A breezy, loosely organized introduction to options trading combined with Jon’s worldview and snatches of personal biography. Many anecdotes are dated. Jon’s voice is authentic, but in the online era the format is longish and might have been more compelling as webinars.
Investing
3. Bernstein, Against the Gods (24 Jul 2008)
Surveys mathematical and epistemological understanding of risk in the Western era, focusing on it’s roles in modern investing. Initially the problem concerned Renaissance-era advances in quantitative certainty, while gradually the understanding that past results cannot determine (but only suggest) future events introduced a moral / emotional context. Two poles in the latter 20th-century understanding are diversification (reduced likelihood of losing it all at once) and chaos theory (nonlinerarity tells us that ends are not proportionate to events). Whichever may become predominant according to events, risk has become a scientific approach to increasing opportunity for sustained gains (or, reduced exposure to unwanted outcomes). Well synthesized if occasionally blocky prose. Worth re-reading; next step, the au courant Black Swans.
4. Koesterich, ETF Strategies (22 Sep 2008)
Shows that ETFs are more likely to be effective for retail investors, and surveys popular equity and fixed income products. Harry Markowitz’s Capital Asset Pricing Model asserts investors should be compensated for market risk but not idiosyncratic risk. Equity returns were abnormally high from 1990-2007, and pro money managers enjoy increasing advantages — but winning managers themselves are hard to find. Thus retailers should avoid beta masquerading as alpha and utilize low-cost, diversified financial products (investments). Equity funds are categorized by sector, size (tradeable creation units), and style (value of growth); international funds are crossovers that provide additional diversification. Fixed income funds, mostly bonds but also commodities, are categorized by duration and credit risk. Other maxims: what is the risk-adjusted return? how is the fund correlated to the portfolio? what is the cost in fees and transaction costs? ETFs should make self-directed investors more efficient. Well organized and timely (for me) in sketching the size and role of the bond market around the time of the Global Financial Crisis.
5. Cramer, Confessions of a Street Addict (20 Sep 2009)
An autobiography of hedge fund-cum-commentator Jim Cramer through 2002. Following a Harvard law education, the author joined Goldman Sachs before leaving to start a successful fund. Simultaneously, his (pre law) journalism background led to TV roles and founding TheStreet, which he was ill-prepared to manage. 1998 was a poor year for the fund due to hubris; the 2000-01 dot-com tech crash wounded TSCM. Cramer is well-connected and clairvoyant on Wall Street’s machinations, and thus able to provide many useful insights, but hyperbole (admittedly borne of passion) keeps him from becoming statesmanlike / achieving gravitas.
8. Miller, Tradestreaming (12 Jul 2010)
Delineates a half dozen ways that retail investors can utilize online resources and services to improve investing practice, mainly idea generation. The success of financial bloggers has spawned businesses that enable retailers to piggyback, or ‘commune’, with pros. Simultaneously, one can crowdsource, scavenge chat boards, or leverage growing amounts of online data to qualify investment theses. While several chapters evaluate au courant vendors, the conclusion is further reaching in predicting online brokers will become platforms for service vendors (i.e., app stores), content providers will become virtual asset managers, and RIAs will gain ground on wirehouse brokers. But how will the latter (i.e., asset managers) respond?
9. Authers, Fearful Rise of Markets (21 Aug 2010)
A concise, effective overview of primary financial phenomena leading to 2008-09’s Global Financial Crisis. Short chapters outlining how index investing undermines diversification, for example, serve as object lessons in how the financial markets came to be dangerously correlated and newly sundered principals (investors) and agents. Many of the early topics (e.g., carry trading, decline of banks / rise of money market funds) benefit from the author’s writings in the
- Financial Times
; some of the latter efforts (e.g., quants or ‘politics and institutions’) are less satisfying. Wisely, the details of the subprime housing collapse and subsequent credit crunch are left to others. Mainly a very fine effort that falls down only in the (perhaps inevitable) diminished historical perspective of some latter parts.
10. Lewis, Big Short (24 Sep 2010)
A character-driven narrative of oddball investors who foresaw the subprime housing collapse and devastating consequences for investment banks. To benefit from the seizure, one had to divine how mortgage-backed credit default swaps and collateralized default obligations generated revenue, able to access the rarefied market, and be willing to wait out the gravity-defying origination of new home loans. The book is intended to (again) portray the ‘heads I win, tails you lose’ ethos of Wall Street, and generally succeeds too in favorably depicting the protagonists. But the coda, where Lewis looks to tie investment banking’s demise to the flotation of Salomon Brothers, seems the greatest overreach. Conflict preceded public listing, however questionable that mechanism. Ironically enough, the contemporary response to the crisis – more regulation – may get at the problem suggested by Lewis, which is that people are at the heart of the problem and rules can always be surmounted.
4. Scaramucci, Goodbye Gordon Gecko (31 March 2012)
Financial professionals can succeed even while behaving ethnically. The author illustrates his belief with his own success story.
8. Cohan, Money and Power (6 Jun 2012)
Narrates Goldman Sachs’ rise to national prominence in investment banking and charts its transformation into a prop-trading powerhouse as well as a ‘crony capitalist’. Through the first half of the 20th century, Syd Weinberg and Gus Levy dominated proceedings, even as the limited partnership developed corporate best practices (exemplified by John Whitehead’s famous 10 points). Though the author continues portraying the company’s leading lights through Jan Corzine, Hank Paulson, John Thain, and Lloyd Bankfein, the latter pages also seek to outline how the transformation to a public company and trading its own accounts put the bank at odds with its commercial clients. The tension prefigured by previous conflicts is illustrated by detailed review of Goldman’s derivatives trading in mortgage products (including the word of Mike Swenson ’89). An easy and sometimes engrossing read, the book is somehow not quite coherent. It goes some ways toward identifying a solution to conflicts of interest, without definitely making a case for modernizing Glass-Steagall. Perhaps it should have been two books.
6. Moe, Finding the Next Starbucks (2 Mar 2015)
Describes the author’s approach to investing in micro- and small-cap companies: consistent earnings growth drives the stock price over the long term. As a rule of thumb for estimating time to double an investment, divide the growth rate into 72 (e.g., 72 / 8 pct per annum). Moe looks for ‘megatrends’ to fuel top-down (tailwind) help and the ‘4 Ps’ (people, product, potential, predictability) for bottom-up analysis. Something of a contrarian, he is willing to pay a high P/E rate — if earnings growth is consistent — and shuns diversification for its own sake. Chapter 7 (and an appendix) on valuation usefully covers DCF, PEG, and price/sales ratio.