Thinking, Fast and Slow
Written by a renowned psychologist and winner of Nobel Prize in Economics, Kahneman explores how our mind works and why we are the easiest person to fool. And again, a book that will help you avoid many cognitive biases and improve your decisions and judgments.
Into Thin Air
A journalist’s personal account on an Everest expedition with a group of climbers that turns into one of the worst Mt. Everest disasters in history. If you can learn one thing from this book, it is to see risk in a new light – how risk can come at you from totally unexpected ways. It doesn’t appears when you’re right at the top of the mountain, but in every decision you made right before the climb. That applies to investing too. Risk doesn’t find you after you buy a stock, it’s been there all along.
What I Learned Losing a Million Dollars
Jim Paul spend the first half of the book talking about his life story: the successes he had from a very young age until he became a governor of Chicago Mercantile Exchange but losses it all in soybean oil future. He spent the later half of the book diving into the lessons he learned from his mistakes and what investors can do to avoid them.
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
While The Drunkard’s Walk approach randomness through maths and science (Leonard Mlodinow is a mathematical physicist), Nassim Taleb looks at it from the eyes of a trader and philosopher. You’ll learn how randomness can fool us; why we’re not wired to think probabilistically; and why the things that didn’t happen, alternate histories, are just as important as what happened. You’ll also understand how news is like french fries; it keeps us satiated while slowly killing us from the inside (but we don’t see it). A required reading for those that say “If I had listened to you, I would have lost money”. This is the same group that believes everything you say when you tell them your past 10 predictions are correct. Fooled by Randomness is a hard book, but packed full of wisdom. Drawing examples from the stock market, medicine to philosophy and biology to explain what we think we know can be dangerous. It will change your perspective as an investor.
The Black Swan: the Impact of the Highly Improbable
The Black Swan is the continuation of Taleb’s work on randomness. The book dives deep into the fat tails of randomness to understand why it is hard to predict rare events that carry extreme impacts. While a black swan is normally associated with rare, global events such as 1997 Asian crisis or Black Monday of 1987, it is just as applicable to unseen risks that happen on a smaller scale. As an example, an overly concentrated portfolio or leveraged position can both result in large magnitude of losses. Narrative fallacy, confirmation bias, and silent evidence can all blind us to such risks. This book is more about ‘how not to’ than ‘how to’. While the book can be technical on a few chapters, it is nonetheless filled with interesting and widely applicable ideas that improve thinking.
Deep Survival
Laurence Gonzales explores the question of why someone survives while others die in a disaster. This book is far relevant to investing than most people thought. Gonzales looks into the psychology on what makes people take risk, the role of hubris, the unpredictability of complex systems, and the importance of self-control. The ingredients of staying alive in a disaster are not that different from survival in the stock market: a good dose of humility, have a prepared mind, know what you don’t know, and an open-mindedness (beginner’s mind).
Risk Savvy
Less is more. Similar to Blink, Gerd Gigerenzer explains why a simple rule of thumb beats complex algorithm when making a decision in an environment that is highly uncertain where information is limited. Gigerenzer then shows us how using a rule of thumb and gut feeling can help us make a better decision in investing, finance, health, and even relationship.
How a $3.6 billion star-studded hedge fund (2 Nobel Prize winners in Economics & 8 PhDs) lose it all in 5 weeks when the Russian default in 1998. A true story of risk, leverage, human fallibility, and always ask ‘what if I’m wrong?’. (Interesting fact: John Meriwether, the founder of LCTM, founded JWM Partners after the collapse of LCTM, only to get wiped out again during the GFC)