Posts Tagged ‘Book Review’

Book review roundup – Forex, Turtles, LTCM, Stock market and Randomness

Wednesday, December 9th, 2009

I’ve been reading finance and trading books faster that I’ve been able to review them! Here is a roundup of the last five finance and trading related books that I’ve read.

Currency Trading for Dummies by Mark Galant and Brian Dolan

Mark Galan and Brian Dolan both work at which is one of the largest forex retail brokers in the world.

They’ve put their knowledge into this book, packaged in the familiar ‘dummies’ style.

Even though this is marketed as a ‘dummies’ book there is a surprisingly large amount of detail in the book which makes it worth reading even if you have been trading in forex for a while.

They explain the differences between the major currencies. They talk about how the world economies interact. They provide a good slice of standard trading advice (strategies, stops, trade size, etc). And they cover other topics such as technical analysis, trading from the news, and trading do’s and don’ts.

Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders by Curtis Faith

Curtis Faith was one of the original ‘Turtles’. The turtles were ordinary people who were taught how to be professional traders by Richard Dennis as part of a bet as to whether successful traders are made or just born.

Curtis gives a brief account of how he was selected to be a turtle (which to me would seem to invalidate the idea of the bet – it they wanted to see if anyone could become a successful investor then shouldn’t they have randomly selected people?). And he gives a brief account of his time as a turtle trader.

Most of the book is however about writing and testing trading systems. He covers topics such as how to do a good backtest – important to make sure you don’t bias the results. And he talks about rules that a good trading system should use.

If you are interesting in writing trading systems then this book gives plenty to think about. A quick read and very interesting.

When Genius Failed: The Rise and Fall of Long Term Capital Management by Roger Lowenstein

When Genius Failed tells the story of the mighty rise, and then mighty fall of Long Term Capital Management.

This is the account of how ex-Salomon Brothers trader John Meriwether created LTCM and how it became one of the largest arbitrage hedge funds in the world in a few short years.

When Genius Failed continues parts of the events that were covered in the book Liar’s Poker by Michael Lewis – another recommended read.

John Meriwether managed to recruit some of his old team from Salomon Brothers and added two Nobel Prize winners – Robert Merton and Myron Scholes for good measure. To add further credibility to the fund he recruited David Mullins, the ex-Federal Reserve Vice-Chairman.

With his prestigious team in place he was able to obtain billions of dollars of capital, and get highly advantageous terms from the brokers and clients they dealt with.

They thought they were invincible, and for a time they produced amazing returns.

However things went wrong when they got too big and started diversifying into new areas. They were stung by the Asian currency crisis of 1997 and then in 1998 their downfall was cemented when Russia defaulted on its debt.

This is a fascinating read of how huge success can lead to spectacular failure. This book is a warning for anyone who takes on risk beyond his or her means.

How the Stock Market Works: A Beginner’s Guide to Investment by Michael Becket and Yvette Essen

How the Stock Market Works is a small book that does as its title suggests. It tells you in brief how the stock market works.

It tells you what shares are, how you research them, and how you can buy them.

It explains how you can read the financial pages in newspapers and how you can understand a company report. If you want quick descriptions of what all those financial rations mean then this could be the book for you.

It is not what I’d call a ‘fun or interesting’ read, however there is a lot of useful information in here.

This book is pitched towards people who are investing for the long term. It does not cover shorter term trading.

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb

Fooled by Randomness is a fascinating book that explains how much our lives are affected by pure randomness.

There are a lot of examples of how this relates to the trading world (Nassim is an options trader), but there are plenty of non-trading examples as well.

Fooled by Randomness flits from one topic to another at speed and is one of those books that makes you think.

One of the most important messages that he tries to get across to traders is that just because you win many trades don’t assume you are a good trader. It could just be you are benefiting from random luck. Sample size is all important – winning trades over a number of months or even years may not be enough to tell you anything about your trading skills.

The author is clearly very intelligent and has put together a highly readable and interesting work, but sometimes he does come across as a bit arrogant – he could do with toning some of his personal insults down.

Nether the less – a fun read – and I’ve already got his follow up book The Black Swan: The Impact of the Highly Improbable, on order.