Even though I should be studying for my Options & Futures exam coming up next week, I am meeting up with lots of first years interested in working on the trading floor or in hedge funds to give them advice on CVs and interview preparation. The question on what to read in preparation keeps coming up, so I will make a post with all the books I find very helpful to get inside into trading and investing, as well as the technical knowledge required. I recommend the following books. Obviously, you don't need to read them to pass interviews. If you are lazy, you can get by with your introductory finance class, the Wall Street Journal, and the Vault Guide to Finance Interviews. Still, I believe that if you are not interested enough to pick up a good book on investing or the markets in your spare time, it is questionable if you will enjoy working in the financial markets, and thus it is unlikely you will be successful or happy if you work in this field. So at the least reading these books will give you an idea if you are really passionate about markets.
Inventing Money: The Story of Long Term Capital Management and the Legends behind it
This is the best book on the lives of Fischer, Black, Scholes, and Merton, the fathers of modern derivative pricing. It gives an excellent introduction into how and why derivatives were developed and how the industry grew. It might be a bit heavy if you have no background whatsoever, but even then I think it will familiarize you with the concepts important in trading.
We have had some readings from this book in our Options class, and as an introduction it is much easier to understand than the classic John Hull book on derivatives that everyone recommends but probably not many actually fully understand. So if you want a book on derivatives that is easy to understand and study by yourself, with a very good depth and practical and intuitive explanations, this is really good. It is written by the NYU Stern professor Rangarajan Sundaram. It is more expensive than the Hull book unfortunately.
Now on to lighter things :-). There are a lot of books on investing, the hedge fund world, and trading, but these are my favourites. Depending on where you lean and what you are interested in, you may have other choices, here are my top choices.
Reminiscences of a Stock Operator
This is the autobiography of one of the first speculators in the 20th century, who made his fortunes in the 1929 crash shorting stock prices. He seems to have had a very unusual gift for interpreting stock prices and where they were likely to go, so much so that brokerages would refuse to take his orders, forcing him to operate anonymously even when he was in his teens. His insight on trading and investing are as true today as they were 80 years ago.
How I made $2m in the stock market
Despite the dodgy title, this is actually an excellent book on stock picking. It was written by Nicolas Darvas in the late 50s and follows a very similar investment style to Jesse Livermore, the author of reminiscences of a stock operator. It is a great introduction to technical analysis versus a fundamentals based approach to investing. It is also a very easy read and a great way to get started on investing.
Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets
As stupid as the title sounds, this is actually a great book full of interviews with macro traders, i.e. investors who analyze global economic trends in currencies, interest rates and commodities to take positions on large movements and trends. It is fascinating how they interpret current events and what connections they make. You have to be interested in macro investing to like this book, as it is unrelated to corporate finance or technical aspects of trading.
Market Wizards: Interview with Top Traders
This is something like the original of Inside the House of Money, a collection of interviews with successful traders from the 70s. Lots of their stories are focused on how they made money shorting soybeans or wheat in the Chicago trading pits, but there are lots of characters here that became famous hedge fund managers later. It does get technical when they describe exactly what they sold when and why, so again you need to be interested in investing to read this book.
A much lighter read, this is quite an entertaining book on the hedge fund industry and the characters in it (managers, investors, wives, journalists, funds of funds etc.). It is written by Barton Biggs, formerly head of Morgan Stanley investment management. He has a degree in literature, is well-read and has a healthy distance to money and the finance industry. He can be quite sarcastic at times and I laughed a lot reading it.
Beating the Street
Written by Fidelity star Peter Lynch. This is about investing in stocks and quite useful personally. There are a lot of interview questions like "how would you invest $1m" or "which stock do you like and why", so this comes in handy.
I don't like any of the overhyped books such as Liar's Poker or When Genius Failed and think they are quite useless and won't give you a good idea of what trading floors or hedge funds are about. I do think reading the Wall Street Journal and the Economist helps a lot as well. The FT has some advantage in their coverage of political issues, but in terms of finance and business the WSJ goes into greater depth and technical detail, which is very helpful if you want to go beyond the journalist ling
Lots to read over the Xmas holidays!!! ;-). I didn't do it last year but in retrospect I must say I was not well prepared for the interviews, I didn't even know how options were priced, so I really recommend the following class to prepare better than me and know about option pricing and the general idea of hedging trading positions.