I give them in order of importance (it is quite subjective).
1. Robert Shiller, "Irrational Exuberance"
Robert Shiller is a professor at Yale. He warned against the dot com bubble crash and the housing bubble crash.
I read this book in 2007 and this, among many other source of information, saved me from the crash of 2008. And this is exactly why I put it in #1. Note that Warren Buffet, as much as I amire him, did not warn investors about the crash that happened. Robert Shiller on the other hand did a lot to warn people.
If you are still wondering what is happening in the economy in 2009, why house prices are still going down, this book can go along way in helping you. The book explains how it was possible to spot that there was a housing bubble in the US, in the UK, in Spain, in Ireland.
The book introduces apparently the first chart of the price of homes in the US from 1890 to 2005 (the book was published in 2005). Today, this graph appears everywhere. Most articles explaining the housing bubble are using his graph. Check for example the wikipedia page on the US housing bubble (the first graph you see on the right).
Robert Shiller also proposed a methodology to track home prices which was the origin of the S&P/Case-Shiller Home Price Indices.
From wikipedia:
"The Case-Shiller index prices are measured monthly and tracks repeat sales of houses using a modified version of the weighted-repeat sales methodology proposed by Karl Case and Robert Shiller. This means that, to a large extent, it is able to adjust for the quality of the homes sold, unlike simple averages."
In short, Robert Shiller is an excellent source of information about the housing market in the US, and the economy.
2. "The Essays of Warren Buffett: Lessons for Corporate America"
This book is a great source for Warren Buffet´s writings.
Warren Buffet has not written any book but he wrote the famous Berkshire Hathaway Inc. shareholder´s letters (most of which can be found here).
This book is basically a compilation of essays. The great thing is that it is sorted by topics which makes it a lot easier to use. I wonder why Warren Buffet actually never bothered to do that himself...
This for me is his legacy, summarized, synthesized.
A must read.
I go back to it every time I wonder what Warren Buffet say about a particular thing...
3. George Soros, "The Alchemy of Finance"
George Soros is the richest hedge fund manager today (with $9 billion), and #97 richest man on earth. ´
This book is a mix of theories and practice.
- theoretical part of the book:
George Soros explains some of his conceptual framework: "reflexivity", etc.
You might think this book is old and the financial world has changed.
I argue you can find some great gems. Check for example the paragraphs on the REITs (Real Estate Investment Trusts) boom-bust model page 63 (paperback edition).
It happened in 1970 (boom) to "few years later" (bust). George Soros made money when the stocks went up. Then few years later he made money shorting the stocks when they went down.
And guess what: the REITs boom-bust scenario happened again in 2000-2007 (boom) to 2008-? (bust).
Look at the long term graph of the ETF and stocks with tickers IYR / SPG / GGP if you want to see some typical boom-bust patterns.
And this is just one idea among many. I think it is definitely worth reading the theoretical part.
Another thing that struck me. George Soros thinks the market is almost always wrong (page 52: "I contend the market valuations are always distorted...").
This goes against what most investors / speculators / economists write: "the market price is right blah blah", "all the news are in the price already blah blah".
Note that Benjamin Graham and Warren Buffet also agree that the market is almost always wrong: for them "Mr. Market" is a "manic-depressive" knocking on your door every day with a different price. Same idea.
- practical part of the book: George Soros explains in great details (140 pages!) the positions of his hedge fund (the famous "Quantum Fund") between August 1985 and November 1986. You can see his holdings and the "rational" for them. Long positions, short positions, commodities, stocks, bonds, currencies. Soros calls this part of the book the "real-time experiment".
You see how he grew the equity of the Quantum Fund from $647,000,000 on Aug. 16 1985 to $1,461,000,000 on Nov. 7 1986; a 126% growth in 15 months which is amazing considering the size of the equity. You can see the leverage that Soros was using.
This experiment covers the timeframe of the Plaza Accord.
It is great for anybody interested in finance, trading, financial history of the 1970s and 1980s.
I think this book is a unique work.
It is not always clear, not every page is great, but overall it is definitely in my top ten of financial books. I highly recommend it.
Where else can you get so many trading ideas from the richest hedge fund manager there is ?
4. Jim Rogers, "Hot commodities"
I love to read Jim Rogers´ books.
Jim Rogers used to work with George Soros. The both of them lead the Quantum fund from 1973 to 1980something (cannot remember when Jim Rogers quit the fund).
In an interview that was published in the book Market Wizards: Interviews with Top Traders
, Jim Rogers explains how things worked between Soros and him:"George Soros was the senior partner, and I was the junior partner. We started off with one senior partner, one junior partner, and one secretary".
"If you broke down the division of labor, he was the trader and I was the analyst".
I am not sure how George Soros sees it.
Nevertheless, Jim Rogers is a very interesting writer.
A few things for him:
- he writes very clearly,
- he predicted at least a few key events that very few could foresee.
-> the commodities boom of 2000-2007 (commodities bull market that he claims will last a lot longer once the ongoing overall "asset liquidation" is finished),
-> the crash of the Japanese equity bubble in 1990 (prediction done in the interview done in April 1988 in same book Market Wizards: Interviews with Top Traders
)-> the crash of US financial stocks in 2007-2008, and especially Fannie Mae, Citigroup, and the investment banks, and homebuilders. (Quote from August 2007: "I have been and am still short the investment bankers in America. I'm also short homebuilders.''; source: bloomberg article here ).
All this to say he is worth listening to, even if I take things with caution.
Some of his predictions turn out to be wrong like in the same book when he predicts in April 1988 that a financial collapse: "Right now, I am still looking mainly for a financial collapse. However, the politicians may foul it up and turn it into an economic collapse".
Or maybe he was talking about the collapse of 2008 twenty years in advance...?
In any case "Hot commodities" is a great read. The chapter on oil is an excellent summary of the oil market in 30 pages. This chapter alone is a must.
Other topics developed in specific chapters are: gold, lead, sugar, coffee.
I personally find the chapter on sugar very convincing.
What a great trade potentially...
Even if you are not concerned with investments, or trading, I think everyone should know a little bit about commodities, and this is a great book to do that. Jim Rogers writes for everyone and takes you by the hand; the book contains very little financial jargon.
I am convinced that within 10/15 years the world will not have enough oil for everybody, that the oil price will be much higher than today.
If you are still unfamiliar with the oil market, or think the oil supply will not be a problem in your lifetime, do yourself a favor and read this book.
The oil is *the* resource we all use and need the most. Apart from water, oxygen, and few other things.
Another great book on oil is The Prize : The Epic Quest for Oil, Money & Power
.
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