimism may not be a bad thing, "learning goals" vs. "performance goals", the downside of taking responsibility, and conformity. Here are a few interesting quotes:

  • Are you truly confident? Or are you "creating" confidence because you know you need it?
  • You shouldn't ignore your emotions. You should learn to use them as a flag rather than to strive to eliminate them.
  • Although people think that it is "fear and greed" that drive financial markets, a more accurate label would be "fear and hope".
Category: Economics
Published: 1991
Read: 2010
Reviewed: Jul 2010

This book predicted that the 1990s would be a decade of depression in the U.S. Its premise is based mostly on the high cost of the US economy, indicated mainly by the huge amount of government debt and lack of productivity (due to the costs of the legal system, the engineering gap, and health care spending). The fall of the British Empire in the 1930s and the U.S. depression of the 1930s are used as analogs to create a template for the then-anticipated U.S. economic decline.

The book makes macro predictions (about inflation, interest rates, economic activity, and financial markets) as well as micro predictions (the price of oil, particular industries, and social changes). The book is ambitiously broad in scope. It is rich with historical lessons and detailed references to related political and social phenomenon. The authors themselves state that the book needs to be "broader than just the economy or markets". Since the book deals with long-term trends, this multidisciplanry backdrop adds needed depth to the analysis.

Even though certain topics (like the history of primitive violence) inadvertently taint the book's generally non-alarmist tone, the authors don't fall into the common trap of being falsely apocalyptic (which is especially admirable considering that the book predicts a major decline). This temperance is due to a couple of reasons. The first reason is that the book is well-researched and the concepts covered are analyzed thoroughly. There is tons of logic and depth to the author's thoughts. It is clear that the authors of this tome have a genuine interest in modeling long-term economic declines and are not just dispassionate journalists casually digging up facts in order to write a half-hearted book. The second reason for the deliberately-tempered negative tone is that the authors make a point to remain objective in their predictions. They dosn't take a moralistic, anti-government stance that many amateur investment bloggers do. The authors show admirable restraint in admitting that things may not even develop as badly as they think. They admit that "it would be wrong to overdraw the parallels" of history, so they include a list of ways that the 1980s are different from the 1920s (unfunded liabilities, high trade deficit, debtor nation status, no gold standard). They rightly point out that capital "is like padding that protects social institutions from megapolitical shocks" when explaining how the depth and breadth of the modern US economy acts as a buffer against declines.

Even though the authors take a little too much credit for claiming their predictions came true (which they do in the updated version of the book), the accuracy of book's predictions, overall, was indeed very impressive. The predictions that the authors made were bold enough, and specific enough, that the book's only-moderate accuracy rate still creates massive profit opportunities. One misconception about long-term trends is that you have to place your bets before the trend begins. Fortunately, this isn't true. You can wait until the warning signs appear, or even wait until the trends begin, and still profit significantly. The book's financial predictions are (understandably) more accurate than their social predictions (the book overestimates the amount of social instability). This isn't bad though since the financial predictions are the ones where the most profits are to be made.

Here are some predictions that came true.

  • The rise of terrorism (September 11th).
  • The US military assets will be largely ineffective against the threats of the 1990s (failure of the war in Iraq).
  • Loose money policy will not work after the big decline occurs (this one was easy).
  • Politicians will make the decline worse because of inflexible leadership (politicians ran up the deficits even more).
  • A large drop in real estate prices.
  • Government employees will be fired (state employee layoffs in California).
  • The entire financial system teeters on collapse with a large number of bank and insurance company failures coupled with abandoned properties (Countrywide, AIG, foreclosures).
  • Quadrupling of the deficit from $200 billion to $800 billion during the economic downturn.
  • Large losses on government-guaranteed debt from Fannie Mae, Freddie Mac, and Sallie Mae.
  • The economic decline will increase wealth disparities because the biggest losses will be in real estate, and the middle class has the largest proportion of their assets in real estate.
  • Hyperinflation unlikely.
  • These industries will do bad - auto, construction, media, restaurants - especially expense account dinners (Ruth Chris). These industries will do well - pawn shops, home-based businesses.
  • Counter-intuitively, luxuries will suffer at first but will rebound very well (Coach handbags have done well).
  • Brand loyalty will decline.
  • The infrastructure will start to crumble (Minnesota bridge collapse) and infrastructure, like roads, will be privatized.
  • The transfer of information over the telephone lines (the internet).
  • International drug wars (Mexican drug gangs), and legalization of drugs (California).
  • The decline of the suburbs. (this came true - relatively speaking)
  • Oil will fall near record lows (it did in 1998 before rising).

Here are some predictions that didn't come true, some of which still may:

  • State and muni bond defaults (increasingly likely going forward).
  • The FDIC would run out of money (definitely possible).
  • The withdrawal of the US as a global military policeman.
  • A decline in secular consumerism (although consumer spending declined during the economic decline, the "religion" of consumerism hasn't declined).
  • A resurgence in religion.
  • Japan is likely to be the next big power.
  • These industries will do bad - defense, fashion, services, medical.
  • Higher taxes.
  • Exchange controls.
  • Deflation.
  • Taxes raised.
  • Canada will split apart.
  • Public schools will be privatized.
  • Welfare state goes away.
  • Corrective measures like a taboo on debt or a wealth tax.

Here are a few noteworthy quotes from the book:

The following is an insightful comment about how America will actually be resilient for a while even if it loses its superpower status:

"As American economic supremacy has given way to relentless international competition...the stage has been set for another perilous transition of world power. Such transitions are rare in modern history. There has been only one in the last two centuries. Not surprisingly, therefore, the lessons of the decline of empire have been easy to neglect or misunderstand. In particular, it would be easy to assume that the transition period is one of growing advantage for the rising power. Historically and logically, this is untrue....The declining power itself is likely to be the beneficiary of its own weakness, while other nations, poor or rich, suffer more in the chaos and depression that accompany a breakdown of the world system. It may be only when the new empire finally emerges to predominance, after a trauma of transition that may be decades long, that the old empire settles into its debility."

About the failure of stimulus-based job creation:

"Politically, the representatives of the unemployed, underemployed, and unemployable are going to push to "make jobs", in spite of the insolvency of the government. The government will seek to create work through regulation. These policies will be implemented in conjunction with industries with falling demand, perhaps by mandating a very short work week, or requiring that successful firms "adopt" dysfunctional individuals for "training"".

About the default of mortgage-backed securities:

"In effect, the U.S. Treasury is like an insurance company without reserves. Congress has gambled the good credit of the country by writing trillions of dollars of coverage against the fall of real estate prices in the United States."

The book has a couple of weaknesses. First, it gives too much weight to Japan's influence and relevancy to future events. Even though Japan did end up suffering a meltdown, the big differences between Japan and America (both culturally and economically) caused its economy and markets to become de-coupled from Europe's and America's after 1990.

The other weakness is that the book's focus is sometimes misguided. It goes off on tangents which are interesting but are only marginally relevant at best, like: theories on poverty, a history of violence, the nature of power, and the information age and technology. It also attempts to make predictions about geographical regions which are not relevant to the meltdown, most notably Latin America. The focus on these irrelevant topics is compounded by the fact that the book misses a few obvious areas of exploration. One area is the high amount of consumer debt. The book talks only briefly about high leverage in the private sector and correctly points out that "too many people are tapped out to allow for vigorous growth". But this topic isn't explored nearly as much as it should have been. It should be remembered that consumers do not have the power of printing their own money. This means that a default of consumer debt will happen before a default of government debt.

Another area of interest, this one within the social realm, was the media and advertising. Although the book touches on the rise in celebrity culture, the book should have given more weight to this topic, instead of some of the disconnected history lessons, since the rise of marketing and advertising has been one of the most influential secular trends of the last half century and affects consumer spending so much.

A third obvious area of interest that was skipped was the future economic rise of China, since that subject is especially relevant to the thesis of the book. Thankfully though, the copious amounts of coverage about China's economic rise from other sources conveniently fills this hole.

Overall, the book is very strong. Ordinarily, I wouldn't give a "meltdown" book such a high rating. Most of the books of this genre tend to be similar because their general themes (the economy will crash) as well as their basic reasoning (high debt levels) are obvious. But this book is different because its high level of detail serves as a useful blueprint not just for this specific economic decline, but for major economic declines in general. And its broad scope (with its historical perspective and regard to the related social and political issues) give the book a lot of depth. Many people simply don't know the scale of destruction that results when a major economic decline happens since they don't happen often. Widespread bank failures are a good example.

There are a couple of rules to keep in mind when reading meltdown books. (1) Value the analysis, but ignore the timing. Economic expansions can go on for 10-20 years longer than people think they will. Like other books, The Great Reckoning also got the timing wrong. The book predicts that interest payments would consume 100% of GDP by 2015. (2) Don't become a perma-bear. Don't act until you see the warning signs. I know someone who liquidated his equity mutual funds when the Dow rose from 3,000 to 4,000 because he thought the market was going to "come crashing down". Later on (like 15 years later), he was undoubtedly (and unjustifiably) patting himself on the back after the Dow Jones fell from 14,000 to 8,000.

Category: Economics
Published: 1996
Read: 2003
Reviewed: Sep 2010

Winner-take-all markets are markets where almost all of the rewards go to the fewest top-performing players in any competitive arena. The main thesis of the book is that winner-take-all markets result in a mis-allocation of resources (specifically an "arms race" of unproductive consumption and investment) and do result in outcomes that are neither efficient nor equitable. The author draws on many areas of the American economy as examples, including: CEOs, movie stars, lawyers, athletes, and authors. He then attempts to deconstruct the reasons how winner-take-all markets emerge. The main reason is that rewards that depend on relative performance will lead to excessive investment, known in economic terms as "overcrowding". Some of the specific dynamics that contribute to the trend are "network economies" and self-reinforcing processes (like positive feedback effects) where winning begets winning.

Overall, this book was decent, but not mind-blowing. The increase of winner-take-all markets has been a very influential and under-recognized trend over the last few decades. The book deals with the interesting (and important) philosophical question about what the economic reward system of a society should be. This question is particularly relevant today where there is rising income inequality and a mature economy that is closer to a zero-sum game than in the past. Although the book talks about these issues (specifically about the overworked American), I don't think there was enough philosophical debate.

The book points out specific examples of winner-take-all markets, particularly: steroids, the popularity of tennis versus golf, the selection of wives, and cosmetic surgery. But the book drops the ball, in my opinion, when it doesn't connect winner-take-all markets to such elementary concepts such as "diminishing marginal utility". The book also spent too little time on the concepts they did mention, like: the tragedy of the commons, game theory, overconfidence, decision-making, branding, and risk preferences.

I also think that the lessons of winner-take-all markets could have extended to the financial markets, specifically the dynamics of market bubbles. There was a line in the book that said, "as social beings, people have a keen interest in reading the same books others read, and seeing the same movies." Well, as social beings, people also have a keen interest in buying the same stocks, which leads to a self-reinforcing trend that leads to a bubble. I also think that globalization, being such an important trend, is a topic that should have been covered, even if briefly.

One of the author's main themes is that winner-take-all markets lead to overinvestment in areas that have little social value. But I think the author made a major mistake by stressing this point. Although I agree with his moral values (that we live in a shallow society that values status and money), the lesson is NOT that the losses from inefficient investment due to overcrowding are a result of investing in things we don't need. The lesson is that overcrowding leads to unproductive investment no matter what that money is invested in. The whole concept of overcrowding is based on the idea that the amount of investment (i.e. the supply of investment) is too high compared to the market's supporting demand for that investment - not compared to what a person's subjective values-based opinion believes that demand should be. If Americans want their values to be based on shallow consumption, then that - by itself - doesn't constitute unproductive investment. Even though the concepts of shallow consumption are related to the consumption theories in the book, they are actually irrelevant. By bringing up the debate about shallow consumption, the author creates the unnecessary risk that the anti-consumerists who are reading his book will misinterpret the book's main theme, which I think has happened to some extent.

Category: Businessperson autobiography
Published: 1997
Read: 1999
Reviewed: May 2010

Similar to his popular debut book, Trump once again writes about the details of his biggest deals, including: the Empire State Building, 40 Wall Street, Maralago (his Palm Beach property that is now a country club). He also talks about the decline of his personal fortunes after the big real estate drop in the early 90s, and ends with a repeat of his "week-in-the-life of Donald Trump" section.

A few useful quotes:

  • "Deals are people, they are not deals, and if you don’t have a deep understanding of people and their motives, you can never become a great dealmaker."
  • "Get zoning in a bad economic climate, and begin building and a good one."
  • "Honesty causes controversy."

Similar to "Art of the Deal", there was some unwarranted criticism of this book. Some reviewers said that this book didn't have any details about the deals that led to his turnaround. They fail to recognize that the crux of his comeback resulted from the simple renegotiation (more accurately, the liquidation) of some of his debt, as well as the bounce-back of the real estate market. And, again, this book is a biography and not a tutorial.

This book is, however, less dynamic, since his formative years were in the past and the growth period of his empire was over. On the other hand, this book is much more personal, and his trademark candid style is especially effective here as he shares intimate details about his relationship and divorce from his wife Ivana. And his often-quoted lessons about being loyal are especially relevant here when he talks about how many of his personal friends didn't stick by him when times got tough.

Category: Options
Published: 1984
Read: 1994
Reviewed: Sep 2009

Despite the hype-ish title ("Sure Thing"), this beginner options book teaches the basics very well. Although the book is for beginners, it also does a nice job of exposing the reader to intermediate options concepts like straddles, spreads, and other stuff. The tutorials are well-written and are neither too technical nor too simplistic. They assume a high level of general comprehension, although no prior knowledge of options is needed.

Many people who give this book very high grades do so because it was a book they read 20 years ago and they can't help reminiscing how much it helped them at the time. But they are not adjusting the book's value for today (it was written in 1983). Because the book is part of the increasingly-crowded category of beginner options books, it has become a little generic over the years. It has the kind of information you can get from pretty much any book or web site that has decent introductory options tutorials. Also, there were other intermediate concepts not covered, like the importance of Implied Volatility.

If you are looking to get into options then you will surely learn a lot from this thorough introductory book. If you want it for cheap then go on Amazon and buy it for a penny + shipping. But you should follow it up with another one or two option books as well as internet research. Also, if you are going to get an education about options then you have to look at more than just option tutorials. You also have to learn about topics like money management, risk management, and market and trader psychology.

It should be noted that this book, like many other investment books, teaches "techniques", and not "strategy". Techniques are just specific actions you can take (for example, buying a covered call), while a strategy is a plan that that is based on an advantage that you have.

Category: Wall Street stories
Published: 1995
Read: 1996
Reviewed: Sep 2009

Written by Gene Marcial, the "Inside Wall Street" columnist for Business Week, this book is full of stories about some of the insider trading that goes on behind the scenes of Wall Street. The book is well-written and offers nice 6 to 12 page stories that are short enough to read quickly, but long enough to be interesting. The author also categories each story into a different type of insider trading (insider tips, front-running, the Chinese Wall, etc) so readers get to hear about the naughty side of Wall Street while also getting a light education about insider trading at the same time.

One of the problems with insider-trading books is that they scare away investors from the market who think they are going to get fleeced. And they also fuel the fire of conspiracy theorists who use insiders as an excuse as to why they lose money in the markets. Insiders can definitely make money from information but they aren't going to substantially affect the return you get in the market.

Category: Systems trading
Published: 1997
Read: 1998
Reviewed: Sep 2009

I met Joe Krutzinger at a seminar right before this book came out when I was going through my "TradeStation phase". The book is a set of 15 interviews the author conducted with some of the more high-profile personalities in the systems trading industry. Some of the more well-known names are: Bill Williams (fractals), Larry Williams, Nelson Freeburg, and Glenn Neely (Elliot Wave). The interviews are done in Q&A style where the author unfortunately asks the same questions to each participant. Some of the questions are also very weak, including: 1. "Is your system for sale/lease?" 2. "Do you need tick-by-tick data"? 3. "What kind of software do you use?" 4. "How long ago did you write your first system?".

Many readers have criticized the book because the traders being interviewed don't share too much information. The reason for this, I believe, is because it is easier to duplicate - and therefore eliminate - the edge of a systems trader than a discretionary trader. Warren Buffett can give all of his analytical methods away but it still won't hurt him. The same can't be said about systems traders. I also think there is an image problem with the book. Many readers assumed that it was an intermediate or advanced-level book because of the (supposed) experts being interviewed. But this was not meant to be an advanced book on systems trading. It is directed at semi-beginners who are looking for some guiding principles. The book presents several basic systems with Tradestation code, which are indeed very helpful for beginners looking for some solid core ideas to build a system around.

One of the best themes in the book (which apply more to advanced traders I think) is the question about what the single best measure of a system is (not that there has to be only one). The diverse set of answers surprised me a lot. Given that this book is expensive but not all that great, I definitely recommend you get it cheap on EBay or from a library.

Category: Businessperson autobiography
Published: 1998
Read: 2000
Reviewed: May 2010

The author, Andy Klein, is a Harvard law graduate and a former associate at the law firm of Cravath, Swain & Moore, who left the world of corporate law and founded Spring Street Brewing Company, a microbrewery. He then came up with the innovative idea to bring the company public by offering shares to the public over the internet. Since investment banks don't sell shares directly to individuals, Klein founded Wit Capital in 1996, to underwrite the shares. The offering was successful and Wit Capital created a web-based platform to trade the company's shares. Hence, Wit Capital became the first investment bank to take a startup company public by doing an online offering (essentially an online IPO). Wit Capital grew their business and was later backed by Goldman Sachs, which sold its stake in 2001.

Although this book is not a must-have book, Klein's breezy writing style and energy make it fun to read. There are many interesting anecdotes, like how he convinced Arthur Anderson to do his accounting. There are also aspects of the story which are very educational for business people, including: the sweatshop-like inner workings of a law firm, the behind-the-scenes process of doing an IPO, how to raise money in a private placement, business networking, managing a product launching, and venture capital. These business lessons will appeal mainly to entrepreneurs.

There are times when Klein gets self-congratulatory and vastly overstates his influence on Wall Street (fortunately for Klein, this bragging comes off as child-like excitement rather than ego, so it doesn't infringe on his likability). Although Klein will go down in the record books as the first person to orchestrate an online IPO, Wit Capital didn't go on to become the game-changer that he expected. The story would have obviously been more meaningful if Wit Capital had gone on to challenge the deeply entrenched Wall Street giants like Goldman Sachs and Morgan Stanley. This is shame, since I have long thought that the IPO market is a very inefficient market which is ripe for disruption.

Category: Economics (global economics)
Published: 1996
Read: 1997
Reviewed: Sep 2009

Lester Thurow, a respected liberal economist and noted scholar, wrote this book in 1997. It goes into detail about 5 trends that will result in profound social and economic changes in the future: (1) the end of communism (2) the shift to knowledge-based industries (3) massive demographic changes (4) a global economy (5) and a world with no dominant power.

There were a few problems that I had with this book. Firstly, so much has been written about these particular trends over the past few years, that many of the Thurow's observations (no job creation in Western Europe for two decades) as well as his proposed solutions (higher savings rates, education and training) are common knowledge by now. Second, his tone is a bit apocalyptic at times. And third, the biggest problem I have with these kinds of books is that the consequences of macro-economic trends that deal with complex, multi-variable processes (like trade theory and capital flows) are so incredibly difficult to predict that even the most knowledgeable experts on the subject are still, essentially, guessing. Hence, I tend to be somewhat disinterested in reading about these kind of theoretically-dense predictions, even though Thurow manages to nail a couple right on the head:

  • "What does democracy mean when political parties don't have different ideological beliefs? elections become popularity polls"
  • "From a savings perspective the tax laws permitting home-equity loans will probably prove to be one of America's biggest economic mistakes."

The book covers a plethora of economic topics, like: the WTO, the World Bank, trade deficits, income inequalities, comparison of economic systems, observations and analysis of basic economic activities (savings, investment, consumption), and a prognosis for many major countries. The book also spends a lot of time on the co-existence of capitalism and democracy, and manages to make a couple of very valuable observations:

  • Thurow on capitalism: "How can capitalism promote the values that it needs to sustain itself when it denies that it needs to promote any particular set of values that all?".
  • Thurow on democracy: "[Democracy] works best where it does not have to make a zero-sum or negative-sum choices because it has an expanding pie or resources to distribute. But today democracies have none of those advantages."

Admirably, when Thurow makes candid remarks about the structural problems of the American economy, he doesn't hide behind the values-free shield of economic theory and resort to the typical sanitized description of America's "lack of investment" to describe the selfish nature of the over-consumption of Americans.

I distinctly remember reading a particular point that Thurow made in this book - that since communist Russia fell, there is now no economic system to compete with capitalism. Capitalism is a system that is based on competition, yet capitalism itself now has no competition. I thought this was an incredibly profound remark (I was much younger at the time that I read it, so perhaps it wasn't that profound). Consequently, since the fall of communism, the United States has experienced the largest scandals (Enron), scams (Madoff), and meltdowns (mortgage) in history, as well as the fracture of the American political arena into polarized parties that have no ability to solve any long-term social and economic problems. I believe these events are a result of an unchecked rise in systematic greed in America due to the aforementioned lack of any competing political ideology. And although this development looks like a purely social and political issue, and not an economic one, there may be more to it than that. It could be argued that this increase in greed has led to more systematic economic risk. I don't think it's an accident that we've had 2 drops of 45% of more in the stock market in the last 10 years (2000-2010), after having only 2 in the previous 100 years (1900-2000). This fact is particularly surprising considering the economy has been operating as a less-volatile, service-based economy and within a favorable macro-economic environment during that time frame. Although I run the risk of sounding apocalyptic too, this trend of rising greed and its effect on the economy is, at the very least, worthy of monitoring - especially since America will be exposed to many possible systematic economic risks over the next 20 years or so (like a state bankruptcy, Social Security bankruptcy, a Treasury default, and potential financial troubles due to unfavorable age-related demographic changes).

Category: Investor interviews, academic theory
Published: 1997
Read: 1999
Reviewed: Jun 2010

This book has interviews with 18 top money managers and academics. Some high-profile people included are: Mario Gabelli, Peter Lynch, D.E. Shaw, Steve Cohen, William Sharpe, Eugene Fama, and Merton Miller. The author, Peter Tanous, does not manage money and works as an advisor who finds money managers for billion-dollar clients. Like many interview books, a lot of the content is outdated commentary about specific stocks or events (like utility deregulation), but there is enough general discussion so that there is still some good stuff. Here are a few points that I found interesting:

  • John Ballen's Jiffy Lube investment.
  • Michael Price ignoring Hershey's and Wrigley's stocks that are selling for 25 times earnings and buying a Swedish company like Van Melles (maker of Mentos) for 8 or 9 times earnings.
  • Companies with attractive price-to-book values may be under-depreciating their assets.
  • A stock with huge debt and slim equity acts similar to a call option.
  • The way D.E. Shaw stressed that creativity was important to being a successful investor.
  • "I have always come back to something then Graham said to me. He said, "If you give me a reliable estimate of the earnings power of the company, I'll value it on the back of an envelope.""
  • Eric Ryback does a nice job of verbalizing intuition when he says how he holds a stock "until it starts looking at me funny".
  • "From volatility emerges opportunity."
  • "The kind of people who come here [to be traders] must have some frontier spirit."
  • "As with fine cuisine, it is not just the ingredients, but the combination of ingredients."

This book has several unappealing characteristics. First, the author seems in awe of his subjects. At one point, the author actually apologizes to the reader because one of the interviews was not "easy-going".

Second, the author specifically states that he made an effort to make the book relatable by not profiling "money managers who use exotic techniques" that "none of us can hope to emulate", but he failed miserably here. For instance, Michael Price became a shareholder activist with Chase Chemical after taking a huge position. And 40% of his fund was invested in bankruptcy, arbitrage, liquidation deals, and some other unusual securities. Another manager has high-tech satellite data feeds in order to trade off an information advantage. And D.E. Shaw has the smartest people in the world working for him.

The biggest problem, however, has to do with his attempt to tackle the debate about market efficiency. Firstly, the efficient market theory is pretty heavy topic, but the conversations with academics only touch on specific points for a sentence or two before moving on.

Second, the author makes a few casual comments which give the impression that he doesn't even know what he is talking about. When talking to Laura Sloate, he says:

"Your returns are very impressive. Your net returns for the seven years ended in 1995 were 20% per year. That's about five points better than the S&P 500 in an environment where the S&P 500 has been very tough to beat."

He seems to be implying that it is harder to beat the market when the market is doing well, which I don't believe is true. Alpha is just as hard to earn in up markets as down markets. If one wanted to classify certain markets as being harder to earn alpha in, I would say that low-volatility markets would be the best example. Another comment he made was about a money manager's risk profile.

"Yours is a high variance strategy, and your standard deviation is quite high compared to the market as a whole. I was fascinated that the turnover was so low, given the strategy. I still have trouble reconciling that."

Here, he mistakenly equates shorter-term time frames with higher volatility. A portfolio's turnover rate shouldn't affect its volatility. For instance, if an investor buys-and-holds a portfolio of high-beta stocks, his variance will still be high. His comment seems to be a result of a discriminatory mindset against short-term traders. Another not-so-intelligent comment he made was:

"The research budgets at top Wall Street firms exceed 50 million per year, so you'd think they must be doing something right. I wish I could be sure of that, but I'm not, although, some research departments are better than others.

Although he attempts to make himself look savvy by analyzing the connection between Wall Street research budgets and the quality of that research, the very fact that he proposes the idea that Wall Street research is high-quality is embarrassingly naive.

Another problem is the dismissive attitude of the academics. After the author presents Williams Sharpe with evidence that the abnormally-high returns generated from trading positive earnings releases may constitute a hole in the efficient market theory, Sharp reluctantly admits - with an annoyed tone - that it may be true. And on page 174, Eugene Fama offers a pathetically thin opinion on why he thinks that the stock market crash of 87 was not a market inefficiency.

The only dialogue with the academics that was even remotely valuable were the discussion with Rex Sinquefield about why some securities can have higher rates of return while having the same variance as lower-returning securities, and Roger Murray's rebuttals to the efficient market theory were also interesting.

I also disagreed with many of the supporting points that the academics made to defend the efficient market theory, but that is a greater debate which is outside the scope of a book review.

Category: Commodities trading, commodities exchanges, market history
Published: 1985
Read: 1993
Reviewed: Jun 2010

This book is a profile of the commodity traders (mostly floor traders) from the 1970s and 1980s who got very rich very fast. It starts with the author telling the story of his first commodity trade - a common story that all fellow traders can relate to. There are profiles of different floor traders, including Paul Rosen, a floor trader who develops serious problems in his personal life after having trouble in his trading life.

There are many interesting trading stories (a trader who took physical delivery of 30 train cars of onions, Leo Melamed's trade where he almost lost over a million dollars, the frozen orange juice rumor that sent the market limit up). Additionally, the book talks about the history of the exchanges, some of the older contracts (agricultural), the newer contracts (stock index and currency futures), and the wild markets of the 1970s.

The book mixes historical information with stories that were current at the time. Now that the book is 25 years old, all of the information has become historical. Since open outcry trading will probably be completely extinct someday, this book will retain its value as a well-written, interesting, and valuable historical account of the unique culture of the trading pits of the 1970s. Here are a few interesting quotes:

  • "As far as I was concerned, there were only two types of commodity speculator: the risk takers and the big risk takers."
  • "The market, as all the purists will tell you, tends to conspire against the single biggest interest."
  • "Starting the day with an outtrade is like going to a wine-tasting party with a hangover."
  • "If I were trading without a position, I'd be buying the market right now", Jack Sandner when deciding to hold onto a large losing short position.
  • "In groups people tend to take more risks than they do individually."
  • "No capitalist has the relationship with time that commodity traders do. The inexorable passage of one second to the next, from one tick to the next, works magic on traders."
  • "There is no place on earth where a person can ascend and descend the socioeconomic scale as quickly as on the floor of a commodities exchange."
  • "Lose your opinion, not your money."
Category: Wall Street insider
Published: 1998
Read: 2002
Reviewed: Jun 2010

Harvard graduate Paul Stiles is dissatisfied with government work after spending five years working at the National Security Agency. So he decides to move from Annapolis, Maryland to New York City to work on Wall Street where he lands a job as a bond trader in the emerging markets department at Merrill Lynch.

There are two central plots in the book. The first is his experiences on Wall Street, including: getting rejected from Morgan Stanley, the interview process at Merrill Lynch, the different departments within Merrill (retail, institutional), working with the "Latin Mafia" (the group that ran the South America debt operations), and his frustration with the internal politics within Merrill.

The other plot is his experience living in New York City where there were some interesting adventures, like his frustrating attempt to simply get an apartment.

The best thing about this book is that it is written much better than many of the other books in this genre. Stiles has a real talent for writing, with lively prose and crisp descriptions. The book's other main asset is that the author's tenure at the investment bank correlated perfectly with both the turmoil in the Mexican markets in 1994 and the Orange county derivatives losses. The book contains a good synopsis of both the Peso devaluation and the Orange County meltdown.

Like other books by investment banking insiders, it does a good job of illuminating the culture of universal cluelessness of the people who work there. Here is a good description of the environment that Stiles worked in:

"People in IEM were quite capable of carrying out their daily responsibilities, but the theory behind them and their broader meaning, not to mention the responsibilities of others, were shrouded in a fog of guesses, assumptions, and errors. This was especially true when it came to basic terminology: ask a trader to define a security, for instance, and you would end up with a stream of blather. Like physicists, they operated quite well with certain assumptions, but the meaning of energy or mass left them scratching their heads."

Some readers were annoying by the author's whining. They thought he was naive about the culture of greed on Wall Street. But his frustration wasn't with the level of greed, in my opinion. It was with the incompetence. He eventually wised up and realized that the culture of "universal cluelessness", as I referred to it earlier, was really a culture of "deliberate incompetence". The dysfunctional work environment (lack of communication, a complete lack of training, and vague goals and directives) was actually a premeditated attempt to create the illusion of innocent mismanagement, so the whole collusive gang could cover up the fact that they didn't really know anything about their jobs. This point is made in the book when one of Stiles' fellow workers tells him that he was put into his job precisely because he was expected to fail. It is obvious that they shouldn't have hired him when he had zero qualifications. But even after they did, he never received even one iota of job training before doing million-dollar transactions. Having a "sink or swim" environment is one thing, but this kind of environment is negligent to the point of being almost criminal.

The biggest disappointment about the book is that it has long stretches where it is boring. The author's lack of knowledge about the very industry he worked in at times led to a lack of perspective and dearth of insight. Much of the early story is filled up with inconsequential details of Stiles' early days where he simply drifted around and did no work.

Other readers were annoying by his moralizing about the cost of the current culture of American capitalistic greed. I, on the other hand, thought this section was good because it wasn't inaccurate - nor was it out of place within the arc of his story. I agree with an Amazon reviewer who says:

As a European Catholic, rarely have I read an American author who so clearly sees the problems with his own capitalist excess and its impact on the soul. Unfortunately, there are many who have not reached this level of awareness, and some are found in Mr. Stiles reviews. The tragedy is that such an honest book of the human spirit should be lost among books on finance, where it is judged by those who are predisposed not to understand it.

I liked these two particular observations that Stiles makes:

  • "There is a reason market people [investment bankers] get paid so much - the price of a soul is expensive."
  • "I must admit I had never given much thought to money before. Indeed, when I think back on it now, there seems to have been a great conspiracy to prevent me from thinking about money at all, one in which I was a willing participant."
Category: Trader autobiography
Published: 1997
Read: 1998
Reviewed: Jun 2010

Victor Niederhoffer is one of the most famous hedge fund managers in history. In this autobiography, he gives readers detailed stories from his youth and shows how his upbringing led him to become a speculator. He talks about: growing up in Brighton Beach (a section of Brooklyn), his relationship with his father and grandfather, his years playing squash (he was the national men's squash champion for many years), and attending Harvard.

The book's content revolves around a couple of central themes, mainly "make sure to test your theories" and "be an independent thinker". He talks about his market theories, and makes observations about various market phenomenon, such as the relationships between different markets, and the ecology of markets. He also extracts lessons from different areas of life and relates them to market speculation and price movements. Some of the associations he makes are obvious (sports, games, gambling) and some are not-so-obvious (music, sex, the weather). He also sporadically talks about his association with George Soros.

He also goes off on many tangents which may or may not have value to speculators. There were a couple of stories which I appreciated, including his essay about Willie Sutton. Between the time I first read Speculator and the time I wrote this review, I read Willie Sutton's biography and have an enormous appreciation for Sutton's concentration and preparation, and how these qualities relate to being successful at any endeavor, including speculation. Here are some other interesting topics and quotes from Speculator:

  • "I know players who would rather lose than think; many of them do."
  • "My resistance to conformity has been the bedrock of my speculative persona."
  • Soros: "You're only as good as tomorrow's trade."
  • "Many games are won by players that are smart; many games are lost by players that are too smart."
  • "Speculation, like most activities, is an art-science. Attempts to answer the pivotal question of speculation invariably raised twice as many questions as they solve."
  • "Life tends to optimize rather than maximize."
  • George Soros' audit of Niederhoffer was an interesting anecdote.
  • Brokerages are a good contrary indicator for the market. Brokerage failures (like banks) are a sign for market bottom and brokerage earnings can be a market trend indicator. Buy when brokerage profits are low, and sell when they are high.

Overall, I didn't like this book as much as I anticipated, which is disappointing because it is clear that so much effort went into writing it. It wasn't because Niederhoffer later blew up. I don't believe in down-grading a trader's theories just because they blew up. I also won't join the other critics who complain that the book doesn't teach you how to trade. Since it is a biography, this wasn't the book's purpose.

There were a few small criticisms I had. First, he gives some biased advice when he recommends that you never short stocks. Then he calls technical analysis "mumbo-jumbo" even though there has been some research (ironically, the kind that Niederhoffer recommends doing) that shows that technical analysis is legitimate. He also takes an unjustifiably condescending jab at the psychological studies done by college professors and students by calling them "contrived experiments". I myself find these experiments fascinating and think they contribute to the burgeoning understanding of the all-important area of decision theory.

Niederhoffer also commits one of my biggest pet peeves by perpetuating the "crazy trader lifestyle". He talks about staying awake for 54 hours straight to trade currencies and, another time, bringing in a screen to watch his trading while his wife was in labor. Not only do these examples reinforce the inaccurate perceptions of how professional traders operate, but the effects of Niederhoffer's melodrama are amplified by his eccentric personality and pretentious writing. As a result, this leads many impressionistic readers to believe that this kind of eccentric intelligence is a required trait to be a successful trader. At three different times, I have seen readers make statements to the effect of, "if he can't beat the market then I have no chance." As an everyday trader who tries to trumpet the idea that an average person can become a successful trader, I am disappointed by these kinds of comments.

I had a couple of problems with the book as a whole. First, even though the book is true to its title, there is still surprisingly little talk about Niederhoffer's personal trading. Any references he does make to his market research and individual trades were sparse and isolated. One could argue that his withholding of any tangible information about his results and profits was a purposeful attempt at forcing readers to judge the value of his ideas based on their own merit, and not to take the shortcut of valuing them based on how much money they made. But this supposed quest for meaningful dialogue, in my opinion, doesn't explain it because, despite being involved with the markets in some capacity for about 30 years, there was no talk at all about his overall evolution as a trader. But aside from his trading, he also doesn't share any meaningful information about his personal life. Even though there were plenty of detailed stories about his father and grandfather, he doesn't really reveal any insight into how his relationships influenced his thinking and personality. So despite the fact that the book is very detailed and personal, it still doesn't feel very candid. I agree with another Amazon reviewer who said that it "reads like a mystery novel without a resolution". At times, it even seems like he is purposely toying with readers by being coy. He keeps his readers at arm's length, but then occasionally lets them have a look through the keyhole. For example, when Oscar Schafer asks him, "Are you still doing that up-and-down Friday-Monday stuff you used to, or have you progressed?", he replies:

"The action on Monday might be particularly bearish after a Friday that acted less favorably than the norm. The conjunction sounds so simple, but I calculate that the basic ideas made my immediate and extended family of customers a substantial nine figures."

But instead of being an authentic moment, this seemingly off-the-cuff reference to nine-figure profits, combined with his general evasiveness about his trading, only serves as his passive-aggressive way of hiding the details of his trading results, while, at the same time, subtly reminding everyone that he is a trading God. Furthermore, in this case, his openness about his results was done for self-serving reasons (to retaliate to Schafer's condescending comment) rather than to open up to his readers. The rest of the book is similarly infused with Niederhoffer's ego. He seems to be self-aware of this at times, and strategically employs a self-deprecating tone to mask an undercurrent of superiority.

Another overall problem I had with the book was with Niederhoffer's theories. Many of the relationships he illustrates between various subject matters (like music and sex) and market price movements are not actually relationships, they are merely similarities. Pointing out similarities like these isn't particularly difficult (for example, I think there are connections to be made between linguistics and reading the market but I'll write more about that later sometime). Since market behavior is simply an extension of social behavior, you could find similarities between the price movements of markets and almost any human phenomenon. But just because a perspective is interesting doesn't mean it is valuable. And I get the feeling that many of this book's admirers may be confusing the creativity of his theories with the validity of his ideas.

Another problem I had with his theoretical work was that I didn't understand how it actually fits in with his trading. He spends so much time polishing and refining his abstract concepts, yet he makes his money based on statistics-driven research. The key question is, why does he do this?

One possible legitimate explanation is that he uses his creative side to come up with macro ideas while using more practical research at the trade-level. Soros is someone who does this very well. Soros is a "concept trader" who has created various mental constructs, such as his "theory of reflexivity", and has used these theories to profit from various opportunities. However, I don't think that this explains it because you can see how Soros' top-down theories are connected to his specific trades, most notably the British Pound trade in 1994. He gives examples of these connections in Soros on Soros. On the other hand, Niederhoffer's bottom-up research isn't connected to any of his overarching theories. Niederhoffer's tireless effort and relentless desire to mine different markets for mathematical relationships indicates (to me at least) that he is a statistics-driven trader at heart.

The real underlying motivation for doing all of his theoretical work might be to find a deeper meaning in his trading. This desire could be driven by a couple of possible motivations - one genuine, and one not. And I'm not sure which one is true. The genuine explanation is that he loves markets and wants to break new intellectual frontiers for the purpose of furthering the general understanding of how markets operate. But my instinct tells me that this is not the reason. Because despite all of the intellectual and emotional energy he has spent on the markets, nowhere in the book do I remember him stating that he actually loves markets or loves trading. Although this omission is not blatantly apparent at first glance, its absence becomes unavoidably noticeable once it is pointed out. For him, markets seem like an obsession, but not a passion - and it is not likely that someone would be driven by such altruistic motives if the passion wasn't there.

The not-so-genuine reason for Niederhoffer's theoretical work (and the more likely explanation, in my opinion) is that he wants recognition and intellectual validation. He isn't happy with being seen merely as a trader who has successfully milked the essentially arbitrary statistical abnormalities within the market. He wants to be seen as the John Forbes Nash of the trading world - someone who will be credited with discovering the "governing dynamics" of the markets. This explanation makes sense since he spent time in academia (a place where a person's worth is almost solely defined by the intellectual recognition of one's peers) looking to the academic world to validate his work. Academia, by the way, is the single most illogical place for a trader to ever want to be because it isn't possible for a trader's worth to be measured by the subjective opinion of people. A true trader knows that the market's opinion is all that matters, and doesn't care what other people think.

His need to get intellectual recognition for himself spills over into a need to get intellectual recognition for trading in general. His habit of getting overly-philosophical seems like a way of trying to intellectually justify trading. These attempts, combined with Niederhoffer's abstract style, seemed to cloud the book's purpose, which confused and put off many readers. One Amazon reviewer wrote, "it's as though he is trying to intellectualize his profession, as if just making money is vulgar; he's staking a claim for traders in the pantheon of artists." After considerable deliberation, I disagree that Niederhoffer is staking a claim for traders as artists. I think the reason why he relates trading to the higher forms of art in society (music, philosophy, etc) is because those are the arenas of life where human nature manifests itself most purely. The same can be said about markets, since the process of trading (i.e. the conflicting duality of intellect and emotion, and the confluence of individual behavior and social behavior) is one of the most human of endeavors. I do, however, agree with the reviewer's statement that Niederhoffer is trying to intellectualize trading - and I find nothing wrong with this. Traders suffer from unfortunate stereotypes which result from an underdeveloped understanding of markets, which stems from (not to digress too much) the ignorant premise that market behavior is a hard science and not a soft science. Markets, which are essentially a concurrent expression of individual and social psychology, are an intellectually valid and meaningful field of study because they lead to valuable insight into basic human behavior. I believe the reason that so many readers have such dissonance about this book is not due to Niederhoffer's attempts at intellectualizing markets. It is due to the fact that his attempts at intellectualization are incomplete. Although his idiosyncratic observations about markets are indeed valuable, his ideas are very fragmented. Personally, I didn't mind this. But I think most people were bothered that he made no effort to tie them up into a cohesive whole, which is what the field of behavioral finance is currently doing.

Niederhoffer's need for validation seems to manifest itself in every aspect of his life. He fancies himself a Renaissance man who studies everything, from literature, to history, to music, to philosophy. But most of these efforts come off as fake, including, at times, his effort to be a trader. The casual, jovial tone he uses throughout the book gives readers the impression the market is more like a toy that he likes to play with - a mere a curiosity at best and a vehicle for recognition at worst. His jovial tone is in stark contrast to the hardened tone that most veteran traders acquire as a result of the battles they have fought (and the emotional beatings they have taken) in the markets. Hence, his nonchalant attitude leads to situations where the big risks he takes (and consequently, the large loses he endures) are not really a concern to him. Although he intellectually comprehends the seriousness of his meltdowns, they don't seem important enough to motivate him to re-evaluate himself. His attitude about blowing out a billion dollar account is like a skateboarder who understands that he can fall and crack his head open but doesn't really care. I wonder, though, what this ultimate indifference is based on. One Amazon reviewer pointed out that he "takes faith in the synchronicity of Nature as though it can save him". This attitude leads Niederhoffer to allow the market to determine how much money he makes, instead of relying on his own ability to act. Another reviewer believed that Niederhoffer's constant overleveraging indicates that he lacks basic trading skills. This could be a valid explanation. In response to his failures, Niederhoffer stated (outside of this book), “I am going to keep going, for better or worse." This makes me wonder whether another explanation could be that all of Niederhoffer's classical studies has convinced him that his losses turn him into some kind of tragic, romantic figure. Regardless of the reason, there seems to be an unhealthy level of passivity in his trading which leads to systematic failures.

Based on his shortcomings (i.e. his lack of passion for trading, his need for intellectual validation, and his lack of trading skills) that have led to multiple terminal failures, one could argue that he shouldn't be managing other people's money. One could even further argue that it would be best if he didn't trade at all, and that he should simply be an analyst who does research and analysis in a strictly advisory role. In response to these questions, I think Niederhoffer needs to do two things. First, he needs to reflect on the basic question of why he trades. The answer to this question will determine whether or not he actually wants to be a trader. Assuming that he does, then I think he should discern between the different skills needed to be a trader vs. the skills needed to be an analyst - because they are very different. He then needs to figure out if he is able to - and wants to - acquire the skills which he doesn't currently have. If he decides that he doesn't want to be a trader then there is nothing wrong with this. Tom DeMark is someone who has built a stellar reputation as an analyst based on his intellectual work in the field of market analysis. Niederhoffer on the other hand, seems to be determined to push forward despite any shortcomings as a trader. This path, while obviously worrisome, is not necessarily a doomed strategy. Jim Rogers is someone who has openly confessed that he is a bad trader. When Rogers worked at the Quantum Fund, his role was to be strictly an analyst, with Soros being the trader. Yet, Rogers has been able to maintain a successful long-term track record - despite exhibiting the same trademark stubbornness that Niederhoffer shows.

Much of what I am writing about Niederhoffer is admittedly conjecture, but since he is being so open yet deliberately elusive, he is begging to be analyzed. Unfortunately for me, this was the most difficult review I've ever had to write. Niederhoffer's opaque style forces readers to process his words in order to extract their meanings - but I don't mean in a philosophical way in which one ponders the deeper issues of life. His impenetrable exterior leads to a fog of confusion which leaves readers feeling frustrated, confused and shortchanged. In my opinion, Niederhoffer had the opportunity to make "The Education of a Speculator" one of the greatest trading books ever written. Anyone who has read the popular article written by John Cassidy in 2007 about Niederhoffer in the New Yorker ("The Blow-Up Artist") sees how much valuable information and lessons he has to share. If only Niederhoffer didn't try to sound so profound, and had fused his undeniable intelligence with equal parts vulnerability, then maybe this could have been a reality.

Category: Investor biography
Published: 1999
Read: 2001
Reviewed: Aug 2010

This book tells the story of the life of Warren Buffett. It begins with his days as a child when he worked as a paper boy, started several ventures, and moved with his family around the country. It moves on to talk about Buffett's college years at Wharton and Columbia, his marriage, his initial investment partnerships, and the creation of Berkshire Hathaway. The book dedicated space to some of the key deals Berkshire was involved in, including: ABC, See's Candies, Salomon Brothers, a furniture store, Champion, US Air, Gillette, and Coke.

This book is casually written in a laid back and easy-to-read style and is suitable for anyone who knows little about Warren Buffett and would like to know the broad strokes of his life. The book is about Buffett as a person, and not an investor, so it doesn't talk about his investment criteria or philosophies, except in a general way. And the book will be redundant for those who are already know him well. But even though the book is not very deep, the stories of his life are still entertaining to read. Here are some of the interesting quotes and ideas from the book:

  • "My perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size," he wrote in 1965.
  • "One of the things that attracted me to working with securities was the fact that you could live your own life. You don't have to dress for success."
  • "Look at [stock market] fluctuations as your friend rather than your enemy - profit from folly rather than participate in it."
  • "Could you really explain to a fish what it's like to walk on land? One day on land is worth a thousand years of talking about it, and one day of running a business has exactly the same kind of value."
  • "The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do."
  • The propensity to gamble is always increased by a large prize versus a small entry fee, no matter how poor the true odds may be."
  • "When I go to my office every morning, I feel like I'm going to the Sistine Chapel to paint and Berkshire Hathaway is my canvas."
  • "I buy expensive suits. They just look cheap on me."
  • Buffett called inherited wealth "food stamps for the rich." All these people who think that food stamps are debilitating and lead to a cycle of poverty, they're the same ones who go to and want to leave a ton of money to their kids."
  • "The market will pay better to entertain than to educate."
  • "I'm involved in a kind of intellectually interesting game that isn't too tough to win."
  • "A public opinion poll is no substitute for thought."
  • "It's much easier to think here", when talking about why he lives in Nebraska.
Category: Industry analysis
Published: 1997
Read: 2001
Reviewed: Jul 2010

This book examines the use of management consultants in corporations. The content of the book is neatly segregated into several subtopics:

  • the rise of Andersen Consulting (and their use of technology), as well as other large consulting firms such as Boston Consulting Group, Bain & Co., and McKinsey.
  • a profile of James McKinsey.
  • a glimpse of the early strategies and practices that would become common in modern management consulting.
  • cases studies of companies that had negatively experiences with consultants (Figgie International and AT&T) and positively experiences with consultants (Sears).
  • some of the new strategy-based ideas, like the "BCG matrix" and "experience curves".
  • the organizational hierarchy at consulting firms (partners, project managers, and entry-level associates), including how much money each type of employee makes for the company and for themselves.
  • the growth of the consulting industry into new markets, including: emerging markets, the government sector, and the health care sector.
  • recommended guidelines on how to manage any consultants that work for you (hire them for a specific task and avoid carte blanche engagements, interview them personally, don't let them control you).

The book takes a mostly negative (but fair) view of the industry as a whole. It criticizes the industry on a few different fronts: the arrogance of the industry, the use of inexperienced MBAs to do a lot of the work, the aggressive marketing of some of the firms, and the vague benefits of using consultants. Here are a few interesting quotes and ideas from the book:

  • "McKinsey is treated as though he were the Moses of modern business, with his management plan serving as the 10 Commandments."
  • Consultants can help you solve problems which are major problems, but that don't necessarily help you get to where you need to go.
  • Management consulting firms use "their great name as a Trojan Horse to get into a company...They anchor themselves into the stomach of the business. They forge a dependent relationship."
  • Management consultants lack the experience of executives. Therefore, they are better at gathering data than knowing what to make of it.
  • "Consulting is the most improbable business on earth. Can you think of anything less improbable than taking the world's most successful firms, leaders in their businesses, and hiring people just fresh out of school and telling them how to run their businesses and they are willing to pay millions of dollars for this advice?"
  • "You can make a lot of money selling the experience you gain from one client to another eager to find out what you know."
  • "The bad thing about consultants is, they think they have all the answers. The good thing is, sometimes they have some of the answers."
  • "It is no secret that management consultants are sometimes called in to provide cover for executives who don't want to carry the weight of unsavory decisions....It is ass-covering. That is why these consultants are hired. You are afraid to stick your neck out in a big company like AT&T. You are punished if you're wrong, so you don't want to do that. You end up with consensus management. The net result of this is the fear of making a mistake. So bring in the consultants."
  • "A chronic dependence on consultants is an implicit admission of ineptitude in management."
  • "Consulting companies promise individualized versions of the bluest of skies when they are looking for contracts, but what most of them actually have to offer is frequently more earthbound and amounts to variations on commonly accepted business practice.... Imagine pitching a prospective client with the absolute truth: you could probably do this for yourself with some research because we aren't creating cold fusion here. It just sounds as though we are."
  • "Consultants need to sell ideas. The problem is that what consulting has to sell isn't always new, and certainly isn't always fresh. It is an unusual industry because it builds its knowledgebase at the expense of its clients... Consulting companies make a lot of money collecting experience from their clients, which they turn around and sell in other forms, sometimes not very well disguised, to other clients."

This straight-forward and easy-to-read book serves as an adequate overview of its subject matter. It has satisfactory profiles of the industry, the companies within it, and some of the key people involved in shaping the trends within the industry. The book is written from a third-party, outsider's perspective and it doesn't dig too deep. To its credit, the book is well-researched, but this simply enhances the sense that this was not written from a hands-on point-of-view. Readers looking for something more substantial might want to look at "House of Lies", which is a witty account of the industry, or the more serious books, "Consulting Demons", or "The World's Newest Profession".

Category: Investor profiles
Published: 1989
Read: 1998
Reviewed: Sep 2010

This book, a sequel John Train's earlier book, carries interviews with various investing masters, including: Jim Rogers, Michael Steinhardt, Philip Carret, George Soros, George Michaelis, John Neff, Ralph Wanger, and Peter Lynch.

Overall, there isn't anything really special about this book. But it is definitely better than his previous book because it is more recent - the investors profiled are more contemporary and dynamic. The previous Money Masters book contained profiles of classic investors and contained little more more than overused clichés and outdated techniques. Here are some interesting quotes and ideas from the book:

  • Philip Carret's labeling of "the money mind".
  • George Michaelis' observations about the risk of CMOs, where "in a market collapse you would have chaos and horribleness pricing... If there were ever a real market collapse they [investment banks] couldn't handle it."
  • Ralph Wanger's observations about how some whole industries (railroads for example) haven't made money, ever.
  • Jim Rogers: "Donald Trump is bust although he does not know it yet."
  • Jim Rogers: "Go short some beans and you'll learn more in just one trade than you would in two years of 'B-school'."
  • George Michaelis: "You must invest with the one hundred year storm in mind."
  • George Michaelis: "There is nothing like owning a stock for giving you a feeling for it."
  • George Soros: "The more the theory of efficient markets is believed, the less efficient the markets become."
  • Peter Lynch: "I spend about 15 minutes a year on economic analysis."
  • Peter Lynch: "Nobody called me to tell me about the recession in 1980 and 1981."
  • Ralph Wanger: "In a rapidly changing world, twenty or thirty years of solid corporate growth could even be a warning sign: Chances are, things have changed enough so that whatever the hell made you a success thirty years ago doesn't work anymore."
Category: General business
Published: 1997
Read: 1998
Reviewed: Sep 2009

This book is composed of interviews of 5 of the leading business people of the last few decades - Andy Grove (Intel), Fred Smith (Fedex), Peter Lynch (manager of Fidelity Magellan Fund), Pleasant Rowland (American Girl), and Paul Volcker (former Fed Chairman). The book is laid out in Q&A style and the answers that are given are very crisp even though the dialogue seems to be off-the-cuff.

This book doesn't have a lot to offer. Even though the interviewees are relatively recent business players, the book has more of a historical feel than a contemporary feel. Also, even though the subjects all fall under the broad category of "business", the diverse mix of subjects (well-known CEO, not well-known CEO, investor, economist) causes the book to lack focus. Someone reading it for fun may appreciate the variety though, which makes the book suitable for anyone who likes to read business books for leisure. Investors who are looking to gain an edge should definitely skip the book. At best, an investor may walk away with an enhanced sense of appreciation for the influence that leadership has on the performance of a company but that's about it.

The only interesting thing I got out of the book was the interview where Paul Volcker briefly talks about how traditional banks used to have a monopoly on lending but how they don't anymore because other financial institutions, like securities firms and money market funds, lend money now. This shed considerable insight into the 2008 financial meltdown (because securitization created secondary markets that essentially became a form of lending) and also raises the question about how regulation of the financial system will be affected in the future.

Category: Personal finance
Published: 2001
Read: 2004
Reviewed: May 2010

Co-written by Dr. Stanley, "The Millionaire Mind" is the sequel to "The Millionaire Next Door" and consists of surveys of millionaires. Just like the first book, the author talks about the different characteristics of the wealthy (lifestyle, home, education, academic achievement, choice of vocation, consumer habits, spouse) and shares profiles and case studies of real people. This book also focuses on personality characteristics of the wealthy (attitude, leadership, people skills, integrity, morals, honesty, courage).

One of the common themes that runs through the book is that the success of the millionaires who were surveyed was not based on intellectual traits. They were often not good students (their average GPA was unspectacular) and they didn't have high IQs. Another theme is the effect of the choice of spouse on your wealth. There were a few comments which I thought were noteworthy:

  • "Snobs do not make great entrepreneurs."
  • "I have never interviewed one successful business owner who is not cost sensitive...Paying very close attention to expenses, is the foundation of productivity."
  • "Never borrow long-term with the prospects of short-term income."
  • How the author talks about personal finance in terms of income statements and balance sheets.
  • Financial success is about control - either you control money or it controls you
  • Having a family compliments wealth-building (this was somewhat surprising to me).

This book has many problems. First, at 400 pages, this book is way too long - especially considering that the majority of the book's content is very similar to his previous book. Second, the content of the book is highly anecdotal, since the replies to the surveys were based on self-assessed characteristics: like honesty, integrity, and courage. There may also have been a high level of self-selection since only a certain number of millionaires that were given the survey actually responded.

Another problem is that the book focuses on an even more exclusive subset of rich people than the last one. Hence, the people profiled in this book will be almost exclusively business owners. This makes the book less relatable since the millionaires that are profiled will all have similar stories - as well as the fact that the book will ostracize any readers with a "normal" job who are looking to build wealth through wage-earning and passive investments. It is not terribly difficult to become a millionaire working as an employee, but you can't really reach a $5-$10 million net worth solely on wages (with corporate executives being an exception).

The book does make a smart move by concentrating on the "soft" skills instead of technical skills. Below is a quote that succinctly describes the importance of people skills in being successful:

"I think success really involves...the people you meet. No one can be successful by themselves. It's the relationship that you develop with the people around you."

Unfortunately, the authors still didn't take this idea far enough. There are plenty of business books that teach their readers how soft skills can help you succeed at your career, which can then help you become wealthy. But this connection between soft skills and financial success always seems to be illustrated as an indirect relationship (with the exception being the world of salesmen). The direct connection between people skills and financial wealth still seems to be an under-appreciated concept. For example, this book points out that many of the millionaires they profiled were business owners, but the author didn't bother to ponder whether these people were millionaires because they were business owners - or because they were good with people (for example, because they were great salesmen). This authors seems to almost recognize the importance of people skills when someone makes the casual observation that "snobs do not make great entrepreneurs."

The book also ignores the basic fact that the rich often get an education about money at home, a point that Robert Kiyosaki didn't miss in his books. Considering that personal finance is not taught to kids while they are in school, the factor of whether or not someone received a financial education at home seems like it would be one of the highest correlating factors when it came to wealth-building. I would be very interested to see a study of people who grew up in millionaire households where they looked at the kids that received an financial education from their parents and compared them to the ones that didn't.

Another point to ponder is the cultural influence on wealth. For example, in America, wealth will tend to be more based on risk-taking and breaking the rules. But if this book were written in Japan then wealth might be based on the opposite - conformity. With a title like "The Millionaire Mind", some people might infer that wealth is based on objective, intrinsic skills, when it is really based more on subjective, cultural values which are situational. But these philosophical issues tend to be pretty broad in scope and are understandably left out of the book.

Category: Trader interviews
Published: 2000
Read: 2004
Reviewed: Sep 2009

Another book in the same vein as Market Wizards, "Real People: Real Traders" carries 14 interviews with successful traders who are ordinary people, as opposed to famous super-traders.

This book is pretty weak. It spends too much time talking about the personal and family life of each trader. The only useful observation related to any of their personal lives was where someone pointed out that having kids is a roadblock to living the life of a trader. Trading requires a large tolerance for risk, and when traders have kids, they become much more risk-averse because they want more security.

The problem with this book is that it has the same feel as all the other interview-style Marker Wizards imitations. It simply asks each trader what indicators they use. The only interview I really liked was with Glenn Ring (I particularly liked his analogy about how making money in the markets is like milking a cow). There were a few random anecdotes which were valuable. Here are a few:

  • Indicators are most valuable when they're at extremes.
  • Single contract trading system results are misleading because they don't include any money management rules.
  • Neal Dietz: "Big volume breakouts [because of news] are fine, but I do not like them as well as big volume breakouts that nobody can explain."
  • "Funds do not want fantastic gains; they just want consistency."
  • John Fritz: "An interesting and very important characteristic that physicists seem to have is an exceptionally strong connection to the real, physical world, since that is where they work. I think this leads to an unusual discipline where, after a brief initial disappointment, they are usually pleased to find out that a wonderful, beautiful idea they have is wrong."
  • "I cook like I trade. I take a recipe, and then I'm creative around it." - Herb Drechsler
  • Not only do you have to match your trading style to your personality, but you have to match your research style to your personality.
  • Momentum precedes price. If the market is losing momentum, then you should expect the market to turn.

Category: Business strategy
Published: 1999
Read: 2004
Reviewed: Sep 2009

This book carries 15 case studies of former industry leaders and details the strategic blunders which led to each of their demise. Some of the companies profiled (and their blunders) are: W.R. Grace (the blunder of nonstrategic expansion), Drexel Burnham (the blunder of isolation), E.J. Korvette (the blunder of hubris), Kaiser-Frazer (the blunder of ignorance), RCA (the blunder of nepotism), Schwinn (multiple blunders), Packard, Schlitz and Pabst, James Ling, The Penn Central, Montgomery Ward, American Tobacco, Osborne Computer, and The New York Stock Exchange. The book was written in 1999, but because many of the companies are historical, it feels much older (the clinical writing style contributes to this feeling). Some readers may feel detached from the book's lessons because they feel like they can't relate to older companies that they have never heard of. Although these readers would prefer to read about contemporary companies, there is no benefit to doing so because the business lessons presented here were chosen because they are timeless problems (which is precisely the whole point of profiling older companies). You can count on these mistakes being made in business until the end of time (for example, why did EBay buy Skype?). Some readers were also bothered that the author doesn't provide any solutions, but this is a book about prevention, not solutions.

Another good thing about the "aged" profiles (and the best thing about the book) is that the profiling of now-defunct former market leaders causes the reader to get a little philosophical and ponder the long-term view of a company's strategy. This is something many investors (even long-term investors) don't do because buy-and-hold investing has always been marketed as a "set-it-and-forget-it" strategy. After reading this book, some investors may ask themselves forward-looking questions like: "Will Microsoft be chronicled in a book like this 20 years from now as a fallen giant because they ignored open-source software or software-as-a-service?", "Will Hewlett Packard be stubborn and lose market share to a competitor who comes along and is willing to take lower margins on over-priced ink cartridges?" These scenarios seem improbable today but that it exactly why those types of questions should be asked.

Another great thing about the book is that it shows the negative long-term effects of having a corporate culture which lacks innovation. When you look at the changes that the old media and the cable companies are going through now with customers abandoning them for internet sites like Hulu, this book helps stimulate your imagination about how things can play out.

Category: Corporate finance
Published: 1996
Read: 1998
Reviewed: May 2010

This book interviews various CFOs from large companies in order to learn more about some of today's issues regarding corporate finance.

One of the main goals of the book is to review the usefulness of the metrics currently being used to measure a company's efficiency (e.g. return on assets, etc.) and learning how the use of these metrics can help create value. Despite that fact that we now operate in a world where we have all the data we want, we still haven't arrived at the point where we are processing this data in the best way in order to get the most useful "information" that we need. A good example of this from the investing world is the use of "profit margins" (i.e. earnings margins) as the main metric for measuring company returns. Considering that cash flow is the foundation for the ubiquitous "Discounted Cash Flow" models, you would think that margins would be stated in terms of cash flow instead (some people do use "cash flow margins", but not many). The recent popularization of EBIT, EBITDA, and EVA are evidence that there are still ways to improve on the choice of financial metrics being used.

The best part of the book was the interesting discussion that came out of the interviews about the evolving role of finance within corporate America. The book points out that the function of finance is changing from being a score-keeping role, to one that is a partner in the business and is involved in strategic thinking that focuses on the future. As the book points out, the finance department of a company used to just be a referee, but now they are also a player.

Put more simply, finance itself is often where the profits are being made these days - not by selling the actual products. Let's look at Circuit City as an example. Briefly before they went bankrupt, Circuit City was making all of its profits from the extended warranties that they sold with their products. Since extended warranties are insurance contracts, this meant that Circuit City was essentially an insurance company whose profits were wholly derived from finance. There are other, more obvious examples where finance drives most of the profits - like car dealerships. But there are also less obvious examples. When retail companies like Target decide to create an in-house credit card, then they essentially become (partly at least) a bank.

Another example is General Electric, which makes a large portion of its profits from GE Capital. Interestingly, within the book, there is an interview with Dennis Dammerman, the former CFO of General Electric, where he says, "General Electric has done such a phenomenally good job of increasing shareholder value -- people wonder what the secrets are." Although most people have historically pointed to the operational efficiency and managerial leadership of GE as their "secret", many people now (after the financial meltdown) realize that the secret may have simply been over-leveraging. The role of finance as it related to business strategy is a topic that you don't hear much about but has a very understated importance with regard to company performance. Although the book touched on the importance of finance playing a bigger role in a company's strategy, there was no discussion about the side effects and potential dangers of this trend - or whether or not it is even a good thing.

And while we are on the topic, it would be beneficial to think of the role of finance in even greater terms - most notably, the economy as a whole. It is well-known that the financial meltdown was partly due to overspending by consumers. Put another way, the "role" of finance was expanded by consumers. Sticking with the same topic, it is also a well-known that the capitalization of the financial sector as a percent of total stock market capitalization has been rising for at least 40 years. This is a trend that should be analyzed and monitored. To see why, the book refers to a concept called "the marginal utility of sophistication":

There's a point at which sophistication doesn't buy you anything whatsoever. Where that point is - where more sophistication . . . just becomes too much and really gets in the way . . . No one is really sure where that break point is."

After the financial meltdown of 2008, it's now obvious that this idea should have been taken even further - that way too much financial sophistication (CDOs and credit default swaps) can have a negative marginal utility and can even lead to increased systematic risk. The book makes a cultural comparison to Japan, whose smaller ratio of finance staff to total staff helps them focus on the long-term.

On a random note, the book also has a decent 50-page section about start-up financing and venture capital.

The only kind of investors this book may appeal to are the quants who are looking to build their own valuation models. It may also be possible to use the aforementioned financial sector capitalization as a long-term timing market model. It wouldn't be surprising if many of the long-term stock market tops occurred when the financial sector capitalization was at a relative high. The book also quickly touches on some theoretical investment topics, like the possibility that a company may be able to improve it's stock prices if it lowered its earnings volatility simply by using risk management techniques. An example of this principle may be a company like Jack In The Box, which switched from running mainly company owned-restaurants to running a franchised model. The more stable franchise royalties give the company a lowers the volatility of the company's cash flow, which could lead to a higher valuation - even at the same level of earnings.

Although the book brought up some interesting topics, it's subject matter at times was a little too esoteric and scattered. I wish there could have been more philosophical discussion about the role of finance, but that didn't seem to be the mission of this book. Of course, this omission was partially due to the natural bias that everyone has when it comes to their own functional areas - that everyone always looks at their own functional area as the most important one and instinctually wants to expand it. So it's not realistic to expect CFOs to question the role of finance.

Category: Trading story, day-trading
Published: 2000
Read: 2002
Reviewed: May 2010

Co-written by Joey Anuff, cofounder of the humor Web site, and Wired magazine's Gary Wolf, "Dumb Money" is Anuff's colorful first-person account of his brief involvement in the volatile world of day-trading during the late 1990s. After making a big profit by trading EBay stock, Anuff tries to parlay his earnings into more success. He talks about various aspects of his day trading routine, including: reading the news before the market opens, monitoring his stocks, watching CNBC, dealing with his broker (E*Trade), and reading internet stock message boards.

The book does a decent job of telling the history of day trading, including: the SOES bandits, a profile of Harvey Houtkin, the day-trading hysteria of the late 1990s and some of the fetish stocks involved (like Iomega), and studies in the Journal of Finance about market-maker manipulation.

Despite the fact that this book is about a trader's real-life trading experiences, there is almost no valuable content for traders. The only quote that I noted as being valuable was his observation that "sometimes you can sense the potential energy in a stock for weeks." Conversely, there are tons of ridiculously hyperbolic and inaccurate statements, such as:

  • when he says that "to be a day trader is to make regret into a lifestyle."
  • when he mentions his "$800 Herman Miller chair."
  • when he says that day traders "live every second on the edge of panic."
  • how day trading is his one shot at "independent wealth."
  • the supposed "midday dead zone, the Bermuda triangle into which a momentum players entire life savings can vanish."
  • when, in true idiot style, he refers to the stock that he has a position in as a "POS".

In addition to these comments, the book shamelessly wades into sensationalistic topics like message board pump-and-dump schemes and day-trader-turned-killer, Mark Barton. But aside from these individual quotes, there are also other problems with the book.

First, this book does a dis-service to real traders by perpetuating the myth of the "crazy day trader lifestyle". Even though the tone of the book was meant to be "fun", and some of the trading stories were genuinely exciting, the problem is that many outsiders who read this book do indeed believe that "this book shows trading as it really is", as one overly-impressionistic Amazon reviewer wrote. Sorry, but this is not what trading is really like.

Second, is the hypocrisy of this book. This book pretends to be a reality check to those who romanticize the "laid back" day trading lifestyle of quick and easy profits. But this book simply romanticizes the "crazy" side of day trading by making all of his adventures sound exciting. Books like this are created under the guise of de-constructing a romanticized world, but just end up romanticizing the world in a different way. Both sides are just hypocritical whores selling an inaccurate and incomplete image of their subject matter.

The third problem is the artificial feel that the book has. The author (who is a writer) gets involved in the world of day trading, all-the-while knowing that his trading adventures will probably be published. This self-awareness leads to a faux reality where his behavior is driven by the need to create an exciting story, like when kids on MTV's "The Real World" have contrived conversations just because they know that the cameras are rolling.

Fourth, is the author's unwarranted condescending attitude towards the world of trading. After his "assignment" is complete and the author is summing up his day trading experience, he asks, "And what do I get in return for all of this devotion? only money." This condescending comment was simply a transparent attempt to portray the trading world as shallow in order to hide the fact that he, in reality, had no devotion at all to trading. When reading the book, it's apparent that the author had no intentions of ever becoming a trader. His attempt to portray the trading world as shallow is ironic since the author himself was nothing more than a stock market tourist whose contrived adventures were just as shallow as the trading world he criticized supposedly was.

I would have given the book only 1 star, but it does serve as an accurate historic account of the idiotic behavior of 1999.

Category: Wall Street stories
Published: 1998
Read: 2001
Reviewed: Jun 2010

This book attempts to take the reader inside the world of Wall Street trading. The author talks about the different kinds of traders (pit traders, quants, program traders, derivatives traders, currency traders, and daytraders) but mainly focuses on institutional traders (buy-side and sell-side). It also touches on random topics, like: the financial media, the crash of 87, the rogue trader scandals of the 90s (Joseph Jett, etc).

Overall, this book is not very good. Despite the prospect of hearing some interesting stories from market veterans, this book has no depth to it at all and reads like a Dummies book. The whole book is comprised solely of overused clichés, trite expressions, and embarrassingly superficial observations, such as: how traders have to make quick million-dollar decisions, that markets move really fast, that traders have many computer screens to monitor, that speculators are motivated by profits, and that trading is very stressful.

Although there are plenty of first-hand stories from real traders, they are mainly comprised of one-line anecdotes which could have been aggregated from a simple google search. I also think that the author gives traders too much praise. This is saying a lot since I am a trader myself. The author basically claims that markets would break down without traders. Although traders do serve the important role of providing liquidity (among other functions), I don't think it is fair to say that markets would break down without traders. Here are the few interesting quotes and topics from the book:

  • "Trading is definitely not a field for mediocrity."
  • The comments from a floor trader's wife about what it's like to worry about (and watch) her trader husand lose so much money.
  • The story about the first block trade in London.
  • The quick profiles of Michael Milken, Muriel Siebert, Leo Melamed, Michael Bloomberg, and D.E. Shaw.
Category: Trading strategy
Published: 1996
Read: 1997
Reviewed: Jun 2010

This book is written by Bruce Babcock, a popular writer within the commodities industry since back in the 70s. It teaches the four basic rules to successful trading, which are: (1) trade with the trend (2) cut losses short (3) let winners run and (4) and money management. I don't agree that you have to trade with the trend in order to be successful, but it's not necessarily bad advice for beginners. The book is done in interview style and talks to 20 or so commodities traders, many of whom were popular within the commodities industry back in the 80s and 90s (Jake Bernstein, Larry Williams, Glen Ring, Jack Schwager). Here are a few topics covered:

  • how to find how to define the trend (higher highs, lower lows)
  • it is best to trade on multiple timeframes and use longer-term timeframes as filters for shorter-term timeframes
  • trend traders will have large drawdowns. Trend-trading systems should have an annual return of at least twice the maximum drawdown (i.e. 20% annual return with 10% maximum drawdown), and a 3-to-1 ratio is better.
  • indicators (which ones to use, how to use them, and how to mix them together).
  • the different types of stops.

The book's style is a little annoying because the questions are so close-ended that the answers are usually one word answers. Hence, the wisdom is really in the question instead of the answers. When the questions are open-ended, some of the answers are usually way too general. This book, which is pretty thin and basic, is moderately useful at best and doesn't have much unknown information. I would have given it a lower rating, but if these four rules are all that a reader learns then then they've learned a lot. There were a few interesting stories, including Jake Bernstein's forgotten gold trade, as well as many valuable quotes. Here are a few:

  • Glen Ring: "If people want to find the foundation for putting all this [trading success] together, they'll see it every morning when they look in the mirror. It comes back to a person being able to follow his rules."
  • Mark Douglas: "Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt."
  • Walter Bressert: "I view the markets as energy."
  • "It's better to be out of the market and wishing you were in than in the market and wishing you were out."
  • "Never ask someone else for an opinion. If you must ask, ask about their position."
  • Michael Chisholm: "Breakeven stops don't serve any real function other than psychological comfort."
  • Babcock: "Trading can be just as risky as you want to make it."
  • "That is one of the real stumbling blocks to success [in trading]. The market does not always penalize you when you trade incorrectly. It does not always reward you when you trade correctly. That makes it considerably harder to learn what is correct in what is incorrect."
  • Use tighter stops for windfall profits.
  • A discussion about the different types of stops.
  • Look at using a different exit method for profitable vs losing trades.
  • Kelly Angle: "What your system does to you when the markets aren't moving is more important than how your system performs during strong price trends. If you as a trader want to assess your system's ability to hold down losses, you might try this experiment. Examine your historical results and take out the double-digit up months. Then add the remaining single-digit up months and the down months. If the total is at least zero, or ideally, above zero, your system is giving you a risk-free environment in between major price moves."
  • A broad diversification strategy actually increases risk because the more markets you trade, the more marginal trades you have to settle for.
  • Jake Bernstein: "There are too many traders trying to look at the markets from too stringent an analytical viewpoint. Most of what happens in the market is meaningless. Why try to interpret every little movement, every little reversal, every little tick? In trying to do too much, they're actually paying too much attention to the market. They're laboring under the Judeo-Christian work ethic that says, "if you're a good boy and you work hard and pay a lot of attention, going to make a lot of money." I don't think that's true when you apply it to trading. There is a point of diminishing returns. You have to keep a certain distance from the market."
  • Glen Ring: "Planning is so important. The vast majority of people have no idea how they're going to let profits run. When they do get into a big trade, they're just like a dog chasing a car. When they catch it, they don't know what to do with it."
  • Peter Brandt: "As the market approaches my profit target, I have a smaller and smaller additional potential profit, but a larger and larger loss if the market retraces to my stop point. This has been a source of consternation over the years."
  • "The unfortunate truth is that the odds are overwhelming that the trading style that matches your personality will be a loser. How else could you explain that upwards of 95% of people fail at commodity trading? The way to succeed is not to find a trading style that matches your personality, but rather to find a trading style that works. The two are almost always mutually exclusive. The methods that work are not those that make sense, feel comfortable, and are easy to implement. If they were, a lot more people would be successful."
Category: Day-trading
Published: 1996
Read: 2002
Reviewed: Jun 2010

In the first part of the book, Howard Abell talks about the psychology trading. In part two, he teaches his day trading techniques. The rest of the book contains interviews the author conducted with several traders about the techniques that they use. They are mostly unknown, expert maybe for Bill Williams, who is a semi-well-known author who writes about chaos theory and trading. Here are some of the valuable quotes and ideas I got from the book:

  • "You should love your losses."
  • For those traders who have difficulty "pulling the trigger," putting resting orders in the market will get you into the trade.
  • "Traders often say they 'make a profit' but 'take a loss.' The reality, of course, is that we make both."
  • Making scratch trades may help condition you to pull the trigger.
  • "Take your losses swiftly and clearly; the first loss is your easiest loss."
  • You should mentally rehearse the mechanics of the trade before you put it on.
  • Morning weakness into support has a good potential to react profitably as the day wears on. However, most afternoon breaks into support are not as reliable.
  • Bill Williams: "Day trading is not a very highly intellectual process at all; it's a very simple process. And, in fact, I think that the brighter and the smarter and the more intelligent you are, probably the more difficult it is for you to make money, because what happens is that the brighter and the more intelligent you are, the more likely you are to form an opinion."
  • Bill Williams: "Good trading is almost like a religion in the sense that you're giving up your personality to a larger, greater force, and that larger, greater force is the market. So I think there's a lot of parallels between good trading in religion!"
  • Four psychological biases that people have: 1. A bias for certainty. 2. A bias for control. 3. A bias for avoiding pain (losses) 4. A bias of believing that the way we see reality as a reflection of the way things really are.

This book is OK, but I wouldn't call it "good". There is no bad advice in the book (except for an offhand comment the author makes where he downplays the importance of money management). The best thing about it is that it has some very good advice about how to handle the psychology of trading. The worst thing is that it is pretty unfocused and tries to do too much. It teaches specific techniques, and carries interviews with random advice. There are sporadic charts and vague advice. But all this random content is too thin. The reader would be better off reading books that specialize in each topic. For example, if you want a book about psychology then buy "The Disciplined Trader" by Mark Douglas.

Category: Investing strategy
Published: 1997
Read: 2000
Reviewed: Aug 2010

Written in 1997 by well-known bond fund manager Bill Gross of Pimco, this book is 1/4 biography, 1/4 tutorial, and 1/2 prediction. The basic premise is that the superbull trend in the stock market is over and that investment returns will be lower going forward. He refers to these post-bull markets as the "era of 6%". He claims that things won't be a good as they were, but they will still be OK.

Gross' hypothesis is based on a combination of factors, specifically: high debt levels, stagnant wages, and unfavorable demographics. These factors will result in tepid GDP growth that will lead to an era of low inflation and an investment environment where bonds will have a advantage over stocks. He recommends giving a heavier weighting to bonds in your portfolio and to keep maturities long.

He uses a very simple, but useful, model for predicting expected returns. For stocks, the formula for total return is "expected earnings growth + current dividend yield". He arrives at an 8% expected return for stocks. John Bogle also uses a model like this. For bonds, the formula for total return is "coupon + expected capital appreciation". He assumes that the bond market will be stable going forward, so the capital appreciation will be about 0%. When you add the 6% coupon, you arrive at the expected 6% total return for bonds.

Since his book is promoting bonds, he gives some quick introductory tutorials about how bonds work. He lists the types of bond risk (default risk, interest rate risk, liquidity risk) and the returns on the different types of bonds (Treasury, muni, corporate, junk, emerging market, mortgage, inflation-indexed bonds). He also educates the reader about how "bond market vigilantes" keep the bond markets in order.

Here are a few useful quotes from the book:

  • "In the last few years, market behavior has become a lot more anticipatory."
  • "It's fortuitous sometimes to be an outsider on the inside."
  • "Financial assets benefit more from the transition to lower inflation than from the actual lower inflation itself."
  • When talking about how volatility affects option valuation models, he says, "Because of market noise...the short-term volatility of price will be greater than the short-term volatility of value."... Money managers who use short-term volatility estimates for longer-term option valuation are systematically overvaluing option prices. Most of the optionable characteristics of bonds (corporate calls, mortgage prepayments, and selected futures contracts) are longer-term in nature but appear to be priced on ten-and ninetey-day volatility histories.

This book is strong in many ways. (1) It is written in a down to-earth style which makes it easy to grasp. (2) It teaches you to think for yourself. His models for predicting returns and his "plankton theory" of housing markets were very useful. (3) Gross is very progressive when it comes to his views towards markets. He doesn't believe in the efficient market hypothesis and explicitly states that is possible to time the market based on secular changes, like globalization and demographics. He cites Jesse Livermore as his hero, which is surprising considering he is a Wall Street guy - and a bond investor. (4) He is not afraid to make a tangible prediction about the market, instead of some vague outlook.

Looking back at the decade after it's publication, the book's hypothesis that bonds should be given a heavier weighting and that investors should be happy with a 6% return were proven true. By this time though, the book has become too dated to be used as a template for where to put your money. We are now in an environment where long bonds have very small yields (3.7%) and are more apt to have negative capital gains than posititve. Interestingly though, Gross hasn't necessarily backed off his promotion of bonds. This is presumably due to an expectation of a persistently bad economy which will keep rates from rising. Bond investors should definitely be more careful now though since: there are whispers about muni-bond defaults, mortgage-backed bonds don't have any transparency, and junk bond risks are high because of the still-shaky economy. With the pristine balance sheets of corporate America and a pretty wide spread between corporate bonds and Treasuries, perhaps high-grade corporate bonds are the place to be with 20-year AA-rates bonds current yielding 5.8%.

Category: Investor profiles
Published: 1980
Read: 1998
Reviewed: Sep 2010

Originally published in 1980, The Money Masters by John Train describes the winning strategies of nine excellent investors - Warren Buffett, T. Rowe Price, John Templeton, Paul Cabot, Philip Fisher, Benjamin Graham, Stanley Kroll, Larry Tisch, and Robert Wilson. The book gives a biography of each investor and then talks to them about their investment criteria and philosophies. The book is based on interviews, but it is not done in Q&A style.

Even though there is a good amount of analytical information, there is really nothing special here. This is because the book is 30 years old and most of the observations are well-known by now and many of the techniques are classic value investor techniques that are obsolete now - like buying a company for less than its working capital. Although the biographies are very thorough, they are full of idiosyncratic observations that add little insight into the investment process. The tone of the book is also uninspiring. Although the book is easy to read, there is a certain coldness to the interviews. Instead of getting direct answers from the interviewees, the answers are processed by the author. Because of this distance between the reader and the interviewees, we get only watered-down insight from the investing masters - as well as the sense that Train wrote the book more to hear himself talk than to give readers direct access to these investing masters.

The author, who believes in fundamentals and buy-and-hold, makes several annoying attacks on technical analysis and short-term trading. His views toward commodities, which he "included in this book to help the reader understand what an impossible casino commodities are", are a result of being ignorant about the strict risk management skills needed when dealing with leverage. Then, when talking about supposedly "real investment products", he says that "the economic function of real investment is to provide the capital needed for industry." Unfortunately, he doesn't seem to realize that buying-and-holding a stock forever means that you still are only participating in secondary markets where companies don't receive any money. He goes on to say, "Personally, I do not think the SEC should allow any registered investment advisor to put out advice on stocks based on technical analysis." Well, if you are going to make a systematic judgment about the validity of a particular analysis technique, then advice based on fundamental analysis should be similarly banned since there is no evidence that fundamental analysis can beat the market either. His stated bias against technical analysis was embarrassingly discriminatory. It is also noteworthy that the credibility of these flimsy criticisms is completely destroyed by Train's sequel to this book, in which he interviews short-term traders, technical traders, and commodity investors like Soros and Steinhardt.

The only parts of the book I found interesting or educational were Robert Wilson's nightmare short trade in Resorts International and then the philosophical talk about being an investor and a loner. Here are some interesting quotes from the book:

  • A company whose competitive advantage is based on R&D can be bad because eventually they may lose their advantage if they run into financial trouble. But a company whose competitive advantage which is based on branding, instead of capital spending, can lose its advantage when consumer tastes change.
  • Philip Fisher: "I don't want a lot of good investments; I want a few outstanding ones."
  • Philip Fisher: "A company must consciously and continuously try to become a better place to work."
  • Philip Fisher: "If a vice-president reported to the president the way the president reported to the owners, the vice president would last exactly ten minutes. The officers of the company often seem to feel that they should treat annual reports as a form of advertising. It's completely wrong."
  • Larry Tisch: "You can usually correct business problems. The human problems are the ones that are harder to correct."
  • Robert Wilson: "One of the dumbest things you can do with money is spend it."
  • "The enormous advantage the independent investor has, Buffett says, is that he can stand at the plate and wait forever for the perfect pitch."
  • Buffett, about long-term investing: "You only have to do a very few things right in your life, he says, so long as you don't do too many things wrong."
Category: Trading psychology
Published: 2000
Read: 2002
Reviewed: Aug 2010

This book teaches traders how traders can use NLP (neuro-linguistic programming) to understand language and personal behavior in order to model a winning strategy. This is a fancy way of saying it is a book about psychology. The book explores key issues, like: motivation, the unconscious mind, emotional intelligence, language, and internal dialogue.

This book is not good at all. The author talks about both psychology and trading but doesn't seem to be an expert in either. He makes very few references to trading - and the references he does make are suspiciously vague, hinting at the possibility that he isn't intimately familiar with the issues he is talking about. When trying to apply a psychological concept to trading he'll make a very superficial reference, such as, "If you lost money on a trade then blah, blah, blah". These vague references don't have nearly the same value as the specific real-world examples you'll elsewhere. Hence, this book simply doesn't have the same feeling of authenticity compared to books written by the better authors of trading psychology, such as: Mark Douglas, Van K. Tharp, Ari Kiev, or Brett Steenbarger.

The author's stream-of-consciousness writing style causes him to skim over key issues. He introduces technical concepts without exploring them nearly enough for readers to understand them at all, such as: “sub-modalities, "anchors", "refrains", and "representation systems". There were also many well-known areas of psychology which were not explored much at all, such as personality types. Furthermore, all of his recommendations lack any kind of specificity. For example, he tells you to use affirmations, but he doesn't bother to give you a specific example of one to use.

One could argue that a more comprehensive exploration of the subject matter would only conflict with the book's ability to convey the overall themes. But these issues are so deep that a more comprehensive dialogue is warranted. I think the book could have retained its focus while also having depth. One could also argue that these are personal issues where readers need to come up with their own individual answers. But the subject matter is so abstract that most readers will need help in coming up with those answers.

Here are a few of the useful quotes and ideas that I did find in the book:

  • "The paradox is realizing that being in control is about letting go."
  • "Even if you give your investments to others to manage, you are wholly responsible for that decision."
  • Letting go of your ego doesn't create self-esteem. In order to trade soundly, you must lose your ego AND replace it with sound, prepared, professional judgment.
  • The conscious mind assembles the data. The unconscious mind notices the patterns, makes the connections and guide your judgment.
  • "The depth of your emotional resources is as important as your finances."
  • "The market is a collection of beliefs."
  • There is no content, only context.
  • "If we ever fought battles, the main opponent was ourselves."
  • "If you persistently adopt someone else's view, expect their performance. In that case, why don't you just put the money into one of the thousands of funds and crystallize your implicit delegation of responsibility."
  • When I was a stockbroker, someone once asked me "when is this market going to go up?". My reply was "when more people believe believe it will go down."
Category: Investor story
Published: 2005
Read: 2010
Reviewed: Jul 2010

In the late 1990s David Denby went on a quest to make one million dollars in the stock market in order to buy out the other half of his house from his ex-wife after they got divorced. He invested hundreds of thousands of dollars into technology stocks prior to the peak of the Nasdaq. When the market turns, he nervously watches CNBC, gets obsessed with online porn, and loses a lot of money. Along the way he forms relationships with stock analyst Henry Blodget and Imclone CEO Sam Waskal. He also talks his personal life, specifically his relationship with his wife, and living in New York City.

Even though the book is honest and well-written, it is also painfully meandering and self-indulgent. The book doesn't even have much of a plot because, with the exception of his investment in a company named Corvis, he didn't really even invest in individual stocks. He simply had his money in a technology mutual fund. Because of the book's thin plot, there's nothing unique about the book at all. The author doesn't even get into the emotional side of losing money (with the exception of a brief rant about Henry Blodget).

This book is the kind of book that is clearly nothing special, but got published because it was a well-written, breezy, and semi-entertaining story and is a quick and easy read. I thought that the book's breezy tone conflicted somewhat with the plot. With the author losing tons of money you would think that he would have been more upset. But instead, the book has the tone of a dark comedy. Perhaps this is because the meltdown was preceded by such a large run-up that he ended up breaking even and didn't feel like he lost anything. Since the author is a writer who has probably observed plenty of life, I initially found it hard to fathom how he could be so naive about the world of investing. But he explained this accurately when he says that, "when it came to investing, intellectuals, were no smarter than anyone else."

The book's biggest strength is his description about the social climate of the 1990s when investing became a part of pop culture. The following two quotes describe the public's view toward the markets and the pressure they felt to be involved in the market on some level:

"Wealth no longer appeared to a great many Americans as a rare goal pursued through entrepreneurial skill or achieved through extraordinary luck. No, in the late nineties, wealth was almost an entitlement."
"In such an overstimulated climate, there was a measure of relief in just buying something. Right or wrong, at least it's an act, a move."

But the book could have been much better if Denby had included a few character studies of people that he had met who lost a lot of money. The book would have had a lot more depth if it had shown how the market losses had affected people. He also briefly covers a few interesting topics, like: cancer research, "The Theory of the Leisure Class" by Veblen, Tulipmania, and Alan Greenspan.

Another strength of the book was the author's description about the role that money and investing had in his life in the past and present - and how a person's class background influenced their philosophies about various financial matters, such as money and markets. Here are a couple of quotes:

"Out of pride, or snobbery, or merely laziness, I refused to get absorbed in investment thinking - the grim perusal of charts and averages, the daunting minutiae of interest rates and price-to-earnings ratios."
"I had been schooled in idealism by the decade of the sixties. In those days, thinking about money, among liberal-arts types in college and graduate school, was very much infra dig.... In that maelstrom, success wasn't important; success was an embarrassment. The general sixties prosperity helped make disdain for money a lot easier, and we were confused, a lot of us - too little minded to understand that discovering your soul and holding a job or not always incompatible....There was nothing in the least ignoble in the drive for family wealth, the desire to protect children and to protect oneself, too, in old age."
"I didn't study, I didn't learn; I didn't even check the results. I was unconsciously afraid, I now think, that I might have to take some responsibility for the results if they were bad -- or particularly good. I thought of the funds as tubers, growing under snow. Let them grow out of sight. The intimidating subject of investment was covered with feelings of dread and avoidance."
Category: Commodities trading, Industry
Published: 1986
Read: 1993
Reviewed: Sep 2009

I read this book back in 1993. I bought it because I was fascinated with floor trading and wanted to hear some stories and get some info about it. The purpose of the book is to teach someone how to get a job on the floor of a commodities exchange, specifically how to become a floor trader (most of whom start of as runners or order takers). This book is broken into two parts. The first part contains profiles of the various exchanges - how to get a membership, the different kinds of jobs available on the floor and how to get them, and which cities are best to work in.

The second part is a brief section within the middle of the book called "Voices of Young Traders", which has interviews with some floor traders about their struggle to become successful. Over the years, there have been many books written by wanna-be traders. These books are mostly written by people who have no real interest in trading and are simply cashing in when they get a chance for a book deal. This book, however, profiles floor traders who have a genuine passion for learning about markets and becoming successful traders. Here are a couple of quotes from them:

On how difficult it is to become a profitable trader . . .

"Construction guys are making $15 an hour. That's 1 tick on a 1 lot. How can I not make one tick on a 1 lot every hour I'm down there? How can I not do that? One tick an hour. How hard is that? It's hard. It doesn't sound hard even to me, but it is."

On the no-bullshit culture of the trading world . . .

"I had an interview with a guy at Shatkin. I walked into his office and he asks me, "What do you know about this business?" I figured I might as well be totally honest with the guy, so I said "Nothin. I have no idea what goes on here." And then he says, "OK. You're hired."

Overall, this book doesn't have much value today. These days, you can get all this information on the internet. Not to mention the open-outcry jobs are becoming extinct. But the 15 or so pages with the floor trader interviews are some of the most inspirational trading stuff I've ever read.

Category: Wall Street stories
Published: 1996
Read: 1997
Reviewed: Sep 2009

"Traders Tales", which could best be described as a coffee-table book, was one of the first books to be published by a CNBC anchor. Most books written by CNBC anchors are fluff. But, to be fair, this book is meant to be fluff. I read this during my first or second year of trading, so I was still in my "I'll read anything about the market" phase.

Insana's stories are corny and a little tame, as if he didn't want to embarrass anyone with any real stories. You'll get better "insider" stories from other books like Liar's Poker. The only interesting parts were the stories about some of the famous Wall Street people, like: Muriel Siebert, Ron Baron, Peter Lynch, Jim Rogers, and others.

Category: Trader interviews
Published: 2000
Read: 2003
Reviewed: May 2010

This book is a collection of interviews with various traders, including: Gil Morales, Chris Kacher, Kevin Haggerty, Cedd Moses, Mark Boucher, Lewis Borsollino, David Ryan, Jeff Cooper, Wiliam Greenspan, Jon Najarian, Greg Kuhn, David Kuang, David Baker, Manual Ochoa, and Jim Whitner.

The biggest problem I had with this book is that it mostly profiles momentum traders whose returns were artificially inflated because of the tech stock boom of the late '90s. In times like those, it wasn't particularly difficult to get huge returns. For example, if the Nasdaq rises 100% in 1 year and you are using 2-to-1 leverage, then simple passive indexing of the Nasdaq will give you a 200% return. Although the book is not explicitly or solely based on hype, the book irresponsibly quotes returns of 70,000% in 4 years. The authors, aware of the aura of hype, seem like they try to legitimize these abnormally high returns by making a deliberate effort to point out the career longevity and accolades of each trader.

The second problem I had with this book is that all of the techniques used are ultimately arbitrary. The techniques are mostly based on generic indicators like RSI, MACD, ADX, and various chart formations. All of these indicators are arbitrary because trading success is not about finding the right indicators; it is about having the skills to know how to use them. All indicators are essentially the same. That is why the book seems so repetitive - because all of the (supposedly) different techniques and stories in the book are simply echoes of each other.

Winning traders know that success isn't about finding a technique that works; it is about finding a technique that works for you. Showing a channel breakout of DELL from 1996 to 1999 doesn't have much value - you can find a chart of a simple channel breakout in every technical analysis book every written. The fact that the indicator worked in the DELL example doesn't validate the indicator as having any objectively value. It simply means that the trader who used that particular indicator has a particular trading style that works well with that indicator. But chances are high that your trading style will probably differ from theirs. Some readers may point out that the examples in this book can help traders learn which indicators will work for them. This is true. But, if your goal is to browse a book in order to find useful indicators, then you are way better off reading a much more comprehensive technical analysis book such as John Murphy's 576-page Technical Analysis of the Financial Markets or Thomas Bulkowski's Encyclopedia of Chart Patterns instead of a book that focuses solely on a narrow set of indicators used by a few particular traders.

Category: Personal Finance
Published: 1998
Read: 2002
Reviewed: Sep 2010

This book, written by sociologist Andrew Hacker, talks about the economic profile of different groups of Americans. It is similar to "The Millionaire Mind". It talks about different trends (like the rising income inequality over the last few decades) and cites various statistics relating to different areas, such as: marriage, children, labor trends, wages, industries, poverty, billionaires, race, sex, and immigrants.

This book is very weak because most of the statistics are either well-known (like rising income inequality, and CEO pay) or are simply intuitive. Books like this are very primitive because they only teach you THAT things are, but they don't teach you WHY things are. Those more relevant questions are being answered by the current books about neuroeconomics, behavioral finance, and social psychology. That is where the interesting research is being done. Here are the few interesting quotes from the book:

  • To learn about people, you should observe what they do instead of listening to what they say. "The marvelous thing about rats is that they do not talk. The trouble with the social sciences is that they record all the silly and self-serving things that people say."
  • The American variant of capitalism never made the creation of jobs a primary goal.
  • "One reason immigrants open their own enterprises is that they are unsure whether they would be allowed to succeed in corporate careers."
  • "Ours is an age when money is apt to be used for creating financial pyramids as to build productive capacity."
Category: Trader biography
Published: 1997
Read: 1998
Reviewed: Sep 2009

This book tells the story of Charles DiFrancesca ("Charlie D"), a legendary spread trader in the Treasury Bond pit at the Chicago Board of Trade who died at age 39 from lymphoma. This is not a trading strategy book. It mainly relays personal stories about the larger-than-life and philanthropic DiFrancesca as well as a couple of entertaining trading stories (like the FBI probe of the trading floor).

I bought this book because I have always been fascinated by floor trading, but this amateurly-written biography is needlessly saturated with gushing comments from friends, while being very thin on both personal details about Charlie D himself and stories about trading. The publication of this book is a bit mystifiying because it is less a biography, and more of a dedication aimed solely at people who knew him personally.

Category: Day-trading
Published: 1998
Read: 1998
Reviewed: Sep 2009

This is a day trading book published back in the '90s. It is worthless, for a few reasons.

First, any day-trading book written in the 90's will be useless from a tactical standpoint since those day-trading strategies are based on technology which has changed (SOES, decimals, ECNs).

Second, the book makes day-trading look way too easy. It makes it look like you can just hit peoples bids and offers on Level II and quit your job. Some tactics - like "buying at the bid" - should never enter the beginning trader's consciousness.

Third, the book is way too technical for a beginner. Most concepts (like how market makers operate) will be over the head of beginners, some of whom have trouble understanding even basic concepts.

Fourth, it fails to point out the skills needed in becoming a successful day-trader. There is a misperception about day-trading that success is based more on having the right technological tools (exotic orders, ECNs, real-time quotes and charts), and less on having the softer skills of trading (i.e. market wisdom). The book does attempt to wade into this area ("Gauging the strength of the market"), but this section is embarrassingly brief.

Fifth, the skill of day trading - more than any other type or trading - is more about "doing" than "learning". This makes day-trading less susceptible to book-learning.

Don't read it, even for free.

Category: Trading technique
Published: 1991
Read: 1994
Reviewed: Jun 2010

Delta Phenomenon was written by Welles Wilder, developer of the widely-used RSI (relative strength indicator). It teaches how there are market cycles ("delta cycles") that are based on astrological relationships like full moons. The cycles predict the turning points in any market, and there are cycles of different lengths - 19 years, 4 years, 1 year, 4 months, and 4 day cycles. Sometimes the cycles have a point where they change, called an "inversion". Other than the occurrence of an inversion, the cycles are constant, so you have the ability to extrapolate the cycle far into the future. The Delta Cycles supposedly work in any market, but each individual market has a unique cycle.

This book is explicit in admitting that the Delta cycle is not a complete trading system. It is simply an indicator used to aid in forecasting. The problem with that statement is that the criteria for Delta cycles is very objective and mechanical, which means that it can easily be back-tested to see if there really is an edge. To be fair though, most useful technical analysis techniques are subject to interpretation, and many users of Delta say that the cycles do indeed need a lot of interpreting. There has also been chatter among traders that the Delta cycles work well with other indicators like Fibonacci or Elliot Wave. This makes sense on the surface since Delta predicts the timing of cycles but not the magnitude, and Elliot Wave predicts magnitude but not the timing.

Unfortunately, this book has many of the telltale signs of a scam:

  • a high price (the book costs $175)
  • upgraded information for a lot more money (The Delta Society was selling the actual turning points for all of the major commodities for several thousand dollars)
  • a high level of hype (the book was explicitly marketed as "the most important discovery ever made about the markets")
  • an aura of secrecy (there is a backstory that tells how Welles Wilder bought the information from a guy named Jim Sloman). The aura of secrecy could explain why there have always been whispers in the trading forums about this book. Almost every trading forum on the internet has a poster that asks "Has anyone ever read The Delta Phenomenon?".

I bought this book around 1994. It was one of the few times where I wasted money on a trading resource. Normally I would have rated this book 2 to 3 stars since cycle analysis is indeed a valid theory, but the hype and cost take away much of the book's credibility.

Category: Wall Street (general)
Published: 2000
Read: 2002
Reviewed: Apr 2011

This book details the growth of financial journalism in the late 1990s and describes the influence that the financial media had on the markets. It tells the story of the birth of brick-and-mortar financial media companies like CNN, CNBC, and Bloomberg, as well as online financial media companies like It profiles different media personalities like Jim Cramer, Maria Bartiromo, Mark Haines, Ron Insana, David Faber, Lou Dobbs, Gene Marcial, and Dan Dorfman. It talks about their functions and responsibilities, mainly reporting news as well as investigating rumors about mergers and earnings. It also talks about their relationships with company executives, and with each other.

Although some people were annoyed at the book's focus on Jim Cramer, it has become clear since the hype has died down that Cramer was the biggest financial media celebrity and the only one that had any kind of staying power. Nobody talks about Bill Griffith or Mark Haines anymore (or even Maria). They were mere character actors in the story of the rise of the financial media and never really earned the attention that they received.

This book was extremely weak in both content and style. Content-wise, the biggest weakness of the book is that it over-estimates the importance of CNBC and the rest of the financial media. Even though many people watch CNBC, few people actually use it to make investment decisions. Sure, there are occasions where CNBC can move markets, but any media source does that occasionally, including: Barron's (which regularly causes Monday morning moves) and Gene Marcial's BusinessWeek column. The author tries to give the story weight by using the market's run-up and subsequent decline as a backdrop to the rise of the financial media. But this fact simply makes his case weaker as it is apparent in hindsight (if not at the time) that market movements influenced the popularity of CNBC, and not the other way around.

Another weakness of the book is it's complete ignorance about the moral ambiguity of some of the events it reported on. There were so many times in the book where a there was a casual reference to the explicit relay of insider information, such as when a reporter "got word" of a merger. While operating in a world where trading off such information is illegal, the author doesn't seem to contemplate the consequences of these actions. Although there was no mention of any illegal trading off this information, it would be naive to think there wasn't any. It would be like seeing a keg being rolled into a frat house party - but assuming that no one would actually be drinking. The author was also not critical of any person in any way. Furthermore, the book lauds the reporters for spending so much time reading and learning about what they were reporting about, as if knowing the subject matter that you specialize in is a notable accomplishment.

Style-wise, the book was very disorganized. It jumps around from person to person and makes it difficult to focus anything in particular. Jim Cramer's story stops and starts so many times that, when you are done reading, you aren't left with any comprehensive understanding of the man. The book would have been better if it were laid out chronologically instead of being segmented by person. It read like a collection of biographies, rather than the telling of a fluid story. The shallowness of the biographies and other content only made the book worse. I agree with an Amazon reviewer who called the book a "309-page People Magazine article". The author repeatedly relays little snippets of stories that seem to have an "insider angle", rather than stories that were meaningful or allowed readers get to know the characters in the book. The author seems almost proud of teasing us and not letting us know how the backend of the financial media really operated. But the truth is that these clumsy attempts to bait the reader with tantalizing information were due to the fact that he never had anything better to write about. Consequently, most of the stories are nothing more than overblown tales of insider bickering and petty feuds, boring stories about meeting deadlines and meaningless events, and people acting neurotic as they climb the corporate ladder. But since the financial media itself is based on sensationalism, I guess that's the only way you should expect the book to be written.

Category: Introduction to stocks
Published: 1981
Read: 1993
Reviewed: Sep 2009

This, if I remember correctly, was the first book about investing that I ever bought (at a Waldenbooks around 1992). It is an introductory book on stocks and was originally published (I believe) in 1969. The latest version (which claims to have the "latest" statistics and regulations) is the 8th edition, and was published in 1994. This book is completely outdated and much of the information is comprised of either useless tutorials about the inner workings of the stock exchanges (which are completely irrelevant to investors), or information that is decades old. Here are a few examples from different chapters:

CHAPTER 9. WHAT YOU SHOULD KNOW ABOUT THE NEW YORK STOCK EXCHANGE - This chapter talks about the exchange's computerized fraud-monitoring service, the requirements to be listed on the NYSE, how to become a member of the exchange, and how much a seat on the exchange costs.

CHAPTER 10. WHAT IT COSTS TO BUY STOCKS. This chapter, about commissions on stock trades, refers only to full-service brokers. It makes no mention of online brokerages (because the book was published before the internet), yet needlessly includes a detailed history of brokerage commissions during the 1970s.

CHAPTER 11. HOW THE STOCK EXCHANGE WORKS. This chapter talks about how you actually enter an order with a broker. Look at the following description of the process:

"Today, customers usually phone thier broker. . . With a computer console at their desk, the brokers can quickly give the customers the latest stock prices or call up other pertinent information."

Brokers have a computerized console which gives stock quotes? I gotta get me one of those! This chapter then goes on to needlessly educate the reader about how specialists operate. And, as if this info wasn't enough, the next chapter is entitled "More About The Working of the Stock Exchange." And later on, another whole chapter is dedicated to "How Large Blocks of Stock Are Handled". ...Anyway, you get the point.

The book moves on to cover topics like: mutual funds, buying on margin, selling short, options, futures, following the market, and so forth. These topics are explained fairly accurately in a very casual and friendly tone that helps you learn all the details without being overwhelmed. If you know absolutely nothing about stocks, you will learn something here. These sections of the book would have been enough to justify a 2-star rating, but the the rest of the book's content is so old and completely inaccurate that readers will actually have to spend additional time un-learning it.

Taking into account how outdated and simplistic this book is, the book's generally favorable reviews (especially the recent ones) might seem bewildering. But I think they can be explained.

A long time ago, when very few investors understood contemporary investing concepts (like market psychology or technical analysis), most investing books were simply reference books. They only had the ability to teach people rudimentary lessons like how the stock exchange worked, or simple definitions of the different investment products (e.g. preferred stock, muni bonds, etc). Hence, the worthless nature of this book is less a judgment about its content and more of a comment about how little people knew about stocks back in the 1970s. It's hard enough to remember the times before the internet, but imagine how little useful information was available when there weren't even any books about stocks. That's why Peter Lynch's books were considered groundbreaking and later became classics.

With that being said, when the authors published newer versions of this book for the modern era, they acted very irresponsibly by not updating the content. The publishers also should have never have printed these stale updates, but because the book has sold very well in the past, it seems to have been grandfathered into the world of contemporary investing literature, and unjustly so. The age of the book and number of editions convey a false sense of timelessness, and the seductive simplicity of the book's title and content seems to have aided it's ability to stubbornly remain in existence.

I have always been concerned that books like this that completely ignore investing strategies and market theories give prospective investors a false sense of confidence and inadvertently lead them to think that there isn't much that you need to know about the stock market in order to be successful. To illustrate this point, there are multiple reviewers on Amazon who rated the book 5-stars and stated that they had read "dozens of books" about the basics of investing. Really? 24 (at least) books on the BASICS of buying stocks? Some of the them also said that they have read the book "many times". The problem is that this once you have read this book, you should be ready to move on to something more advanced. This book is so simplistic that anyone who has read it many times is demonstrating that they don't have the ability to comprehend anything even remotely intermediate. Hence, this book is only for those who specifically don't have the desire (or ability) to really learn anything about investing, but still want to read a book so that they won't be completely clueless. I suppose this is a legitimate goal - as long as these permanent-novices realize that they shouldn't be making their own investment decisions, and don't recommend this book to other investors who may have the more noble goald of actually learning about investing.

Category: Introduction to stocks
Published: 1993
Read: 1994
Reviewed: Sep 2009

This is a book that I received free from the New York Institute of Finance (whatever that is) when I first started trading in 1992. The book has 3 parts. The first talks about stocks (what stocks are, how IPOs work, etc). The second part talks about the microstructure of the market (what happens to an order after it is submitted, what specialists do, etc). And the third section quickly touches on stock market theories.

This book may have had some value back in the early 90's when there weren't many books about investing but today it has very little value. If this is the very first book you are reading about the market, then it will be useful in the sense that ANY book would be useful. The book has a somewhat inaccurate title. Technically speaking, the title is not misleading, but many readers will assume that the book teaches strategies and techniques, which it doesn't. This book makes the mistake that many older investing books make, by wasting time with un-needed lessons about the micro-structure of the market. Beginning investors don't need to know how Wall Street works behind the scenes.

Category: Industry
Published: 1990
Read: 1993
Reviewed: Sep 2009

Published in 1990, this book talks about the different kinds of trading jobs within the industry, and the kinds of financial products and markets related to those jobs. It was one of the first books that I bought from Traders Press when I first started trading. I was infatuated with floor trading at the time and thought this book might talk about that a bit.

This is a really bad book, mainly because it lacks focus and has content that is mostly worthless. Part of the book talks about what it takes to be a trader, like how trading requires discipline and emotional control. But this section is so superficial and short that it is a complete waste of time. Another part of the book talks about the different kinds of trading jobs within the industry and what kinds of products they trade. This content is completely academic and dry. It basically tells you that bond traders trade bonds, and equity traders trade equities.

If someone really wants to know what it is like to be a trader, they should buy one of the "Wall Street insider" books that is published every year by someone who has worked in the industry. Not to mention, most people who land a trading job on Wall Street do so because of their education or personal connections. Prospective Wall Street traders don't get their jobs because they went out and bought a book like this. Hence, this book is pointless because there is no real need for it in the marketplace.

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