What the best non-fiction books about trading have in common is that they are all page-turners; they read more like thrillers than business books where the stakes are so high you couldn’t make them up. For anyone outside the world of bulls and bears, they are a bewildering account of white-collar aggressiveness (and occasionally, crime of impressive scale); for insiders, bewilderment may be more about the sector’s capacity to sometimes repeat mistakes.
The books highlighted here date back to the eighties and demonstrate how history has a tendency to repeat itself (though past performance may not be indicative of future returns). A cynic might argue, some folks have more than learned the lessons and are still finding loopholes around regulation to make a killing. Another view may be that competition, like necessity, is the mother of innovation and the extreme competitiveness of financial markets will always attract smart, aggressive innovators who are interested in pushing business models and technology to the edge of their current abilities (or beyond).
We make no apologies, by the way, for including three of Michael Lewis’ books. The bond salesman turned author/journalist has done for financial trading what John Grisham did for the legal profession; except the true stories he tells are so compelling that he hasn’t had to resort to fiction.
The Predators’ Ball (1988), Connie Bruck
The story of an insider trading and stock fraud scam made infamous by the main protagonist Michael Milken coming up with “the highly confident letter”, which he used to raise money to finance corporate raiders. Eventually exposed by the SEC, it gave the world a glimpse into greed-driven excesses that would become synonymous with Wall Street in the eighties.
Liars Poker (1989), Michael Lewis
Lewis’s experience as a bond seller at Salomon Brothers in the late eighties inspired one of the first books to lift the lid on the dubious culture and practices that were emerging, and put him on a journalistic path to become one of the top writers on the topic. The irony of the book is that it’s exposé of bad trader behavior inspired a lot of people to become one.
Den of Thieves (1991), James B Stewart
This rogue’s tale, told like a fast-paced adventure yarn by a Pulitzer prize-winning author, is the story of an insider trading scandal that nearly brought Wall Street to its knees in the mid-eighties. Like all good crime stories, it has hard-nosed cops as the heroes who take down stock market giants before they get away with billions.
When Genius Failed (2000), Roger Lowenstein
The real-life drama of Long-Term Capital Management (LTCM), a hedge fund that was regarded as a new gold standard for performance and analysis. John Meriwether, also prominent in Liars Poker, was a founder and two Nobel Prize-winning economists were among the principals. In contrast to Liars Poker, When Genius Failed profiles a very different culture, speaking heavily to the emergence of quants, technology, and sheer intellectualism. The fund’s founders took capital on credit (margin) to an extraordinary scale and delivered unprecedented returns...for a while. Only when markets crashed and took LTCM investments with them was the full extent of the accumulated debt revealed, creating a black hole that threatened to suck in reputable financial institutions.
In hindsight, this arguably could have been titled “Too Big to Fail, Part 1.”
Too Big to Fail (2009), Andrew Ross Sorkin
The New York reporter wrote what many regard as the definitive guide to understanding why the 2008 crash happened. An entertaining fly-on-the-wall style makes it much more enjoyable than you would expect from such a heavily researched book – based on 500 hours of interviews with 200 participants. There is no shortage of detail and we all know the end, but it still manages to be a page-turner.
This story takes place almost exactly 10 years after the collapse of LTCM. A 2011 HBO movie adaption stars William Hurt as Treasury Secretary Henry Paulson, Paul Giamatti as Ben Bernanke and Ed Asner as Warren Buffet. Potentially even more entertaining for industry insiders was the casting of the heads of the major banks, which included:
Bill Pullman - Jamie Dimon, JPMC
Mathew Modine - John Thain, Merrill Lynch
Tony Shalhoub - John Mack, Morgan Stanley
Ajay Mehta - Vikram Pandit, Citi
Evan Handler - Lloyd Blankfein, Goldman Sachs
James Woods - Dick Fuld, Lehman
The Big Short (2010), Michael Lewis
Another book about the crash but this one focuses on the people who made fortunes by betting against the US housing market. Shining a light on complex market concepts and weird financial instruments, such as credit default swaps and collateralized debt obligations (CDO), it made an ethical debate remarkably entertaining. So too did the Oscar winning film of the same name in 2016.
Flash Boys (2014), Michael Lewis
The author’s assertion that high frequency trading effectively rigs the game was controversial, but few would argue that Lewis’s exploration into the way emerging technologies are being used to create millisecond (or less) trading advantage is fascinating and a great read. As well as shocking outsiders, it gave the industry pause for thought and has been credited for triggering SEC investigations.
If you’re getting a jump on your summer reading and haven’t yet had the pleasure, these are some titles to check-out.