4 books to read on managing risk in markets and life

Here are four books to read on managing risk in markets and life, written before the world entered today’s uncharted waters. They tell the tales of ancient market wizards, meltdowns, and good times to learn. Image: MMG

the coronavirus changed everything. Businesses are facing new, unexpected and potentially dangerous unprecedented events that can cost them money or cause it to shut down permanently.

Here are four books to read on managing risk in markets and life, written before the world entered today’s uncharted waters. They tell the tales of ancient market wizards, meltdowns, and good times to learn.

“When Genius Failed: The Rise and Fall of Long-Term Capital Management” (2001) by Roger Lowenstein

When it was founded in 1993, Long-Term Capital Management was touted as the most impressive hedge fund in history. For four years, the company dazzled Wall Street as a $ 100 billion money giant. Then it went bankrupt, suffering catastrophic losses that put not only the biggest banks on Wall Street at risk, but the stability of the entire financial system. Seems familiar? It was the prequel to the Great Recession that hit Wall Street 10 years later, from Lehman Brothers to AIG.

In a new foreword, author Lowenstein said the implosion of long-term capital was a pattern of market collapse and a red flag that Wall Street and the government ignored.

Jack Covert, book seller and founder of 800-CEO-READS, reckoned “When genius has failed”Among the 100 best business books of all time.

Amazon reviewer Lionel S. Taylor said the book is still relevant in 2020. “What makes this story interesting is not what is happening. You know it from the start, but how it plays out, ”he wrote. “If you are not interested in finance and know a few terms, this book may not be for you … It is an old book but still useful, it reveals the attitude of the market and the refusal to accept that the MARKET CANNOT BE PLANNED.

The truth genius of the book was that Lowenstein explained why the genius failed, Meritt J. Finer wrote in an Amazon book review in 2017. “The same lessons that professors and traders at Long Term Capital have not learned are the ones that all traders should know. Trading in the financial markets is as much an art as it is a science. Knowing what quantitative models can and cannot do, and knowing when a model’s underlying assumptions are violated is key to successful trading. And finally, having the humility to accept that no matter how smart you are (or think you are), the financial markets periodically can and will make you look like a fool.

“Market Wizards Update: Interviews with Top Traders” (2012)
by Jack D. Schwager

In his series of books, “Market assistantsAuthor Jack Schwager lets you hear what great traders have to say about their success, in their own words, and he distils their answers into a set of guiding principles that other traders can use.

Schwager has interviewed superstar money makers including Bruce Kovner, Richard Dennis, Paul Tudor Jones, Michel Steinhardt, Ed Seykota, Marty Schwartz and Tom Baldwin. He tells the stories behind incredible trading stunts, including one about a trader who turned $ 30,000 into $ 80 million, a hedge fund manager who has averaged 30% returns each year for at least 21 years and the T bond futures trader who turned $ 25,000 into $ 2 billion a day.

Schwager has surveyed dozens of top traders in most financial markets. They all had different stories but the same essential formula: a solid methodology + a good mental attitude = a commercial success.

Amazon reviewer Roddy10 described “Market Wizards” as one of the best hedge fund books ever written. “I first read this book (the original edition) in the early 1990s. To say it had an influence on my life was an understatement – it led to a career change and I ended up work for the business of one of the traders interviewed in the book. Even today – over 25 years since I first chose it, I refer to it frequently. I have also recommended or purchased copies for juniors over the years.

Anyone interested in trading (or investing) should browse “this book line by line,” he said. “There are a lot of ideas in the book that take a lifetime to appreciate.”

‘The Black Swan: Second Edition: The Impact of the Highly Improbable’ (2010) by Nassim Nicholas Taleb

A black Swan is a highly unlikely event that is unpredictable, massively impactful, and is characterized by after-the-fact claims that it should have been predicted.

After the fact, we concoct an explanation that makes it seem less random and more predictable than it used to be. In his book on black swans, Nassim Nicolas Taleb says that black swans underlie almost everything in our world, from the rise of religions to events in our personal lives. Google was a black swan, just like 9/11, he said.

Part of the reason we don’t recognize the black swan phenomenon until after they’ve happened is that humans are wired to learn details when they should be focusing on generalities, Taleb writes. “We focus on things we already know, and time and time again, ignore what we don’t know. We are therefore unable to truly assess opportunities, too vulnerable to the impulse to simplify, narrate and categorize, and not open enough to reward those who can imagine the “impossible”.

We are fooled into thinking we know more than we actually know, Taleb says. “We limit our thinking to the insignificant and the insignificant, as great events continue to surprise us and shape our world. “

Based on readers’ reviews of his books, Taleb’s ideas inspire emotions that range from discomfort and anger to admiration.

“The worst book I’ve read in a while,” wrote Andreas from the UK on February 19, 2019 in an Amazon review. “While the central idea is interesting, the way it is presented is just awful. Nassim Nicolas Taleb does not introduce the subject except through anecdotes, uses terms before writing what they really mean and never really explains how his “theory” works and the whole thing has no structure. The book is full of disrespect for anyone except his closest friends, it’s a great example of how to bully others in writing.

Amazon reviewer Michael described “Black Swan” as “an incredibly thought-provoking read… I take comfort in the fact that he made money trading using his abilities… It’s a refreshing change from the superficial books expressing the astonishment of journalists or people who have never actually tested their theories in reality. Assuming he is right, much of modern finance does indeed think of highly improbable events (but not impossible) is woefully wrong.For anyone involved in business, investing (stocks, currencies, bonds, etc.) – even if it is just your own pension – this is essential reading.

“The Complete TurtleTrader: How 23 Novice Investors Became Millionaires Overnight” (2009) by Michael W. Covel

It’s the true story of how Wall Street legend Richard Dennis and his followers, the Turtles, used his trading techniques to make a fortune.

Convinced that good trading was a skill anyone could learn, Dennis made a bet with his partner and posted a classified ad in the Wall Street Journal looking for newbies to train. His recruits, who became known as the Turtles, had non-traditional backgrounds for Wall Street traders. They included a game designer, a professional blackjack player, and a pianist. For two weeks, Dennis taught them his rules and investing philosophy, then freed them to start trading, each with a million dollars of their own money. By the end of the experiment, Dennis had made $ 100 million with his turtles and created a Wall Street legend.

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Author Michael W. Covel, editor of TurtleTrader.com, interviewed individual turtles for the book. He breaks down Turtle’s system and rules, showing how they made money and what happened afterward. Some have gone on to become leading hedge fund managers.

Amazon reviewer Brad Mills said the book had helped him make money in the cryptocurrency market. “This book is for non-traders,” Mills wrote. “You don’t need to have technical knowledge of trading to understand it and find it very entertaining and informative… in 2013, it turns out that was the case when bitcoin first appeared. I started using his rules to trade altcoins and made a lot of money following his strategy outlined in the book! In fact, I have been using this book as a guideline for trading cryptocurrencies since then, and have gotten over 6 digits by trading the turtle trading method.

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