In the field of finance I recommend a web site, three books and a magazine.
The
magazine is The Economist. I have been reading it for nine years, occupying the
reading of at least the first three days of every week. It is often
wrong - but never in doubt. The magazine has a good business and financial
section. Every week is publishes a list of financial tables that in some cases,
may help you with facts. It has a good science coverage and it good on
book reviews. The book review is so good, that I learned about the books I will
recommend from it.
In
a series of interchangeable chapters, Landsburg (University of Rochester) asks
questions like: Why do laws mandating use of seat belts increase the rate of
traffic accidents, as statistics show they do? Because, he says, drivers have
been given an incentive to drive more quickly and less carefully by being made
to feel protected. In the service of what he calls efficient markets, Landsburg
argues that wheat farmers, say, ought to be forced to pay damages done to their
crops by sparks thrown off from railroad trains, since such damages can be borne
more cheaply by farmers than by the railroad companies that are at fault. When
analyzing the costs and benefits of legalizing drugs, he admonishes that
increased tax revenues from a heretofore untaxable criminal activity are a
neutral item; transfer of wealth from individuals to government is never
equivalent to the creation of new wealth and may even be a societal drain. In
general, Landsburg cheerily points out, economists value efficiency rather than
justice, market solutions over legislated compromises, consumption over saving,
and the creation of wealth above all else; these principles secretly drive the
profession's public analyses of criminal penalties, tax policy, environmental
legislation, and the ultimate good of market- based free trade.
Against
the Gods is an outstanding book about the evolution of risk and man's attempt to
understand it. Bernstein begins with ancient times and traces the history of
numbers and probability leading eventually to today's seemingly complex
financial world of portfolio theory, derivatives, and risk management
techniques. Readers will learn about revolutionary thinkers including John von
Neumann (inventor of game theory), Isaac Newton, Harry Markowitz (grandfather of
portfolio theory), and the late Fischer Black (Black Scholes option formula)
among others. Readers will also find enlightening stories about game theory,
fibonacci numbers, chaos theory, the bell curve, regression to the mean, and
more. Yet despite all the intelligence, computer power, and sophisticated
techniques, Bernstein presents us with the growing body of evidence discovered
by researchers including the late Amos Tversky and others that "reveals
repeated patterns of irrationality, inconsistency, and incompetence in the ways
human beings arrive at decisions and choices when faced with uncertainty."
Nicholas
Dunbar has skillfully taken the lid off the can of worms which was the LTCM
collapse with this story of the individuals and institutions involved in one of
the most spectacular business failures of the past decade. His clinical yet
gripping account is impartial and fair in dealing with the ethical aspects of
the story and sympathetic to the human tragedy played out by the principal
actors in this financial melodrama. Dunbar's account will last as a portrait of
the world of derivatives, options and markets long after "Wall Street"
and other attempts at putting flesh on the bones of the financial world have
been consigned to the fantasy shelves, where they belong. In telling the story
of LTCM's rise and fall, Nick Dunbar manages, very subtly, to initiate us into
some of the more arcane mysteries of risk management in the world of options and
derivatives. Like all the best instructors, he succeeds in enthusing us for his
subject. From his opening sentence, Dunbar persuades us to be fascinated by the
LTCM story and to want to understand it. Readers across all shades of the
spectrum from professional to amateur will acquire valuable information from
"Inventing Money"; as well as having a hugely enjoyable read.
This
web site, promotes a common sense approach to investment, saving and independent
research. I find that the site helps to read the three financial statements. By
doing so, it enables the reader to take the sell side analysers comments with
the deserved pinch of salt.
