The Tasgall Group

The BigPicture has another book available for a free chapter or three…? this time it’s for The Panic of 1907.

The 1907 market panic tends to be forgotten with the great depression following 20 years later, but it was a time of great stories and great events.? From Mr. Big Picture’s intro:

I found the book, published exactly a century after the original event, to have some rather interesting parallels to today.

The significance of the 1907 Panic as an economic event went far beyond the mere crash and recovery.? It eventually led to the creation of the U.S. Federal Reserve.

The Big Picture has another book excerpt available online, this one on psychology and investing, Richard Peterson’s Inside the Investor’s Brain: The Power of Mind Over Money.

While I always cringe at statements like “happy people do X better”… The important point is that if you’re in a negative or distracted mood, it has a very real impact on your decision making process. You can still make good decisions when feeling negative, but the probability is lower, especially if you aren’t aware of the impact.

The excerpt is worth a quick read, and if you haven’t pondered much on the interaction between psychology and trading, this book should be a good read.

Here are some books that I consider pivotal in my financial education:

• Fooled by Randomness by Nassim Nicholas Taleb – I’m also currently reading his new book, The Black Swan, that is somewhat a sequal to FbR and promises to be just as good.
• Education of?A Speculator & Practical Speculation by Victor?Niederhoffer -?Not all teachers need to be successes.
• Option Volatility & Pricing?by Sheldon Natenburg – The ultimate reference for options. It saddens me that his recent release is such crap fluff.
• The Trading Game by Ryan Jones – While I finally concluded that the exact method of?position sizing?taught in this book is often not the best, it brought my attention to the importance and?complexities of position?sizing.?
• The?Options Edge?by William Gallacher?- Forever changed the way I thought about options and helped me to think outside the box. Sends all the “greeks” home on the slow boat to Greece.
• Evidence-Based Technical Analysis by David R. Aronson – A cold, slap in the face. Teaches you to apply the scientific method to any trading ideas you may have.
• Running Money by Andrew Kessler – Reads like a novel and opens the mind. Worth it just for the thesis on the modern economy alone.
• When Genius Failed by Roger Lowenstein – I can only hope and try not to repeat these mistakes. Are we doomed to?
• All Your Worth by Elizabeth Warren & Amelia Warren Tyagi – You can’t forget personal finance. This is the clearest, most original & effective approach to personal finance and budgeting that I’ve come across. It does away with line-item budgets and instead focuses you on balancing your money. This way you always live well and live well within your means.
• The 4-Hour Workweek by Timothy Ferriss – Work less, earn more and live anywhere. Yeah right! Live it, if you dare.
• The rest of my influence comes from the world of academic journals. There are too many to mention but I generally recommend that you make a regular habit of scooping as many free research articles about finance off the web as you can.

From this list, you might think I’m an options trader but I’m not really. It just seems that some of the strongest writing and thinking about markets has come from options traders. And I know it’s a short list, but there is so much trash in financial writing that it makes sense to me that, at the end of the day, only a few gems would shine.

There is an interesting history to the book Margin of Safety by Seth Klarman… the book was published in 1991 to limited fanfare, but once out of print, die-hard value investors started bidding up the price of used copies (there’s a certain irony in that statement…) and now consider the book a collectible.

Business Week has a brief article called The $700 Used Book:

In the book, he describes buying Texaco (CVX ) bonds in the wake of the company’s sudden 1987 bankruptcy. What prompted the filing was the loss of a multibillion-dollar lawsuit, not insolvency. In the ensuing panic, investors dumped the bonds, and Klarman got them at distressed prices. His bet was that Texaco would make good on the debt, and he was right.

There are three copies available on eBay for as low as $510, so it’s possible that the value of value investing has been falling… though the price for a used copy on Amazon is over $1000.

As Business Week pointed out, libraries that carry the book report that the book often goes missing… as is the case at nearby Duke’s Ford Library (“Missing“).

There’s a great story about a famous local trader at the Chicago Board of Trade (CBOT). One day, he was on the floor of the CBOT and a U.S. inflation number came out that was totally unexpected. Pure pandemonium ensued. When all the noise died down, he walked out of the pit having made $10 million and said, “By the way, what was the number?”

-Dr. John Porter, Barclays Capital

as quoted in Inside the House of Money, p. 133

On the subject of hedge funds, I started reading Inside the House of Money a couple of weeks ago… it’s a series of interviews with some of the top Macro Strategy hedge fund managers out there today. It is sort of a modern day Market Wizards (Inside was published in April 2006), though the author only chose to interview Macro Strategy types of hedge funds. His definition of Macro Strategy is basically: discretionary, big picture investors.

The book focuses on strategies, personalities, and general economic outlook. The few chapters I have read are entertaining as well as informative…

Oh, and sorry, this one isn’t available to borrow yet… not while I’m still reading it. 😉

Andy Kessler has a pdf version of his book How We Got Here available for free from his website. The book is about technology’s contributions to history and increases in the standard of living. Kessler was originally trained as an engineer, and he takes an engineer’s approach to the situation.

I read Kessler’s book Running Money a couple of years ago and his writing style is engaging and accessible. He also wrote the first chapter (titled Signposts in the Fog) of Just One Thing. He also has a pretty good blog here.

(The pdf is 212 pages, ~670kb.)

How Index Investing Harms Your Portfolio

I read about this a few months ago in the book Just One Thing?where Rob Arnott contributed a chapter and it really stuck out as a useful piece of info.

Now for the other point of view and more supporting arguments with charts.