Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street
High brow business tell all gossip about the rise and (kinda) fall of one of the most successful hedge managers of all time, Steve Cohen of SAC Capital.
Cohen, if you don’t know, ran the legendary SAC Capital where traders were relentlessly encouraged to find “edge” i.e. information that the market didn’t have, or didn’t understand, allowing Cohen to have an advantage. Many of these traders, and the analysts who supported their work began to engage in insider trading, which was, many believed, blessed and encouraged by Cohen. When it all started to come down, a number of SAC traders and analysts went to jail, but not Cohen. He closed SAC, but kept the billion-dollar art collection and multiple mansions. The reasons why are complex, but largely have to do with money. Specifically, the piles and piles of it Cohen had. All the details are here.
Written by a New Yorker staff writer, this has everything you need – incredible sourcing, both inside the government and the hedge fund world; clear explanations of the financial shenanigans going on here; completely fascinating characters you love to hate; and writing that, while at times a bit rushed, is largely top notch. Even though I don’t work in the world of finance, my world, and that one, overlap enough for me to be fascinated. I devoured this one. If you’ve an interest in how some financiers get very very rich and why its so hard for the government to prosecute them, this is well worth the read.
Recommended for the enthusiast.
The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: “On Robustness and Fragility” (Incerto)
Nassim Nicolas Taleb
The book every trader/i-banker/finance nerd had to read. The thesis of this is pretty much the same as Taleb’s earlier work – we discount the chances and effects of the random or unlikely event when we make decisions, and because we do not take it into account, there are opportunities to be had by counting on the unlikely or random.
Taleb elaborates a number of reasons why this is, including a survivors bias (you always remember the guy who bet and won, not the guy who bet and lost) and some of the silliness of quantify risk (yes, you can come up with a risk to reward ratio for the predictable risk, but it is much more difficult to create a ratio for the truly bizarre or game changing).
That’s pretty much the whole thing right there. You read a book like this because you enjoy Taleb as a writer, not because you need to read the whole thing to understand the thesis. Taleb writes in a kind of round about, anecdotal, I’m smarter than you style which is by turns fun and exasperating. In the years since this came out, Taleb has become more and more of a crank. I enjoyed his curmudgeonly ways for a while there, but now I’ve had enough.
Still, this one is recommended for the enthusiast.
Other People’s Money: The Corporate Mugging of America
Often, left leaning books on finance are poorly informed. Not so with Prin’s awesome Other People’s Money. Prin is a former Goldman Sachs director turned think tank progressive and she knows her stuff. Her critique here of the excesses of finance capital is now a decade old, but it still holds water and, indeed seems prescient of the 2008 recession. When you pay people to take risks with other people’s money, wherein they are rewarded for their wins and not punished for their losses, you run the risk of creating perverse incentives (see 2008). Prins lays out the reasons for this and back it up with a very strong understanding of the way Wall Street works. This is one of the best progressive books on finance out there, and I recommend it for the enthusiast.
Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
A book about the mathematical aspects of gambling, whether it be on Wall Street, or in the casino, this is a smart, playful book full of an eccentric mix of gangsters, MIT professors and business people who have used a variety of methods to get rich by playing the odds. Poundstone is a great writer — all his works are worth tracking down. Here he takes a complicated mathematical idea, explains it simply, and tells the story through compelling real life characters.
A much better book than the over hyped Bringing Down the House.
Recommended for the enthusiast.