A great book is like a ledger of knowledge. It provides the opportunity to change a perspective, gain a better understanding, or acquire insights.
The power of a good book is in its ability to help you shape your thinking. This can lead to new trading strategies or the refinement of existing ones.
Looking through the lens of history, you can see the significance of psychology on market activity. You can see where psychology shifts and evolves based on circumstances, events and innovations.
You can see how the attitudes about investing were shaped for entire generations by historic events. The crash of 1929 and the Great Depression shaped the attitudes of investors for a generation. It impacted decisions during the GFC in 2008. And we have yet to see how the 2020 to 2021 period will shape future attitudes.
There is also value in reaching back to past eras when legacy markets were younger, less sophisticated, and lacking much of the current regulation. This can give you an understanding of what crypto markets might do and why.
A treasure trove of insights
What most great books about trading and investing provide is deep insights into human behaviour, reactions, and thinking. They provide a context to situations in time.
And you can draw insights from books that seem unrelated to finance. These can give you clues on the power of revolutionary ideas and a vision of possible future outcomes.
Armed with a better understanding of human behaviour derived from real-world activity, you can benefit in two ways. First, by understanding how other market participants react and behave in the market. Second, by seeing your own market behaviour more objectively so you can adapt or change.
This is not an exhaustive list. These book recommendations cover a variety of themes that can be used to connect ideas from other eras to the one we’re in. The objective is to provide resources to help you see the world from a different perspective.
Several of these are considered classics. They show you a perspective from old financial markets and events. Some of these books give you a unique perspective on history and innovation.
You will gain a better understanding of where traditional markets come from. And you will be able to see how innovations can grow, fail and build the foundations for the future.
Finally, and perhaps most importantly, these books help you understand how human beings behave and how that behaviour is timeless across assets.
Dr. Brett Steenbarger is a trading psychologist, and along with Mark Douglas and the late Ari Kiev, I consider Steenbarger a must read for traders interested in trading psychology.
Steenbarger came to the conclusion that trading was actually a performance activity. This changed the way he viewed traders and how to engage them.
One insight was that to perform, you required a repeatable process designed around feedback.
That feedback might include videotaping trading sessions to review responses. It meant the use of trading diaries, coaching, and simulated trading.
Because coaching wasn’t always available, this book was designed to help traders assess and develop trading expertise on their own.
He’s covered several key areas, including:
> Stress and Distress: Creative Coping for Traders
> Psychological Well-Being: Enhancing Trading Experience
> Steps toward Self-Improvement: The Coaching Process
> Remapping the Mind: Cognitive Approaches to Self-Coaching
And much more.
This book is designed to help you develop your process and get your mind set up for long-term trading success. And it’s a great resource for those starting out in crypto or at an intermediate-level.
This one belongs on your desk for easy, ongoing reference
This book is almost always recommended in trading circles. This is a book that is meant to be read, underlined, and read again. The book was written by Edwin Lefevre, although most believe it to be the pen name for the great Jesse Livermore himself.
Originally published in 1923, the book gives you some insight into what early markets were like. This was a time with little regulation and could be considered the pre-regulation era for traditional markets. This book gives you remarkable insight into a professional trader and his thought process. Given the nature of the market and regulatory environment then, this is an ideal read for those in crypto.
Pay particular attention to the stories of how bucket shops work, why you should never take tips, and the section on how to “manipulate a stock”.
These three sections should be required reading for every crypto trader.
The human insights throughout the book are gold. These insights will help you understand the mindsets of some of the market participants out there.
Take this quote on tippers on page 66:
“The amateur, or gratuitous tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out.”
Another gem on pg 91:
“…you find many people. Reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me.”
There are many more throughout.
There’s a good reason this book has near legendary status amongst traders.
Written by the other Adam Smith, the pen name for George J. W. Goodman, this book is insightful and entertaining.
Using humour, Smith takes us through the business of money, investing, trading and Wall Street generally. Throughout, you get brilliant observations about the underlying reasons people invest and trade.
For example, you will discover why you should never trade to buy things – and why rain on the window in Chicago could drive a cascade of selling in the grain markets…even though there is no rain where the grain is being grown.
Then there is this golden quote on page 72:
“It may sound a little silly to have a reminder saying The Stock Doesn’t Know You Own It were it not for all the identity fuel provided by the market these days. You could almost sell these identities as buttons: I Am the Owner of IBM, My Stocks Are Up 80 Percent; Flying Tiger Has Bought Solitron and Look at Me Now.”
Remember this was written in the 1960s.
And that passage was followed by a piece of wisdom:
“If you know that the stock doesn’t know you own it, you are ahead of the game. You are ahead because you can change your mind and your actions without regard to what you did yesterday.”
Crypto markets may be built around mathematical principles, but ultimately, they are used by human beings. And that means as long as they are traded, they will always be infected with emotion, chaos and irrationality.
This is an outstanding book and a fun read.
“The word “risk” derives from the early Italian risicare, which means “to dare.” In a sense, risk is a choice rather than a fate. The actions we dare to take, which depends on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.” (page 8).
The late Peter Bernstein is a master storyteller taking you on a journey of several hundred years over 300 or so fascinating pages.
This is an account of the history of how risk developed, where it came from, and how it became and essential part of all aspects of modern finance.
“This book tells the story of a group of thinkers whose remarkable vision revealed how to put the future at the service of the present….The transformation in attitudes toward risk management unleashed by their achievements has channelled the human passion for games and wagering into economic growth, improved quality of life, and technological progress.” (page 1).
Understanding and managing risk is a crucial component of trading. With this book, you can discover how the concept of risk developed and has evolved.
William Janeway was one of the pioneers of the venture capital business. Doing Capitalism in the Innovation Economy is an example of a brilliant distillation of knowledge into a couple of hundred pages.
This book is an education in venture capital, a history lesson of Wall Street, innovation, and government.
In this book, you will:
> Learn about the concept of the three player game.
> See how Wall Street evolved.
> Understand how Silicon Valley became Silicon Valley.
> Learn about the essential role government plays in the innovation process.
> And see what drives innovation.
> What does he mean by the concept of cash and control.
It’s a meaty read with lots of detail. It is a book to be read over time and contemplated.
This is one of the most important books I’ve read in the last several years. A great resource for traders, investors, and those with an interest in technology.
Nassim Nicholas Taleb
Taleb is no stranger to most market participants these days. Fooled By Randomness was his first foray into writing books for a lay audience.
This book is a powerful account of reality and randomness in markets. This applies not just to traditional markets but the growing array of crypto markets and products.
Throughout, Taleb gives you lots of ways to understand what you think you see in market claims and successes.
Pay special attention to the story of Carlos the Emerging Markets Wizard.
Taleb’s commentary on traders “on a roll” bears repeating. A quote from page 23:
“Likewise an increase in personal performance (regardless of whether it is caused deterministically or by the agency of Lady Fortuna) induces a rise of serotonin in the subject, itself causing an increase in what is commonly called leadership ability.”
“Randomness will be ruled out as a possible factor in the performance, until it rears its ugly head once again and delivers the kick that will induce the vicious cycle.”
Or a warning to would-be traders about relying on the appearance of success or the advice of one-time big shooters. Think for yourself.
This book is engaging and an easy read. It’s entertaining and insightful and is likely to become a favourite.
The first crypto winter is over, but that doesn’t mean there won’t be another one. All markets, by their very nature, are volatile and unpredictable.
In this book, you get to read a story of a trader leading up to and following Black Friday 1929. Again, you get historical knowledge of what happened during the period and, more importantly, how these events shaped the psychology of the trader.
Take this quote on page 32, for example:
“ It is for these reasons and especially because I personally completely convinced of the inevitability of loss when attempting to a safe secure income of small return, that I constantly suggest speculation rather than investment as a policy less apt to show a loss and more apt to show a profit.”
This one event shaped an entire generation of investors for the rest of their lives.
It was the reason for many significant regulatory and policy changes that exist to this day.
It even shaped Fed Chairman Ben Bernanke’s response to the GFC in 2008. As a scholar of the 1929 Crash, all of his measures were designed to avoid a repeat event. And the implications of those actions are shaping events today.
This is a fascinating look at the time and the mentality of a man trying to work his way through these market conditions.
This is another example of the excellent Wiley Investment Classics series.
Magness and Stullberg
Written by Magness, a running coach, and Stullberg, a consultant, this book is the exploration of the power of rest and time away. While not market focused, there are numerous points that crypto market traders can benefit from.
This book has a great story about Roger Bannister right before he entered running history forever. Bannister had been training hard to beat the four-minute mile, a feat considered impossible.
But instead of training hard right up into the competition, Bannister did something unexpected. He took off into the Scottish mountains to go hiking. On his return a week or so before the race, he resumed some light training to prepare.
Fully rested, he ran the race of his life, becoming the first person to break the elusive (impossible) four-minute mile.
The story is about the power of rest and being refreshed. Stepping away is a real challenge for performers in all sorts of work, sport, and arts, including traders. The lessons throughout this book are beyond taking a break but also how to shape time off to come back stronger and more focused.
In high-pressure environments, especially when risk is involved, life tends to revolve around the activity even when you’re not in front of the machine. The long term implications of this are negative.
This book can help you see your activities in a different light and develop habits to sustain better performance.
George Gilder is a technology futurist and author. He has written numerous books which seem almost prescient in their predictive power. This is largely due to his ability to connect with and gather a wide range of insights on the state of technology and where it is headed.
I found his previous book Knowledge and Power to be one of the most important I’ve read in the last several years. He has another book in the offing, but his most recent one, Life After Google, is the next recommendation.
From the introduction:
“Google is not just a company, but a system of the world. And the internet is cracking under the weight of this ideology.”
Life After Google explores the current state of centralised technology and its contradictions. And how the core assumptions underpinning these tech companies are undermining the world.
We can see his vision and warning today.
This is a powerful look into these core assumptions, their implications and the solution. The solution is the blockchain.
This gives you an insider’s view into parts of tech reserved for the few. If you are interested in crypto, I consider this book a must read.
Goetzmann and Rouwenhorst
As is the theme of many of the recommendations here, I find looking back at where things come from valuable. This book contains a series of essays covering all of the great financial innovations across time.
It begins with the creation of the concept of interest from Mesopotamia. Then there is the exploration of shares in ancient Rome based on an idea of legal personality. Legal personality is the precursor to the legal framework of a corporation.
There is a rich discussion of financial innovation on the Chinese Silk Road. Here, the foundation of modern banking can trace its roots back to Chinese pawn shops. Scholars have identified the loans through the paper used and discarded, and recycled into coffins.
Chinese finance is further explored through a series of attempts at fiat money and paper money. The creation and retirement of various monetary standards throughout the period are illuminating.
The book explores many of the origins of the financial tools we rely on today.
While you are part of the next generation of finance, much of what crypto is borrows directly from the traditional system. It is valuable to understand where these come from for a couple of reasons.
Many of these products are steeped in history and tradition. And that tradition is in part shaped through regulation. Understanding the traditions and history will provide ideas about legal and traditional frameworks used for regulatory decisions.
Another is that old ideas can be reimagined and adapted to new conditions. Could technology shape an old idea from its origin into the next DeFi product or service?
This book is an outstanding option for those with an interest in the history of finance.
Once you start this book, it will be hard to put down. The writing is seamless, and the stories are riveting.
Safi Bahcall is a physicist and biotech entrepreneur. This book explores innovation through the lens of phase transition. Phase transition is the place between where water becomes ice.
Throughout the book, he takes various historical innovations and looks at them through the lens of either creative or business advancements. The most successful are the managers who can exist between both of these places. But typically, great innovations tend to master one or the other.
You will read about several entrepreneurs and their impact on the world we live in today, from Juan Terry Trippe of Pan American Airlines and its impact on the aviation industry to Edwin Lamb of Polaroid. Some of the stories will be well known, others are amazing stories you’ve never heard of before.
The theme of the book is built around this tug and pull between innovators and executors. Between creative and science. They are both necessary, and the ability to operate between these two competing forces is a challenge.
Crypto is now in this place of phase transition. Each company or project is at different stages, but they are likely to face modern versions of the challenges identified by Bahcall.
As a trader, evaluating the team in any project is one important step. Another might be exploring their ability to stand between these two competing teams as they continue to cross the chasm.
This book is beautifully written, thought-provoking, and highly recommended.
Great books are idea generators
A book is deep thinking constructed to tell a story, provide insight, or record events. Through great books, you can come up with trading ideas during periods of underperformance. A great book can also generate market insights when you feel confused about market behaviour.
Reading someone else’s deep thinking can also unlock mental blocks during bull markets.
Crypto is built on a foundation of technology and finance. It has an origin in war and secrecy.
Because as Livermore used to say, trading and speculation are as old as the hills. And you can learn a lot from those that came before and provided the foundation for the world we have today.
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