Saturday, 18 April 2020

10 BOOKS TO (MAYBE) TURN YOU INTO A MASTER TRADER !




This is it. The day has come. We have finally crossed over to the dark side for a clickbait/listicle post.

Don't envy us - we're making big bucks from our ad revenues online.

Story of our lives & wallets...

Do you know what Bill Gates does all day? He reads. How about Warren Buffett? He reads. How about Bernie Madoff, arguably the most iconic of the three? Oh, he reads

It's not just that they read. These guys read as if their lives depended on it. And why shouldn't they? The pursuit of knowledge lets you excel in whatever you're already doing. OK, forget the third guy.

To be really good at what you do - let's say trading - you have to absorb as much information as you can. In this line of work, curiosity itself is the competitive advantage.

Now, we don't consider ourselves to be at the right end of the IQ spectrum. To make up for this, we just try and out-hustle everyone else. We work hard, and we still find the time to read.

At this point, surely you may ask :  

"where got time and money to read meh??"

Our answer :  

"Uncle, all you have to do is stop buying four packs of cigarettes and three Starbucks cafe lattes every week. You do this, you can use the money saved to buy books instead. Or three books at the discount stores. Did you know that you can get e-books on Kindle for as low as RM15? Now you do."

As for time... well, it's really a matter of whether you want to spare some or not. As for interest... let's just say that if you don't read, it's likely that you will be easily out-muscled and out-hustled by most people who are also dabbling in the markets. A bit embarrassing, right?

Believe us, if you don't read up on your shit, your trading skills will peak at some point. You have to supplement your mind and your skills with new knowledge.
Also, believe us : that RM49.90 you spend on the (right) book can result in RM10,000 in profits down the road. Consider it an investment : we have done it ourselves. 

SO WHAT TO READ?

The following list is for intermediate to advanced investors and traders. There are also free resources online if you're a beginner who is just starting out. (Check out our own free trading guides and FAQ for beginners!)

Our advice : just get that one book you really like - you know, the one with the smiling uncle with a bit of a belly, promising easy riches and touting their success in predicting the past dotcom booms  / global financial crisis / SARS crisis whatever, promising easy and quick riches in the stock market. You know the ones we mean. 

But after that, learn about investing or trading from free online resources. There's just so much free quality content. People are dying to give it to you for the clicks. Just look at us. 

Really appreciate it guys....


And after that, consider getting some of the books below.

The following is a list of books that really influenced us in our blossoming trading career. Without reading them, we would not have been able to make great profits.

These are the books worth buying, and they will give you a good grounding on the philosophy of investing, and trading. These are mostly finance history related, or oral accounts of trades and deals from the people who have been there and done that.

Be be forewarned : none of these books offer easy money making tools or surefire ways to profit. There is really no such thing. But you will understand the minds of the world's greatest investors, and what it takes to truly excel.

By understanding history, and philosophy, you will get a much better grasp of the market.

Be a sponge. Go and absorb.

Editor's Note : the following links lead to Amazon, but we are not paid to endorse it.

#1 - The Snowball - Warren Buffett and the Business of Life by Alice Schroeder



Of course we are fans of Buffett. You should be too, but not for the reasons you might think.

This biography is the definitive account of Buffett's personal life and professional successes. It's 976 pages : if you're as absorbed by it (and read to the end) as we were, we should have a chat.

But if you think by reading this book, you can invest like him: forget it. The book is not about that at all.

It's really an exhaustive account of Buffett's moral values and self-belief, and how he never let anything get in the way of those two. It's really not about the money for him - whether he was worth $200,000 or $70 billion, he'd still have his modest house, cheap car, and hamburgers for lunch and dinner.

We love the specific accounts on some of his biggest wins, including the American Express trade (situational investing : we dig) and his love for the margin of safety.

It's also a story about a man with a lot of flaws. He's trusted the wrong people, laid off thousands of staff, lost bucketloads on a losing investment he was married to (it's called 'Berkshire Hathaway'), how he ended up with two wives, and his rejection of Benjamin Graham's core value investing principles (he transcended it). His successes are well-documented, but read also about his screw-ups, and you'll learn a lot more about investing.



We know, we know. Dumb title. It seems like the kind of 'uncle investor' books we warned you about earlier.

But to our shock, it turned out to be a fantastic book, and a very influential one for us. It radically shifted our expectations and attitudes about investing. We now look for the same types of hidden opportunities (which we call 'artificial mispricing'), and we have a deeper appreciation of stock linked investment instruments like warrants (you know we trade warrants approximately 98% of the time - here's our own detailed warrants trading guide). 

Artificial mispricing is a powerful concept. In this book, Greenblatt goes into details on well known cases such the Hilton Worldwide trade. These trades delivered hundredfold gains : they are worth reading about.

Oh, and we got our used copy of this at a yard sale for RM8. It was by far one of the best investments we had ever made.



#3 - Market Wizards : Interviews With Top Traders by Jack Schwager

 
First released in 1989, the content does not disappoint. Nothing comes close to this book in detailing the mindset of the world's top investors. Many are still around today, so they are hardly run-of-the-mill people or random uncles who got lucky ones. A few are billionaires. 

Anyone with a smidgen of interest in finance history would have heard of these traders. George Soros. Jim Rogers. Michael Marcus. Bruce Kovner. These guys managed billons and were masters of their trades (pun intended).

The best thing about the book is that it's not just about stocks. Many of these guys are macro oriented investors, with a view of everything tradeable on Earth : currencies, commodities, bonds, interest rates, options, et cetera. 

The author is also adept at asking the right questions about trading. He cajoles each interviewee into describing their most successful trades, and how their thought process works.

It also captured Paul Tudor Jones - possibly the most enigmatic and successful trader in the world in the 80s - in all his glory. He speaks freely about the incredibly famous and incredibly successful Black Monday trade in 1987, which turned him into a household name. You will learn exactly how he did it and how you should think about market crashes; it's awesome.

We've read this book front-to-back about 20 times. Need we say more?


#4 - The Big Short by Michael Lewis


You can also just watch the sanitised movie version on Netflix, but you'd miss out on the real life drama. Everybody loves Michael Lewis as a writer for good reason : his stories are as thrilling as how he tells them.
The book perfectly encapsulated the events leading up to the 2008-09 Global Financial Crisis. Apart from some lengthy technical descriptions of subprime mortgages and collateralised debt obligations (which we loved), the real point of this book is not really about the zany iconoclastic traders and how they made their billions: it's actually about the dangers of moral hazard, and systemic failure.

Just about the hardest thing in the world to do is to put on a trade that the whole world thinks is crazy. These guys held on to their beliefs for years; find out how they managed not to lose their minds (though arguably some of them did). 

It's also about how the gatekeepers - regulators and ratings agencies - failed (and can fail again) at their jobs, and why the US financial system (and by extension, the world) need a serious review. By and large, it seemed that we have learned nothing from the crisis. And if you're in an especially pessimistic mood, the same shit is happening right now as we stumble towards a historic global recession.

It's good reading to prepare for the next financial catastrophe. You know it's gonna come eventually.



#5 - The Greatest Trade Ever by Gregory Zuckerman


The whole book is about a trade. It's the famous bet by John Paulson that yielded him and his investors $20 billion in profits in 2009. It's outrageous. It will disgust you. It's a breathless account of what went down, and it's a thrilling read.

We like the book not just because of the account of the trade and eventual profits, though we enjoyed that too. Same as in The Big Short, what we liked was how Paulson & Co persevered with a widely (and we mean enormously) ridiculed idea, and had the guts to commit their whole capital to it.

Being the traders that we are, you know that we prefer concentrated investments on one good idea than wide diversification. The former carries higher risk, but it's a more direct pathway to riches.

To beat the market, and truly get incredible profits, you have to be purveyors of original thought. And you really have to stick to your beliefs. It's not about being agreeable to the world; it's about doing the right thing as an investor. 



#6 - Hedge Hogs by Barbara T. Dreyfuss


You're probably aware of the world's most famous rivalries.

Cristiano Ronaldo VS Messi. Prost VS Senna. Ali VS Foreman. Donald Trump VS a rotting orange. 

This book is about high(est) stakes trading, in the billions of dollars, and the two people who briefly ended up controlling one of the world's most important energy markets : liquefied natural gas.

LNG is the most volatile of the most volatile in the world of commodities. Energy trading is not for the faint of heart, and two traders staked billions of their firm's money to win. They did potentially illegal, market manipulation things. They traded so big, they put another multibillion-dollar hedge fund out of business. The LNG market prices got so distorted that the large companies that pay to actually use natural gas ended up suffering huge losses.

This book is about what happens when traders become detached from the things they trade. To some of them, it's just numbers and contracts. All they want to do is trade them and make up the differentials. 

This rivalry reached its boiling point as billions of dollars were put on the line. The loser ended up causing the collapse of his entire $6 billion hedge fund. The winner? He ended up an overnight billionaire and finished the year with a 317% (!) gain.

But this book does not glorify ballsy Wall Street traders; on the contrary, it criticises them. It's also an examination of what happens when the excesses of the system hurts society, financially and literally. It's also about the vagaries of luck and consequence : the trade could have easily turned the other way against the eventual winner.

#7 - Soros : The World's Most Influential Investor by Robert Slater



It's a biography of arguably the greatest trader or the 20th century. How can you not read this?

The thing that really struck us about Soros's life was that he was born, and brought up, to think about risk is a completely different way than mere mortals. He survived the threat of annihilation during the Nazi occupation and made his way to the UK, penniless. He found his calling and became a legend, but he was always more of a philosopher than a financier. He is a deeply flawed man, but a shockingly humanistic one at the same time.

The lesson from his life and his trades - many of which are extensively documented in this book - is that when the right opportunity presents itself, the courage of conviction has to drive your decision.

He was not afraid to risk it all, because he used to have nothing. Soros understands risk, and the courage of conviction, better than most people. Which is why he's so good at what he does.

As an aside, the book contained a chapter entirely about his massive 'Black Wednesday' trade against the British pound, which netted him US$ 1 billion in profits. It's a wild, minute by minute account of the trade, the incompetence of the UK government at the time, and how politics can come in the way of sensible decision making.

Whether you think of Soros as a monster, a capitalist vulture or as a folk investment hero, this book is worth a read.


#8 - Adventure Capitalist : The Ultimate Road Trip by Jim Rogers


Jim Rogers was Soros's partner in the first Quantum fund. He was basically the big picture guy, while Soros was the chief trader. 

They parted ways after the Quantum Fund became way too successful to contain two domineering egos. But Rogers is, and has always been, an original thinker. And his big picture thinking is, BIG.

He's the kind of guy who buys into Pakistan stocks when the country is at the brink of war and about to shut down its stock exchange. He bought into Chinese shares the very moment an exchange opened in Shanghai. He held on to them and made thousands of percent in profits after 15 years. He's that kind of guy.

He's aware of his flaws, calling himself the worst market timer in the world. He just buys into an angle and wait until they catch up to his world view. What also makes him special is that he's a truly 'macro' investor in the purest sense : he can buy into stocks in Angola, Chile, and Malaysia, at the same time, if he likes them enough. He can buy into currencies, commodities, stocks, whatever. As long as there's an instrument to fit his investment ideas.

This book is all about that and more. He undertakes a round-the-world trip and makes observations about the places he visits; their economy, stock market, and future prospects. He picks up a few investments along the way, with a holding period of forever.

We like that he has a gift of explaining topics like currencies and how they relate to the economy and stock markets in a coherent and entertaining way. You'll feel smarter after reading this. Really.


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


There are tons of books out there about failed businesses. Sometimes there's fraud, like Enron or Theranos. Sometimes it's just about hubris, and overestimating your smarts.

This book is about how Long Term Capital Management, a hedge fund comprised of traders and quants, including two Nobel prize winners, got caught up in their ideas and blew themselves up (financially).

How hubristic were they? Well, to give just one example, they kicked out all outside investors to invest just their own money - the quants, who are principal owners of the hedge fund - only to lose it all a few months later. How much? Just a few billion.

They trusted only their formulas - as well as their sky high IQs - and didn't play it safe. They leveraged to the hilt, and paid a dear price for it. Imagine the guy who used 1-for-100 leverage to trade forex and lost a few hundred ringgit. Long Term Capital Management essentially did this in a gigantic scale and lost billions of dollars.



#10 - How to Trade in Stocks by Jesse Livermore


If you've never heard or read about this guy, you can't really call yourself a trader.

Livermore was the most successful speculator or the early 20th century. In 1907, he almost brought the US stock exchange down because his short selling of companies was so accurate and devastating; he was actually persuaded to stop his trades and take profits by none other than JP Morgan, the namesake behind the bank.

He repeated this feat in 1929 by anticipating the historic market crash. Adjusted for inflation, he became a billionaire just by trading. Nobody really came close at the time, or since.

In this book, Livermore gets very detailed about his trading philosophy. Turns out that they aren't all that complicated; it's only the superhuman discipline that's required to trade successfully the way he did.

But what really nails it for us is that while history does not repeat itself, they tend to rhyme. Investors' psychology, market manias, scam investment opportunities - literally everything that we see and experience in the present day have already occurred 100 years ago. And 100 years before that.

The market is hardly special, and people hardly change. Perhaps with that insight in mind, we can be just a bit more careful in how we trade in the markets.

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