So, once you accept that there is no "correct" answer to how the financial system and how markets work, what's left to do is to follow what's happening in the world and try to build your own mental model.
One source I'm a big fan of (and has a bit of a cult following in the financial world) is Matt Levine's "Money Stuff" blog: https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...
He's engaging, funny, talks about interesting topics and, most importantly, he's _rarely_ wrong. It's a rare thing seeing a journalist talk about your specialty subject and actually being correct.
Similar source is Felix Salmon: https://www.felixsalmon.com/
Similar league as Levine, but I find him slightly less engaging, for whatever reason.
I once read the "Reminiscence Of A Stock Operator" and my edition happens to include large paragraphs of description of the market at that time, and they are really fascinating and I felt that I learnt a lot.
I've also read Reminiscence of a Stock Operator and I found that, while interesting, very little of that informs how the market works nowadays. It did shine a light on why TA is still a thing nowadays - a flavour of TA used to work historically and you can still see echoes of that today.
Some other resources I came across via those and friends:
• "Other People's Money" by Kay
• "Zombie Banks"
• "The Money Problem"
• This NY Fed study of shadow banking: https://www.ft.com/content/1a222bf4-f33d-11df-a4fa-00144feab...
• "All the Devils are Here"
Lastly, it’s fairly focused on the investment banking side of things (derivatives, capital markets, IPOs, the finance industry), not so much on the monetary system, macro, and institutions.
On banking and banking regulation, making a case for higher capital (=equity) requirements for banks, The Bankers' New Clothes: What's Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig is a good read [1].
I can’t think of a good book on money and the various theories about - if someone has a recommendation there, would be great.
[1] see here for a flavour of it https://www.jstor.org/stable/j.ctt1r2dn0
I agree with everything you say.
> He's engaging, funny, talks about interesting topics and, most importantly, he's _rarely_ wrong. It's a rare thing seeing a journalist talk about your specialty subject and actually being correct.
More importantly, on this point, when he is wrong, he freely acknowledges it, embraces it, and then corrects himself in a way that demonstrates he's more interested in truly understanding the topic and updating his cognitive model than in "being right".
Thursday's column is a case in point, where he owns up to two mistakes:
https://www.bloomberg.com/opinion/articles/2020-03-12/the-bu...
He's also the source of one of my favorite quotes on the last tech bubble. From his 8/7/2019 column, on MoviePass, borrowing from Dickens:
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. Annual income twenty pounds, annual expenditure three hundred million pounds, result unicorn.
However, if you take the theme of Levine's articles too literally/thematically, you'll think that finance is filled with quirky rules that produces comically inefficient outcomes most of the time. You'll think that there are easy system changes that any layperson can see that would make the system run much better. You might even think that finance is clear swamp ready to be drained -- this plays into the confirmation bias of readers who come in already with the thesis that "the system is totally broken".
In fact, against this theme, 90% of the time the story is incredibly dry and uninteresting because the system works exactly as intended. 90%+ of the time, stock A + B bundled is worth exactly the sum of it's parts. 90%+ of the time, the regulations do protect investors, are cheap to check off, and causes no weird behavior. 90%+ of IPOs are textbook win-wins and not Adam Neumann playing Softbank or a sell-side banker eating grandma.
To be constructive though, what's the solution? Start with skimming over the most classical textbooks (Mankiw or the recommended non-heterodox textbooks from the relevant classes by your local colleges). This is the classical theory of both how things are supposed to work, and how 90% the value generation actually occurs in 90% of the cases.
But yeah, for someone coming in with 0 knowledge, some more fundamental, drier texts may be more efficient in imparting knowledge.
As someone who accidentally got into finance as a software engineer, he more than anyone has made me really fall in love with the domain.
All models are wrong, but some are useful.
A slogan usually trotted out in defence of bad modelling.
Some models are useful. Some are dangerous. Do you have the means to tell the difference?
There is a joke that goes like this: Economist is the one that will tell you tomorrow why their prediction was wrong yesterday!
This.
> So, once you accept that there is no "correct" answer to how the financial system and how markets work,
And this.
If someone tells you simple truths that you think make intuitively sense, just run away.
Money/Finance is a damn slippery concept and when you dig into it, you find that everything turns out super abstract and answer to almost everything is "It depends."
But to the very original question, here are some quick/dirty pointers what to look for:
1. A Classic economics approach book. Money is unit of measure, store of value, and medium of exchange etc.
2. A discussion about how (modern) money actually is debt. In a very fundamental sense.
3. History of money/banking. How things got from barter (questionable, agreed) to metal money to gold standard to Bretton Woods to free floating fiat currencies. History of financial crises.
4. Some coprorate finance. Equity, debt, derivatives. Why/how banks are really weird corporations from the balance sheet point of view (massive leverage, that is). What is arbitrage, how you price options.
5. Practical finance, ie. interesting stories. E.g. Nick Leeson, Michael Lewis, Satyajit Das.
After all that you may start to have a hunch how little you actually understand so far, but then you start to have tools to build your own mental model.
What you really should not read is goldbugs and cryptofolks stories. They are just one massive Dunning-Kruger bunch and will waste your time.
You need to pick up real college textbook (or online course) and read the parts that interest you and skim other parts. Example: Introduction to Finance: Markets, Investments, and Financial Management by Melicher and Norton
You can also pick up introductory undergraduate college textbook in economics and read the parts that interest you. Greg Mankiw's books are good but the price is off the charts, so maybe don't buy them. (Macroeconomics & Financial Systems could be cheap if bought used)
After that some light reading for general audience with interesting viewpoints and lessons:
- A Random Walk Down Wall Street by Malkiel
- Common Sense on Mutual Funds by John Bogle
- The Alchemy of Finance by George Soros (Sorosls theory of reflexivity in finance, nontechnical take on nonlinear dynamics in the markets)
Undergrad macro textbooks are more or less designed to teach you how to work a model, and how to prove theorems about a model. But when all is said and done, macro tends not to go the distance and demonstrate how the model relates to the real world. They also get important details wrong. Most of the west doesn’t work on a fractional reserve system anymore, and the main constraint for money creation is not the reserve ratio.
Honestly you’d be better off learning very basic accounting, then learning about bank balance sheets, then learning about basic financial plumbing like the repo market, money market funds, and the fed’s operations.
I like Bruce Tuckman’s book ‘fixed income securities’ for the latter. It’s very practical, without any of the theoretical nonsense you sometimes encounter in advanced texts.
There are a few financial journos that I have time for though. Matt Levine is good, though he has a particular domain of expertise and tends not to stray from it. Michael Pettis is good on all things China. But as others in the thread have also noted, the industry is so full of bullshit that it’s hard to separate the good from the bad.
I'm referring to the book: 'N. Gregory Mankiw, Laurence Ball - Macroeconomics and the Financial System-Worth Publishers (2010)
Yes, undergrad textbooks are tedious and the content varies between the misleading and wrong (and I definitely agree about learning accounting and how the plumbing works).
But it is also true that past the level of undergrad, it does get more useful. There is still a lot of dubious stuff going on, and you have zealots engaging in the holy war over which useless model is least useless. But there is also some pretty good research that helps you understand the economy.
I'd love to see some. I looked quite hard into two topics, gravity models of trade and the Philips curve, and I never found much I thought was convincing.
I think the culture of academic macro doesn't appreciate just how hard it is to thoroughly test a model. It's not as simple as writing down some dynamics, estimating via maximum likelihood, and drawing conclusions based on the parameters that pop out.
The Philips curve changes over time. It is, however, quite easily testable so it either applies or doesn't. If you are looking for some hard rule that applies every time then you should take an interest in something else (indeed, this was my initial point...the issue is that economists believe that the economy are a set of equations to be solved...in reality, the nature of the economy is changing constantly).
I don't think that is the case. Economists are confronted with the difficulty of tests everywhere (the issue is that they often don't handle this well), it is why econometrics is distinct from statistics. As an example, interest rates and growth are positively correlated (i.e. higher rates appear to cause higher growth)...we know this isn't the "true" relationship (interest rates are a function of expected growth) but there has been a ton of work done to separate these effects (this isn't only in macro, controlling for confounders/ommitted variables is really what econometrics is about). Econometrics is really the best part of economics.
Again, you're saying that as if it's a matter of fact. When I looked into the relationship between growth and interest rates, I found baffling discussions of demand for money as it relates to a financial system completely unlike the one we use today.
I just find it impossible to separate the nonsense from the useful insight. At some point I just gave up.
Galbraith’s book on 1929 is still considered a great account of what went wrong in 1929. It surely has lessons to be learned today.
The way the news cycle runs though we no longer need to hem and haw over whether policies that benefit business over individuals do better or more for the economy. Yesterday (March 13 2020) the Fed dumped 1.5 trillion in easy funding into the stock and financial market. The SP 500 saw historic increases for one day of trading. And people are still facing the trade off between going to work sick or failing to be able to pay rent. The 1.5T sent to the financial sector had no impact and is expected to not have any impact to help the individual households living paycheck to paycheck.
Edit-the hospitality industry has companies laying off employees because of diminished business. This is after the 1.5T from the fed. Probably at least one of those companies will benefit from the fed decision and buy back stocks to increase their valuations. Won’t do a lick of good for any of the former employees out of work and pay.
Arrighi, Giovanni (1994) The Long Twentieth Century: Money, Power and the Origins of Our Times
Brealey, Myers, Allen (2011) Principles of Corporate Finance, 10th ed.
Bruck, Connie (1988) Predators' Ball: Inside Story of Drexel Burnham and Rise of Junk Bond Raiders
Fisher, Philip (2003) Common Stocks and Uncommon Profits and Other Writings, 2nd ed.
Fridson, Martin and Fernando Alvarez (2002) Financial Statement Analysis, 3rd ed.
Graham, Benjamin, J. Zweig, D. Dodd (2006/08) Intelligent Investor, rev ed; Security Analysis, 6th ed.
Greenblatt, Joel (1999) You Can Be a Stock Market Genius
Greenwald, Kahn, Sonkin, Biema (2001) Value Investing: From Graham to Buffett and Beyond
Henwood, Doug (1997) Wall Street: How It Works and for Whom
Levitt, Arthur (2003) Take on the Street: How to Fight for Your Financial Future
Lewis, Michael (2010/1989) Big Short; Liar's Poker
Lynch, Peter and John Rothchild (2000) One Up on Wall Street, 2nd ed.
Mishkin, Frederic (2004) Economics of Money, Banking and Financial Markets, 7th ed.
Taleb, Nassim Nicholas (2005/10) Fooled by Randomness, 2nd ed.; Black Swan: Impact of the Highly Improbable, 2nd ed.
Vilar, Pierre (1976) A History of Gold and Money: 1450-1920
Tracy, John A. (2009) How to Read a Financial Report: Wringing Vital Signs out of the Numbers, 7th ed.
I'm halfway through, and I'm really impressed not only by the prof's preparation but methods. Very clear.
I mean, I’m not completely financially illiterate. I understand compound interest. I stick with sinking most of my money into passive investing, saving x months of expenses in checking for surprises, and not accumulating any debt.
Every now and then I think about getting back into value investing (it was fun in high school) which is a little more active, but the effort required to understand this system seems enormous/impossible. There are simplified expositions of how to read a balance sheet, but then I run into weird edge cases of financial trickery that I’d never be aware of. So I figure I can’t compete with pros and passive investing seems like a reasonable enough approximation in the long run.
When I compare it to all of the other stuff I could learn or skills I could acquire in the same time, so far “learning about the financial system” is so messy and uncertain to me that I never really pursue it.
Has anybody run into this issue? What did you decide?
Whatever domain you're in, whatever interests you have- having something of a model of the financial machinery that basically underlies all human activity, both in the small and in the large, I would argue is super valuable.
The space is ENORMOUS and incredibly complex and so one has to have a plan and some kind of motivation for carving a path through it, to be sure.
Hard to engage with more specifics without more context, happy to continue the conversation.
What’s strange is I’m generally in favor of “staying informed”. But I typically skip most financial news. For example, looking at last week’s issue of The Economist, there are several articles in the finance section. I summarized these below, but my reaction to most is “yup, sounds like the logic I saw in my first-year econ class”.
Maybe my issue is that I rarely feel like I learn anything from these articles; they mostly read as applications of basic theory that might work. In this case, my read on finance is there’s a set of basic principles that explain most of the decisions made and then just beyond that lies an enormous set of more complex but also controversial material.
In contrast, I think of other areas as having a lot of “basic information” that I don’t know, with the controversial bits much further out. So if I’m trying to accumulate useful and relatively uncontroversial info, finance is not the best place.
(Those summaries:
1. interest rate cuts may not suffice to avert recession, governments may add in spending, tax cuts, and credit to banks to increase liquidity
2. fear has led to price increases for safe haven assets like gold, bonds, and stable currencies and drops for economic activity trackers like oil and copper; share price changes have varied depending on debt levels and how different companies are expected to react to societal slowdowns
3. might be a good idea to pivot between stocks and bonds as market rises or falls; downturns can be opportunities if your horizon is long enough
4. if the economy slows, how should banks deal with reduced payment abilities, especially when they may be legally required to not have too many bad-looking liabilities?
5. something about corporate bond trading [this one was most confusing]
6. some special bonds offer yields to investors with the catch that if some defined disaster strikes the investors will not get money back; these bonds have not yet been useful to covid because of stringent conditions on duration and impact of the disaster before payout, and complications of prevention (countries who respond well may get paid less)
7. covid has particularly hurt commodities markets, and by extension economies that rely on commodities (like Saudi Arabia))
That's a tough place to be- on the usual models of learning curves for a practitioner that's right at the edge of transitioning out of beginner. A lot of people who are "book smart" are here.
In order to learn more, to actually get out of beginner stage, brains need to practice. They need to DO. You would need to find a problem to work on that causes you to produce not just consume.
Does that make sense? Hope that's helpful and not offensive, all comments intended to be positive/growth mindset/supportive.
That said, you should know why you're studying finance if you're going to spend the time on it. For me intellectual curiosity is a good enough motivator. It also helps me evaluate claims made by, for example, public officials. But I think it is reasonable to question whether it will significantly improve your personal financial situation.
It sounds like you’re conflating making good investment decisions with understanding the financial system. For me, understanding the financial system means understanding how banks, insurance companies, and pension funds work, how they interact with government (e.g. the central bank), and also knowing a bit about financial plumbing.
That’s not necessary or sufficient for making good investments!
Then, for a brief overview of the history of money, currency, and markets read the first part of William Bernstein's The Four Pillars of Investing (provides some good historical context).
To understand financial market movements in the short term (like what is happening now), read about crowd psychology, behavioral biases (Kahneman), and black swans (Taleb).
To understand financial markets over the long term, read anything written by Buffet (his annual reports) or Munger, or their intellectual precursor, Graham and Dodd.
To understand the theories and thinking underpinning money and central banking, read about Adam Smith, Milton Friedman, Keynes, and Hayek.
Start with a bias toward history and older works, and move towards newer works to understand how the current zeitgeist got here and be able to think more critically about the ideas that are currently en vogue.
Also, I agree with the comment that recommends avoiding books by journalists. These are typically compelling narratives in search of supporting facts and theories (the wrong way to approach thinking). You should start your learning from the opposite position. Learn the theories and facts first, then think critically about any good-sounding narratives you see repeated in the wild.
The language is quite accessible and it describes how various kinds of business cycles have played out through history. The highlight for me is an elaborate, punch-by-punch retelling of how the 3 major financial crises played out (1930s Germany, Great Depression and 2008). Rather than looking backward with the benefit of hindsight as most textbooks do, this gives you a real impression of how the events played out in real-time. There are even newspaper headline clippings in the margins from every week or so, just to show how the popular narrative was evolving as it happened.
https://www.coursera.org/learn/money-banking
The professor explain the financial system very well using fairly recent and historic events.
I highly recommend it, especially because it was written recently so it provides understanding behind contemporary banking procedures, practices, and econometrics.
https://www.amazon.com/Economics-Two-Lessons-Markets-Badly-e...
"Since 1946, Henry Hazlitt’s bestselling Economics in One Lesson has popularized the belief that economics can be boiled down to one simple lesson: market prices represent the true cost of everything. But one-lesson economics tells only half the story. It can explain why markets often work so well, but it can’t explain why they often fail so badly—or what we should do when they stumble. As Nobel Prize–winning economist Paul Samuelson quipped, “When someone preaches ‘Economics in one lesson,’ I advise: Go back for the second lesson.” In Economics in Two Lessons, John Quiggin teaches both lessons, offering a masterful introduction to the key ideas behind the successes—and failures—of free markets."
Just to add: I found taleb pretty opionated and had trouble distinguishing his own opinions from facts/theories.. I'd not recommend his books.
I agree with this statement
> Just to add: I found taleb pretty opionated and had trouble distinguishing his own opinions from facts/theories.. I'd not recommend his books.
Everyone has an opinion… but very few will step through the mathematical models (and where/how they break down) behind how they are gauging/backtesting the risk of ones assumptions (and go about figuring out how to adopt it to your own circumstances), like taleb does.
Whether it's a black swan event depends on the perspective you're taking.
Experts had been warning about this. See for example Bryan Walsh’s article in TIME in 2017, very explicitly titled The World Is Not Ready for the Next Pandemic [1]. That’s not really a black swan. It was just a question of when. Note also that some countries (eg Singapore, Taiwan) are reasonably well prepared.
Next, Taleb is smart, but overrated (most of all by himself). His books can be summarised in a few paragraphs. IIRC, someone said to Murray Gell-Mann once that “nobody is as smart as you think you are” - that applies to Taleb.
[1] https://time.com/magazine/us/4766607/may-15th-2017-vol-189-n...
- Value of grandmother's wisdom
- lindy effect - Most new tech will replace the tech that came before it and rarely centuries-old tech.
- Being skeptical of what we read in newspapers
- Recognize that domain experts could be idiots in other domains
He really tweet fight over other statisticians about the concept of black swan when it's in the statistic. I can understand if he wants more emphasis on it but he makes it as if statistic does not take this into account.
Black swan is something that is never seen. Seeing how there were many similar viruses coming out of China and one in the middle east already means this is not a unseen or will blind side.
Lots of people recommending Ernie Chan - and he is very big in the space but he uses 100 words when 10 will do its a hard time slogging through it.
De Prado is incredibly technical , if there was a De Prado cliff notes Id say read that.
And don't forget if you are coding this stuff up, lots of people have but those books into re-usable code on github.
Here is a PDF of a diagram I made to help organize my understanding of this content: https://www.lucidchart.com/publicSegments/view/e1d12ae5-a8a0...
Random walk down wall street is good, but the angle is more “so you want to get into investing?” It won’t go into too much detail of underlying systems like fiat currency.
The starting point I would recommend is bottom up, through accounting and financial statements. Core knowledge, of both practical and intellectual value. Tons of books here, I particularly like
Thomas Ittelson - Financial Statements
Accessible, straightforward, friendly.
After that, any of the collections of
Warren Buffett's Letters to Shareholders
are both entertaining and intellectually valuable, and provide great insight. Read forward, eg, from his first letters in the 1960s, to now.
One of the realizations in the journey is that there are, and have been, a lot of different kinds of money- credit money and exchange money and asset money and so forth. A relatively abstract/intellectual but immensely useful survey is
The Nature of Money - Geoffrey Ingham
The concept of an asset is critical to the functioning of the financial system. New kinds of assets are created all the time. One of the best written books I have read recently goes into venture capital and debt asset creation:
The Code Of Capital - Katharina Pistor
The role of different kinds of money in history, especially US history, is absolutely fascinating. I am in the middle of
American Bonds - Sarah Quinn
and can recommend.
I do not especially recommend the Dalio books or Graeber's Debt or Ferguson's books. They are fine but I did not find them helping me build understanding. Not quite junk food, but definitely not protein.
I unfortunately have not found any of the books I have seen about the Federal Reserve to be worthy of recommending. My wife works there and so I have perhaps a unique perspective. But nothing conveys the challenge and the mechanics of what they do. Still looking. The papers the various Fed banks publish, as well as the papers published by the Bank of England, are uniformly outstanding.
Finally, some of the bitcoin people have written about money. Tho I am a believer in bitcoin I absolutely recommend against most of them, especially Saifedean Ammous's book. Do not read.
Good luck!
Debt (the book) is not about our contemporary system (much) - it's an incredible work about the most basic elements of "financial systems" and how debt has shaped our cultures, economies and political systems over thousands of years.
Put differently, perhaps, it's a book about things the lie beneath what is covered in all the books you've mentioned.
That said, in terms of understanding- with all respect, I find it insufficient (MHO). Perspective, as Alan Kay says, is worth a lot of IQ points, but on its own is insufficient. The modern financial world is full of machines (both software and people processes). Much of what happens is a result of mechanical inertia. The universe of sensible changes from a policy perspective is limited by the ergonomics and sympathies of the existing machines.
It has been a long time since I last read Debt but I remember feeling frustrated by an absence of coverage of the machines. My perception of his advocacy in recent years has been that he has been less effective than he might have been had he stronger command of the machines, and not just the policy.
One of my recs- Sarah Quinn- while like Graeber is also deep in the world of the sociology of money, is stronger technically. Her PhD thesis is an extremely helpful dive into the mortgage securitization world- the largest debt market in the world other than Treasuries- and my rec (American Bonds) so far is a popularization of that work.
I completely forgot, another excellent book on important machines that shape the modern financial world is
Payment Systems in the US - Carol Coye Benson
The Long and Short of It - John Kay
A great place to look is the second hand study books for professional qualifications like the CFA, Chartered Banker and so on
Anything technical (mathematical finance) is really not going to provide a foundation without the historical why of the instruments creation and use. One you have that, the most efficient way to understand it after would be with Quantlib (https://www.quantlib.org/docs.shtml)
There is a lot of middle brow commentary (krugman, piketty, reinhard/rogoff, dalio, taleb, etc) that will be entertaining and philosophical, but only that. The guts of economics (Keynes, Galbraith, Mises/Hayek) are very dense, and provide a very narrow, depth first plunge into something you won't be able to apply well without a more complete education.
Functional grasp of (re)insurance, securitization, liquidity, and the bond/debt markets is the best royal road, I"d say.
I find fascinating that, despite the simplicity of the question, not every economist agrees on how this happens.
Don't believe me? Believe the Bank of England: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Oh, yes, great book! And good read.
Two things stuck in my mind:
A) How slow things were back then. The British finance minister (“Chancellor and Under-Treasurer of Her Majesty's Exchequer”) would get on a steam ship, incognito, for a month or so to visit his counterpart in the US, then skipper back, and months later respond to the crisis.
B) How few people saw things coming. People thought the skirmishes that ended up precipitating WW I would soon be over, Irvin Fisher confidently declaimed just before the 1929 stock market crash that “stock prices have reached what appears to be a permanently high plateau”, people didn’t pay much attention to this obscure Adolf Hitler guy.
Every time, by the time the true dimensions became obvious, it was too late to do something (flee, sell, ...).
With respect to the current “15 cases going down to zero, we are doing great, we have it under control” flu, draw your own conclusions.
Edit: typos
I found it informative, clear, concise, and funny at times, all uncommon for educational economic text in my experience.
2.- Most independents money managers I know, love this book;
Extraordinary Popular Delusions and the Madness of Crowds - by Charles Mackay http://www.gutenberg.org/ebooks/24518
My bias will show, but the industry routinely blows itself on sometimes small or sometimes very large scales, sometimes or often through devices of its own creation. It's important to know that the system is entirely capable of doing this to itself, and therefore the system, and those in it, may not be able to explain itself well.
Edit: another thing worth reading is Too Big to Fail, The Big Short, and Greatest Trade Ever. All are engaging books, and really walk through how 2008 started and ended through different perspectives of the system. TBtF will cover the Fed and Tier 1. BS/GTE cover the sell side. And then when you pair GTE with what happened to it's focus, John Paulson, after 2008, in that he didn't really have a repeat 'win,' it's a good anecdote for what I said above.
https://www.goodreads.com/book/show/17836526-killing-the-hos...
https://www.goodreads.com/book/show/42515482-and-forgive-the...
https://www.goodreads.com/book/show/20655234-freakonomics-su...
https://www.goodreads.com/book/show/6304389-the-spirit-level
https://www.goodreads.com/book/show/17368973-the-heretic-s-g...
More conventional investment perspectives, particularly useful if you want to invest:
https://www.goodreads.com/zh-TW/book/show/11645917-a-random-...
https://www.goodreads.com/book/show/106835.The_Intelligent_I...
https://www.goodreads.com/book/show/25574.Common_Stocks_and_...
But even the DK Eye Witness have a good idea - how business works, how money works.
Financial system, economics, monetary policy become very simple with pictures, and even easier on an spreadsheet. Even more so is how many people don't know how much the government does in collecting statistics to analyze and examine the health of the economy - The BLS https://www.bls.gov/ is a great resource and once you have a basic understanding (or know healthy or "safe" numbers) you can explore other country economic numbers and see if they make sense (or not!) e.g. https://psa.gov.ph/ for Philippine Statistics.
Contemporary Financial Management is great -
Accounting Princicpals are also great (can you read a PL sheet? Do you know GAAP? How about Compliance regulations?)
Just "money" is one piece of the puzzle - money is a tool and that tool has been transformed into different pieces that fit what we do finance in life -
A basic book would be rich dad, poor dad - it's quite cliche but it's a good introduction to "wealth" and assets vs liability == net worth.
---
tl;dr I ranted, I can go on - the DK Eyewitness books are a good starting point and then you can dig deep - but mostly it really runs quite simple for most things and then gatekeeped by interesting vocabulary.
How Money Works: The Facts Visually Explained (How Things Work) Hardcover – March 14, 2017 by DK (Author) . How Business Works: A Graphic Guide to Business Success Hardcover – 2015 by Dk (Author)
The Economics Book: Big Ideas Simply Explained Paperback – February 6, 2018
The Business Book: Big Ideas Simply Explained Paperback – November 20, 2018
How Business Works: The Facts Visually Explained (How Things Work) Hardcover – April 14, 2015
DK Eyewitness Books: Money: Discover the Fascinating Story of Money from Silver Ingots to Smart Cards Paperback – June 14, 2016
The follow up to this is Richard Werners study on central banking.
A lost century in economics: Three theories of banking and the conclusive evidence
https://www.sciencedirect.com/science/article/pii/S105752191...
This is one of the first empirical tests of theories of central banking and how money flows.
Anything by Richard Werner I think is lucid. He has lots of youtube videos that goes into the details in the book and this study.
https://www.youtube.com/watch?v=PHe0bXAIuk0
I don't agree entirely but good signal-to-noise ratio on this content
Had you have listened to him, you would have just been taken out back, shot, and put in one of wuhans finest crematoriums… better off reading "Statistical Consequences of Fat Tails"[0]
The part of your investment that is in stock should be determined your investment horizon. If you don't need to sell your stock in next 15 years, don't hold cash.
I consider investors to be the same as speculators, just speculators who think their beliefs will remain valid over long time frames… cause that's the gamble.
- dollar cost averaging,
- diversification, small cost investing,
- has sufficiently long time-horizon
has never lost money on 15 year timescale, at least past WWII.
Don't assume. You can calculate it in spreadsheet.
> You may believe it hold true though,
In the long run we are all dead. We don't need to believe they hold true. Certainty is not part of this world. Because you never know is just rhetorical argument. Quantifying risk and going on that is good enough.
Because most people who are blindly buying indexes around the world thinking they are diversified and DCA are certainly doing that…
Btw. his site https://www.economicprinciples.org/ has good reading if you scroll down below the video.
https://epdf.pub/queue/elliott-wave-principle-key-to-market-...
This is the technical analysis method used by many market traders and it both predicted this week's market plunge as well as described its form, and is currently forecasting a further plunge next week.
For economics I would look for any youtube talk by Prof. Steven Keen - he accounts for debt that most mainstream economists ignore.
I get the principle, and it's appealing in theory, but it's far from statistically proven. If you want some other 20th century technical analysis that holds a little more water you can try Wyckoff. The supply and demand basics give a nice overview of how moves are formed and are pretty timeless.
Although there's very little predicting when the Fed will drop several trillion into the market, or when Trump has another tweetrage, so most bets are off for predicting day to day at the moment. Following trends and understanding why the consensus has formed, however, is not a terrible plan.
Perhaps more relevant to OP would be reading Wikipedia pages on money supply, currency pegging and gold backing and the interplay between interest rates and local Vs global economies. I'd guess most of what you need to know is clearly explained on Wikipedia. Given how few economists actually manage to forecast anything I'd be wary of putting much store in any one book.
"When Genius Failed" by Roger Lowenstein is the story of the fall of Long Term Capital Management which was basically the biggest hedge fund failure ever. Teaches you a lot about modern high finance and systemic risk.
[0]: https://training.kalzumeus.com/newsletters/archive/investing...
[1]: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
In as much as books are good, i would urge you to follow certain men as well.
Prof. Richard Werner and all his books. Prof. Steve Keen and all his books.
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Read many technical and non technical books, and I recommend this one - Berton J Malchiel - A random walk down Wall-Street.
Simple but not simplistic, it has some great useful lifelong tips for investment. I follow it's advice for >10 years - from 2008 crisis, until these crazy days.
It covers most of Equities and Bonds and is often hilarious.
It covers how governments finance themselves by issuing bonds, t-bills etc
A fairly straightforward read for any HNer, should be a couple of days easy.
https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/...
Where does Money come From
Ray Dalio
Marcos Lopez de Prado
These authors are how I started. I'd be happy to list specific books if that is helpful, but I don't want to give you a false sense that if you read books I mention you will have the same understanding that I do.
A random walk down Wallstreet
Options and volatility pricing, by Natenberg
Why stock markets crash, by Didier sornette
Manias, panics and Crashes by Aliber and Kindleberger
Debt: the first 5000 years
Yet to see a better, more accurate or more succinct treatment than "A Random Walk Down Wall St" by Malkiel. Can't recommend it enough. Readable. Required knowledge.
Something like The Economist's Guide to Financial Markets will give you a good general overview.
Some of the recommendations on here are truly awful.
It's basically a historical study of debt in the United States over the past 100 years or so. Very interesting and educational.
The Great Deformation by David Stockman
The Fed Flunks: My Speech at the New York Federal Reserve Bank by Robert Wenzel
Economics in One Lesson by Henry Hazlitt
Make massively risky bets on things that rarely break, but when they do they break so epically that the government will bail you out.
Disclaimer: I work there!
Aside from that, I'd also recommend the previously mentioned Ray Dalio economic machine video, Benjamin Graham's Intelligent Investor (for understanding value investing) and Black Swan (for an alternative insight into tail risks such as the one we're going through)
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
There's no quick fix to learning this stuff.
However you might still want to; so take this biased Internet-clip with a grain of salt and enjoy: https://www.youtube.com/watch?v=mII9NZ8MMVM
International finance is secondary to what the OP is requesting though. I think a history of banking, and the events that led to the current regulatory framework, would be suitable. Can’t think of a good book though (except the Bankers’ New Clothes I recommended below).
Not a book, I know but there are a lot of articles and resources in the sidebar, including a list of academic papers on the inner workings of money/monetary systems. Search for "MMT Foundations" within that subreddit to find those.
https://marianamazzucato.com/publications/books/value-of-eve...
Blurb:
"Modern economies reward activities that extract value rather than create it. This must change to insure a capitalism that works for us all.
In this scathing indictment of our current global financial system, The Value of Everything rigorously scrutinizes the way in which economic value has been determined and reveals how the difference between value creation and value extraction has become increasingly blurry. Mariana Mazzucato argues that this blurriness allowed certain actors in the economy to portray themselves as value creators, while in reality they were just moving existing value around or, even worse, destroying it.
The book uses case studies–from Silicon Valley to the financial sector to big pharma–to show how the foggy notions of value create confusion between rents and profits, a difference that distorts the measurements of growth and GDP. "
Bernard A. Lietaer: Das Geld der Zukunft
Bernard A. Lietaer: Mysterium Geld
I like this quote about how financial institutions evolved:
"It happened improvisationally, indeed probably unintentionally. Participants solved one problem and created others; they reacted as often as they acted affirmatively; they moved by experience and intuition, without an overarching theory; and the whole affair took decades, involved many different actors, and coheres largely in retrospect."
Money: Whence it Came, Where it Went by John Kenneth Galbraith
The Ascent of Money: A Financial History of the World by Niall Ferguson
It's tough sledding, but worth it. And by giving the history, one comes to understand how we got to where we are.
"Capitalism" by Reisman gives a solid theoretical foundation on topics like rent control, inflation, etc. I especially found illuminating its coverage of the 1970's oil crisis and how the root cause of it was price controls.
I'd avoid economics books written by journalists and politicians, as all I've run across are dominated by ignorance, bias, and agendas. Ones by economists often have agendas, too, but they aren't nearly as ignorant. Just imagine a technical book about electronics written by a journalist, and you'll know what I mean.
I think the best route is to read this, skip all of the books marketed to retail traders. Read the things the professionals read like the CFA study materials.
Mark Meldrum also has a comprehensive coverage of the CFA body of knowledge on YouTube.
Snowball - biography of Warren Buffet
The Good Earth - novel about Chinese farmer
Fortune’s Children - the rise and fall of the Vanderbilts
The investment takeaway is that you should invest in passive index funds with low management cost (typically ETFs).
There's different contrasting points of view most notably behavioral finance. The EMH argument is basically the market is an aggregation of all available information. Due to the power of averaging it is going to be correct (if one person overestimates, another will underestimate and it will all cancel out). The behavioral counterargument is that there are certain human biases that lead to all parties being wrong in the same direction (such as risk aversion). Another POV that is aligned with the behavioral view is that the theory of evolution provides a good framework for thinking about markets. I like the book "Adaptive Markets" which also gives a good overview of EMH and behavioral finance so I'll recommend that as a reference. I think together with "A Random Walk Down Wall Street" you're set for "general framework of thought" material.
Personally, I am a value investor so I can only recommend books from that school of thought. The basic idea is that you look at the fundamentals of a company and the stock market can misprice them. The holy grail is finding a company where the sum of (current) assets is worth more than the current market valuation via the stock price because in essence that means if the company would be liquidated and everything would be sold off, you'd still walk away with a profit. In essence, you're trying to buy 1$ for < 1$. This is Buffett's philosophy and he has done really well with it. I'd recommend "Value Investing" by Greenwald, Kahn, Sonkin and van Biema as a good intro book that summarizes everything and has some easy to follow examples (because you can't usually just take the assets face value but have to discount them etc.). The classics are "The Intelligent Investor" and "Security Analysis" (more academic but for me this is the gold standard). If you need a quick "how to read balance sheets/income statement/cash flow statements" I'd recommend "Warren Buffett Accounting Book"
I think the best essay that describes what markets are good for is "The use of Knowledge in Society" by Hayek. At least it makes sense for me that they serve the function of aggregating local and specialized information. If you're interested, it's also a decent idea to research the different theories of the business cycle. Keynesian, Real Business Cycle, Austrian etc.
tl;dr:
- A Random Walk Down Wall Street
- Adaptive Markets
- Value Investing (+ Warren Buffett Accounting Book)
Edit: I'm assuming you want a "quick overview". Otherwise, get some mainstream Finance and Behavioral Finance textbooks :D
1. The Deluge: The Great War, America and the Remaking of the Global Order describes how most of the current global financial structures were formed, through the lens of WW1 policy
2. The Wages of Destruction: The Making and Breaking of the Nazi Economy .. moves you forward to WW2/post-depression economy
3. Crashed: How a Decade of Financial Crises Changed the World (recommended elsewhere in this thread) .. brings things up to current times
Marx's work is a continuation of Adam Smith that the subject of inquiry was political economy (not "economics"), that value derived from labor and so on.
Modern establishment economics is a criticism of Adam Smith in that value comes from labor, that the study of the economy is political, etc.
Wall Street exists to profit by skimming money off society, like a predator waiting for gazelle to approach a watering hole.
The Chinese government produced an excellent short film on this that was shown on airlines about 5 years ago. At the end was a warning to the USA not to devalue the dollar (to wipe out Chinese holdings.) :)
Silicon Valley VC's also do that, by skimming 2/20 (or more) from institutional investors with no downside risk to the VC.
The long answer - it will take you decades to study and learn. Do some reading and watch NBR.
There is actually some controversy as to how much money Taleb made from trading and portfolio management as opposed to writing.
The metaphor is appropriate because quite frequently people who use things to the greatest effect know very little about the implementation or how it actually works.
If one is interested in the technical details of implementation for technical reasons, I would agree that a brilliant and interesting engineer wouldn't necessarily be in line to profit from their value creation although would be available to discuss mechanics of implementation.