The perils of not knowing where you are coming from …
October 8th, 2009 by Paolo RiguttoAt a recent Sandbox dinner conversation moved to finance, the current crisis and how not only companies and economies are adopting to recent events, but how business schools will have to change as well.
The most interesting comment made was regarding the lack of any courses in the history of finance. So why would studying the history of finance have any importance to someone like myself working in private wealth management?
As old as finance is, many people focus very little on anything that happened before the tech bubble, and one of the main complaints is that finance graduates have little, if no, understanding of the business cycle, how bubbles can form, and the need to have a long-term view which goes further than the next bonus.
For this reason i have compiled a list of books i think are important for anyone in finance to read, particularly to gain a broader perspective of our industry, and the history of it.
If anyone has any other additions please comment and add them in.
The Ascent of Money: A Financial History of the World by Niall Fergusson
Havent read this but there it was mentioned in The Economist (though not necessarily that positive it seems interesting. See http://www.economist.com/books/displaystory.cfm?story_id=12376642.
When Genius Failed: The Rise and Fall of Long Term Capital Management by Roger Lowenstein
A must read. Amazing book on a hedge fund set up by nobel prize winners in finance, which almost brought the financial world to the brink of collapse.
The Great Crash, 1929 by John Kenneth Galbraith
One of the only books on this list that everyone should read, regardless of an interest in finance or economics. Wonderfully easy reading; if only more authors could write like this.
A Short History of Financial Euphoria by John Kenneth Galbraith
Interesting read, and mostly what you consider as a primer in some of the bubbles that have occurred. Not very rigorous but to obtain an idea of the scale and frequency of bubbles this short text (by some considered an essay) is an excellent resource.
Rogue Trader by Nick Leeson
The guy who broke Englands oldest bank. More a read on how one person can slip through the cracks and create a situation which is almost unimaginable.
Manias, Panics and Crashes by Charles P. Kindleberger
The most academic account of bubbles from 1600 to the modern day. A new edition should be released shortly, and might be a good read for anyone who isnt satisfied by Galbraiths ‘Short History’
Paolo is currently an analyst in Private Wealth Management at UBS in London as well as having the amazing opportunity of being the London Ambassador for Sandbox.
Paolo, I would like to share with you two things:
1) A pragmatic examination of valuation processes which shows the real difficulties of determining financial value: Richard Barker’s ‘Determining Value’. He has also written excellent articles around this topic.
2) A fascinating presentation of the intrisic flaws in the conceptual frames used in finance (risk assessment based largely on probabilistic models). In a way, this work is complimentary to more "psychological" approaches of behavioural finance and subjectivist investment (Shiller, Shleifer, Kahneman & Tversky). This is a book called "The (Mis)behaviour of markets. ‘A fractal view of Risk, Ruin and Reward’, Benoit Mandelbrot.
I find critiques of the tools used by financial analysts/investors point up how investment decisions are often based on a questionable set of assumptions. These works are quite different from most of theory which exposes problems with the system in a general and intemporal way.
In my opinion, they give perspectives that tend not to be binary (normal/abnormal; rational/irrational; normal investment vs. speculation) and they help understand investment as ordinary and everyday!
Antoine, for an easy read i would go for The Great Crash and for something more academic i would opt for the Kindleberger book.
Good list, Paolo. I would also add "The Black Swan" by Nassim Nicholas Taleb. Another interesting perspective is Robert J. Shiller "Animal Spirits". Prof. Shiller gave a talk at LSE last year, you can listen to it here: http://tinyurl.com/po89h5.
Thanks for the list, Paolo. If you would advise to read only one of them, which one would it be?
Nice reflections, I wished more of your colleagues would step back from time to time to think about these things...let's hope that new incentive schemes will somehow support this sustainable thinking;-)
[...] The Perils of Not Knowing Where You Are Coming From …: Hintergrund-Leseliste für Finanzexperten und solche, die es noch werden wollen, oder für diejenigen, die das Weltfinanzsystem erneuern wollen. [...]