able of contents

Child pages

Boomerang by Michael Lewis

This is a great book; I don't think it's as gripping as Liar's Poker or The Big Short, but those are pretty high standards to compare a book to. The best features of this book are:
1) it's extremely timely; if you're concerned about what's going to happen in the EU and US, this book will fill you in on the current situation BEFORE anything major has happened (e.g. a disaster like a run on the banks, hyperinflation, etc.). It's like having a copy of The Big Short before the stock market crash of '08.
2) there's a lot of extremely useful information in it; it's basically like getting an insightful private investigator's report on those five countries for only $15. Lewis gives a history of how each of those countries got where they are, and explains what's currently going on to try to fix the situation. He also interviews the top guys of most of those countries; for example he interviews Arnold Schwarzenegger about California, the new (responsible) president of Greece about their situation, top guys at the German banks who had gotten them involved in Wall St. CDOs, etc.
2) it's entertaining; Lewis has a great gift for making subject entertaining that could be horribly boring if someone else was writing about it. 

Reasons I don't think the book is as gripping as Liar's Poker or The Big Short:
1) Lewis is surveying a much wider situation in this book; he's literally giving the history of a different country's financial situation every chapter. What this means, though, is that he spends less time following individual characters, and so you don't really get involved with them the same way you do in his other books.

It's divided into six chapters: The first is the preface, in which Lewis describes his interactions with hedge fund manager Kyle Bass and explains how Bass sent private investigators and pollsters to the troubled EU nations to get a feel for what was going on there. The other five chapters discuss troubled nations, one per chapter: Iceland, Greece, Ireland, Germany, and the United States (specifically, California, b/c it's in the worst situation).

Preface
1. Wall Street on the Tundra (Iceland)
2. And They Invented Math (Greece)
3. Ireland's Original Sin (Ireland)
4. The Secret Lives of Germans( Germany)
5. Too Fat to Fly (US / California)

Dark Pools by Scott Patterson

Contents of This Webpage:
I. A List of Chapters in the Book
II. A Short Chapter-by-Chapter Summary
III. A Longer Chapter-by-Chapter Summary
IV. Who Should / Shouldn't Read This Book?
V. My Thoughts/Questions
VI. Related Pages on My Website

II. A Short Chapter-by-Chapter Summary:

Prologue: Light Pool
New terms:
Dan Mathisson
Credit Suisse Equity Trading Forum
Advanced Electronic Systems
market plumber
Guerilla - "the first mass-marketed robot-trading algorithm that could evade other algos"
Manny Santayana
the Flash Crash
dark pools
lit pools
a pool
Crossfinder
pick-off artists
market makers
a whale
Blast
Light Pool (Mathisson product)
Progress Software
the Splash Crash
double liquidity void

Part I: Machine v. Machine
1. Trading Machines
2. The Size Game
3. Algo Wars
4. O+

Part II: Birth of the Machine
5. Bandits 
6. The Watcher
7. Monster Key
8. The Island
9. The Green Machine
10. Archipelago
11. Everyone Cares
12. Palace Coup
13. Bad Pennies
14. Dumb Money
15. Trade Bots
16. Crazy Numbers
17. "I Do Not Want to be a Famous Person"

Part III: Triumph of the Machine
18. The Beast
19. The Platform
20. Panic Ticks
21. Very Dangerous

Part IV: Future of the Machine
22. A Rigged Game
23. The Big Data
24. Advanced Chess
25. Star

Diary of a Hedge Fund Manager by Keith McCullough

Amazon - http://www.amazon.com/Diary-Hedge-Fund- ... roduct_top

Who is The Giant?

Clues from the book:

• "one of the biggest, best-known hedge fund managers in the world"
• eats caviar, watches movies
• gives money to other hedge funds (108)
• he's someone who'd be seen "leaning back in his chair, hands crossed behind his head, his tie flipped back over his shoulder" [so he wears ties]
• he apparently works "one block from Park Avenue" (109)
• he had a really big position in Freeport-McMoRan Copper & Gold (NYSE: FCX) in 2005 or 2006

• I boarded a Cathay Pacific flight to Hong Kong, the first leg of the journey, and happened to notice that a few rows ahead of me in first class was one of the biggest, best-known hedge fund managers in the world. I'll call him "The Giant." I watched him on and off for pretty much the whole 14-hour flight. While I devoured the contents of multiple canvas bags overstuffed with reading material, there's The Giant, sprawled out like he's in his home theater, shirt open, shoes off, stuffing his face with all the free caviar the stewardesses could feed him (and free caviar wasn't all you got when you flew Cathay Pacific to Asia; there was also wine, shrimp, cheese, sweets). This guy, The Giant, he watched movies, he racked out. 

  Meanwhile, I read, researched, worked. I came away that night-day convinced The Giant was weak and that if this was how the biggest and best hedge fund managers rolled, well, I need not ever worry about about how I measured up. [p95]

Hedge Fund Market Wizards by Jack Schwager

2012.06 - great interview with opalesque TV
http://www.youtube.com/watch?v=AqCOw-pj ... re=g-all-u
- You have to find your own style. You can't just go work for someone else and expect them to tell you some secret formula for being successful.
- Good traders can change their mind on a dime. Good traders liquidate when they're wrong, great traders reverse when they're wrong (~9min)
- It's a huge mistake right now to think volatility = risk. He does a great job of giving examples (eg selling out of the money options). Another example he gives is Jamie Mai buying puts to bet against a company; his portfolio shows volatility, but the volatility is all on the upside.

Liar's Poker by Michael Lewis

Main Themes

• Wall St. investment banks will screw over their clients to make money themselves. presumably because the clients have no one else to go to.
• a lot of people on wall st. are not very sophisticated. it may be possible to take billions of dollars from an investment bank by getting a 25-year-old rookie trader to enter into a bad bet. Kyle Bass talked about buying CDS from a bank in 2010 on some seemingly-obvious default.
• on the other hand, a lot of people on wall st. are extremely sophisticated and can fleece you before you know what's happened. you need to be extremely careful.

from a 3/9/2001 MSN Money article by Michael Burry:

Lords of Finance by Liaquat Ahamed

III. A Longer Chapter-by-Chapter Summary:

Part One: The Unexpected Storm - August 1914
1. Prologue
2. A Strange and Lonely Man
3. The Young Wizard
4. A Safe Pair of Hands
5. L'Inspecteur Des Finances
6. Money Generals
Part Two: After the Deluge - 1919-23
7. Demented Inspirations
8. Uncle Shylock
9. A Barbarous Relic
Part Three: Sowing a New Wind - 1923-28
10. A Bridge Between Chaos and Hope
11. The Dawes Opening
12. The Golden Chancellor
13. La Bataille
14. The First Squalls
15. Un Petit Coup de Whisky
Part Four: Reaping Another Whirlwind - 1928-33
16. Into the Vortex
17. Purging the Rottenness
18. Magneto Trouble
19. A Loose Cannon on the Deck of the World
20. Gold Fetters
Part Five: Aftermath - 1933-44
21. Gold Standard on the Booze
22. The Caravans Move On
23. Epilogue

IV. Who Should / Shouldn't Read This Book?

V. My Thoughts/Questions:

VI. Related Pages on My Website:

2009.04.18 BookTV Talk:
11:00 - Three mistakes w/ the return to the gold standard
1) because prices had risen AND the bankers went back at roughly the same exchange rate, the value of gold relative to other goods diminished, so there wasn't enough gold to go around. So there was a shortage of capital throughout the '20s. [I'm having trouble visualizing this, especially the last part]
2) 2/3 of the gold had moved to the US (b/c of capital flight and euro countries paying for stuff). So the US had too much gold and Europe had too little. "It was like trying to play poker where one player has all the chips"
3) England went back to the gold standard at the old exchange rate, so the pound was consistently overvalued [huh?]

~13:30 - he says that the US' decision to lower interest rates to help out Europe was a key influence in the final huge rise in the US stock market from '27 to '29.

Q: After a country has a financial disaster (like Argentina), is the central bank ABLE to keep interest rates low? Are there any factors that would prevent a central bank from being able to keep interest rates low? That would seem to be an extremely important question to answer if you're going to be investing in the stock market, because if something were to happen to force interest rates to go up, that would apparently reduce demand for stock investments b/c more people would pull money out of stocks and give them to banks to invest.

~14:00-14:30 he suggests that the lowered interest rates caused (or at least exacerbated) the real estate bubble, which is in direct contradiction to what bernanke said when asked at the GW class. Bernanke said the real problem was capital inflows from asian countries that had certain reserve requirements following the '97 asian crisis. Those countries ended up buying US assets (treasuries? not sure). But at around 14:50 he actually does talk about the asian central banks accumulating lots of dollars. Not sure what to think, then.

~16:00 he responds to a Q about whether the US' position in the '20s is analogous to China's position today by saying that the US was the largest economic power in the '20s and is still by far the largest economic power nowadays (3x the GDP of China).
~17:30-20:00 he talks about how when Strong (NY Fed Chairman) died in '28 that led to problems w/ the stock market bubble b/c the Fed. Reserve Board in Washington gained power and they didn't know what they were doing, so they didn't raise interest rates soon enough to deflate the bubble.
~20:00 he talks about how capital inflows to the US during the '20s starved Europe of capital, which caused Germany to go into a recession before the US
~21:00 he talks about how Strong's absence led to a problem when the US started to see banking crises in 1930; the Central Bank should have acted to prevent the "contagion effect". The Fed should have 1) inject reserves by buying gov bonds and "flooding the system with cash"; 2) confusing, something about replenishing "equity"(?) in banks. Because they didn't do these things until '32, bank deposits went down by 40% and so loans went down by 40%.
23:00 - WSJ guy says the Fed system back in the '20s was pretty different from today: Washington didn't have a lot of power, the NY Fed was the main one. He asks how it got that way
Ahamed responds by saying that the Fed system was created in response to the 1907 panic, and 6 bankers met on an island off Georgia to create a single large bank, but Congress vetoed it, so instead Congressman Glass broke it into 12 regional banks to act as lenders as last resort. The Fed system could veto decisions by local banks but it couldn't prescribe policy, so it all turned into a big disaster b/c the system ended up in paralysis.
~26:00 - Apparently Irving Fisher and Milton Friedman (as well as Ahamed) thought that if Strong had survived that the Great Depression might have been avoided.
~28:00 - WSJ guy asks what the Europe central bankers didn't see to save themselves. Ahamed responds that their hands were tied more than the US b/c they didn't have gold; all the gold had gone to the US. He says that they had to keep interest rates higher because they didn't have any reserves. This seems like an important point if you want to know what might force the US central bank to have interest rates higher than they would like. Ahamed then talks about how an Austrian bank went under, which led to a contagion to other banks where people were pulling out their money, and so Germany had to raise interest rates from 5% to 12% [again, this seems like a very important thing to understand if you want to know what might force the US Fed to keep interest rates higher than they would like]
~30:30 - Ahamed says the whole situation in Europe (contagion) was very similar to the Asian crisis in the late 1990s. ~31:00 he says France could have helped b/c they had lots of gold, but they didn't do anything b/c they wanted Germany to remain weak and they didn't understand economics.
~32:00 - Ahamed says the reasoning behind the gold standard was to enforce discipline among governments; he describes it as an ideology. He says that the sooner the countries got off the gold standard, the sooner they recovered from the Great Depression.
~34 WSJ guy asks about what Ahamed knows about Bernanke's and Christina Romer's scholarship. Ahamed summarizes Bernanke's work on the Depression: B basically studied the nitty-gritty mechanics of how banking crises lead to problems. When a bank goes under it calls in its loans, which made borrowers dump collateral, which leads to a downward spiral.
~35 - Romer studied the impact of the Great Crash on spending. She found out that the reason 1930 was so bad was b/c consumer spending collapsed. She also studied why the US got out of the Depression. The myth is stimulus (gov spending) got us out. Apparently US stimulus was actually modest; what really got us out was expansionary monetary policy by devaluing the dollar (going off the gold standard). "That took all the gold in the country and basically increased its value by 80%; it was as if we discovered a whole lot more gold. That in effect gave the banking system much more reserves and allowed it to lend more." And that led to a lubrication of credit, and changed expectations about inflation/deflation, b/c people expected prices to rise, which made it economic to borrow.
39:30 - WSJ guy asks the biggest US Fed mistakes. Ahamed: in '31 it was letting the banking system go under, in '32 it was trying to control the budget deficit. In Europe the main problem was raising interest rates.
~44 - Ahamed says it's pretty clear that the Depression led to WW2 b/c of the election of the Nazis
~46:30 - WSJ guy asks where all the bankers ended up. Not much useful info imo, mostly personal stuff.
~52:50 - Ahamed says the Central Bankers had a diminished status by the '30s; power had shifted to the Treasuries
53:30 - WSJ guy asks how Keynes shifted from being a side-figure to being a central figure. Ahamed says it was b/c Keynes just kept being right, and wrote books that were useful to governments (eg "General Theory of Employment")
55:50 - Ahamed talks about how Keynes got rich (~$30 million today). He hadn't become rich as a currency speculator in the '20s, but in '32 bought lots of blue-chip stocks on margin and rode out the crash.
57:30 - he praises Kindleberger's book on the Depression. Kindleberger argues that what the world needs is a single leader country that will do more than its fair share during a crisis. Ahamed's one big question is whether that will happen this time.

Market Wizards by Jack Schwager

The intro is pretty useful; Schwager talks openly about his many losses in the futures market. Remarkably, even after having written a book on futures and having had many years of experience he still lost money frequently.

Monkey Business by John Rolfe and Peter Troob

this one's a must-read. It's up there with Michael Lewis. Lewis gave a great look at the low-level bond salesman's job, and these guys are giving a great look at the low-level (associate-level) investment banker's job. There's a lot of information in here that would be very useful for an investor to know.

General Notes:
# of pages - ~273
Date of publication: 2000
Book format: 6x9

Contents

1. Introduction - 6pp


2. Recruiting: The Seeds of a Dream - 17pp


3. Interviews and Ecstasy - 16pp
This chapter gives an over

4. Summer Boot Camp - 37pp
Here they talk about their summer internship with DLJ

5. The Courtship - 7pp
Here they talk about how the i-banks would convince people to join.

6. Training Wheels - 7pp
Here they talk about the training process, which they say involved getting the associates attached to an expensive lifestyle before hitting them with the hard work involved in their jobs.

7. The Food Chain - 5pp
This chapter describes the different hierarchical levels in an i-bank, and how an i-banking department interacts with other departments in an investment house.

8. The Business - 10pp
This was an extremely interesting chapter; a must-read. Troob discusses the value-added of investment banks by talking about their historical role and how things have changed over the years.

9. The Sizzle - 15pp
This chapter's about the process of pitching, and the sections of the pitch book. He talks about how league tables are a joke because the investment bank can mess around with the data until they come out #1.

10. Fishing for Value - 8pp
This chapter's about how the investment bankers start with the valuation they want to offer to their clients (the offering company) and then screw around with various valuation techniques until they can figure out how to arrive at that valuation without technically lying.

11. The Merry-go-round - 12pp
They discuss the awful process of trying to draft a document and have it approved by 3 layers of supervisors (VP, Senior VP, and MD). One supervisor would make a change only to have the next supervisor change it back.

12. The Bottleneck - 13pp
This chapter's about the copy center, where copies of fancy/complicated-booklets were made before presentations.

13. The Holiday Party - 22pp
First 7 pages discuss what the daily routine for an associate was like; the rest describes what the yearly holiday party was like.
- life dragged on but they held out hope that things would get better (154). They learned to work their ass off and expect the unexpected (new deals, crises, etc.) (155)
- Their day was divided into "before lunch", "after lunch", "after dinner", and "after midnight". (155) In general no associates got into the office before 9am; once they arrived they'd be checking things until lunch (docs submitted to word processing, new models) (155). Lunch was usually at their desks. After lunch was usually meetings; associates hated meetings b/c MDs would come up with ideas "capable of generating huge amounts of work"; some MDs would leave voicemails w/ these ideas (156). For dinner a couple of associates would get together in a conference room w/ ordered food and curse their bosses (157). One guy always ordered the exact same meal (158). After dinner (8-12) was when they actually got stuff done: "we drafted pitch books, built models, updated comps, and wrote memos" (158). After midnight: If their work needed to be presented to clients the next day he would need to coordinate the word processing dept., the copy center, and the analysts like an orchestra-conductor to get something presentable produced; this could end anywhere from 2am-8am (159).
- They usually worked on weekends, so they worked ~100hrs/week [Nathan: that's like 9am to midnight 7 days a week]. They got corporate car rides home and showered every morning (159). He estimates 15hrs/week social life, 33hrs/week sleeping (4.7hrs/night) [not drastically different from my high school norm of 5hrs/night] (160). They were always tired but they were, in fact, productive. The office was kept like a casino (lighting/temperature). They were kept "drugged" w/ money via expensive dinners & traveling expenses (160).

14. Drafting - 19pp
They discuss how awful it was to draft a prospectus. Basically a huge team of people assembles and every line of the prospectus is argued over for an obscene amount of time. It's a huge waste of resources.

15. Push the Button - 12pp
They discuss "being at the printer", which involves doing nothing while at a printer's office. It's a tradition from an earlier age that never went away, much like the spreads on IPOs.

16. Travel - 19pp
They discuss what it was like to travel for the job (it was absolutely awful)

17. Bonuses, Reviews, and Compensation- 13pp
They discuss how bonuses were determined (it's a broken system)

18. The Epiphany - 10pp
Rolfe discusses how he came to decide to quit; it's mostly 2 anecdotes.
- In the first anecdote he talks about how he eventually started masturbating at work in the bathroom to relieve himself, and one night did it at his desk at 3am, only to remember that he was right next to the window and across from another building, and since most of the lights were off in his building, anyone looking out at his building would have had a good chance of seeing him; he had an epiphany at that moment that i-banking was not glorious and that he had no life outside his office.
- The second anecdote is about a 47-year-old guy ("Captain Kirk") who worked there, had never been married, still went out and had casual sex with women in their mid-twenties, and was obsessed with porn. Rolfe tells a funny story of how he and Kirk were in an elevator on the way to a meeting when Rolfe told Kirk that he had discovered how to get free porn on the Internet (which was new at that time). Rolfe could tell that Kirk couldn't stop thinking about it during the meeting, and he ended up blurting out "John knows how to get free porno on the Internet!" Rolfe found Kirk fun to be around but realized that if he stayed at the i-bank he'd probably end up like Kirk or the other i-bankers with broken relationships. Rolfe didn't want to be like those guys.

19. The Last Straw - 8pp
Troob discusses how he came to decide to quit.

20. Liberation - 11pp
Both guys discuss how they found new jobs. They basically just used a headhunter w/o telling anyone, doing interviews at 7am, and turning down offers until they found a good fit. [Reminds me of the description given at the beginning of Fiasco]

21. Epilogue - 6pp
- Troob describes a get-together dinner they tried to organize w/ 4 coworkers a few months after they both quit; one guy who showed up said he was quitting, another guy showed up 3 hours late (10pm) b/c he'd been working, and the other 2 never showed up b/c they were working. Rolfe asks his buddy if his quitting had caused any problems at DLJ, and the guy responds "it was like taking a teaspoon of sand off the beaches in Rio" (in other words, he was replaced w/o any trouble).
- The book ends w/ a so-so analogy saying i-banking isn't like crossing a desert to reach an oasis as much as it's like a jungle, where you learn to climb and swing on trees and eat fruit [not a great analogy]. They don't miss i-banking at all.


Thoughts:

I think WallStreetOasis.com's name and monkey-theme are almost certainly taken from this book.

More Money Than God by Sebastian Mallaby

Reminiscences of a Stock Operator by Edwin Lefèvre

You can read the book online here:
http://ebooks.gutenberg.us/worldebookli ... sstock.htm

I am reading from this edition:
http://www.amazon.com/Reminiscences-Sto ... 471059684/

Watch Me Read It (with annotations)



Chapter-by-Chapter Summary

Chapter 1
Main Lessons: 1) He was successful because he learned the patterns (just like with Chess players). 2) You may be able to learn useful information in an indirect way; look for ways to do it. 3) When the game changes, your patterns may no longer be useful, so stop playing. [ie if the market is behaving strangely, get out]
00:00 - Livermore relates that he first got involved in the markets by working as a quotation-board boy in a stock brokerage office (age ~14?). He was good with numbers [just like Warren Buffett].
00:50 - He spent so much time with the numbers (5 hours a day) that he eventually began to notice patterns in their movement [this is exactly what Steve Cohen said happened to him when he was starting out]. He could memorize these patterns. He started keeping track of his observations in a book, and he started testing his predictions.
02:23 - He explains why tape-reading can work: you can infer what people with inside information are doing, or if other traders are feeling bullish or bearish.
05:54 - He started to trade in bucket shops when another office-boy suggested it, and he gradually made more and more money. He had $1,000 at age 15, only a few months after he had started to trade. [Using the 1896 value of the dollar, going from $3 to $1000 in "a few months" is equivalent to going from having $80 to having $27,000 in a few months in 2013. Ed Thorp's success at blackjack in the 1960s is the closest similar story I've heard.]
11:16 - He talks about how some bucket shops kicked him out so that he had to disguise himself (just like Ed Thorp), and other bucket shops gradually stacked the game against him as much as they could by requiring more margin and charging higher premiums.
16:08 - He tells in detail how one bucket shop tried to take his money by buying the actual commodity on the NYSE, but Livermore was able to tell from the price action that something was wrong, and so he got out of the market just before the price came in that would've lost him $10,000.
25:24 - He explains what a bucket shop drive is.
26:07 - He describes how another guy would use the same bucket-shop-drive trick against the bucket shops: the guy would hire people to go to different bucket shops and all bet on a particular stock at a particular time, and then the guy would manipulate the stock's price on the NYSE so that the guys in the bucket shops made money.
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Livermore explains his philosophy on buying stock via a made-up example (pp84-85) and a r/l anecdote (pp85-90)
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
The first two pages are about him trying to get back on his feet by going to Chicago. The rest (pp160-171) are about his dealings w/ Dan Williamson over a few years. Williamson was a broker who solely handled a few big, high-profile clients, and wanted Livermore to trade w/ him so that Livermore's long/short activity would disguise the long-only activity of Williamson's other clients (otherwise as soon as Williamson made an order to buy on the stock exchange floor, word would spread like wildfire and the stock price would move by a lot; it's the same problem Buffett has nowadays). But it ended badly (w/ Livermore in debt), and Livermore attributes it to Williamson trying to restrict some of the trades that Livermore was making, which (apparently) just messed w/ Livermore's groove.
Chapter 14
In the first 2pp he talks about his troubles (bad trading) after leaving Williamson's office, and how he came to the conclusion that the stress of his debts ($1 mill+) was affecting his decision process, and how he came to decide that declaring bankruptcy would clear his mind. He then went back to Williamson, who offered Livermore another stake. Livermore was extremely cautious before making his first trade, watching the market for weeks before committing his money in order to guarantee it would pay off. He then spends a few pages talking about how he made a killing in the bull market of 1915 and subsequent bear movements in 1916. A few pp on paying off his creditors (to repeat: he'd been $1 mill+ in debt) and setting up trusts for himself and his family to limit downside risk in the future.
Chapter 15
In this chapter he explains how he lost on a big bet that coffee would rise in price. His reasoning: because of WW1 the prices of all commodities except coffee had gone up by a lot (100%-400%). Coffee had gone below prewar prices because all the coffee that was destined for Europe couldn't go there now (because of the war), and so there was a temporary abundance. But because of the lower number of ships available to transport stuff (b/c of the war), supply was bound to go down a lot once the temporary glut ran out, and so prices were bound to go up by a lot. He bought 9-month options in the winter of '17 and didn't see them pay off, but was so convinced that he bought 3 times as many once his first set expired. Unfortunately the bet didn't pay out because the guys on the other side of the bet (the shorts) convinced the government to keep the price of coffee fixed low. He argues for a page or so that this was bad economic policy. In the last 2pp he talks about how he got a reputation at that time for being a raider because of the success of his other trades; he says these people were just inventing explanations, and he explains why raiding is a dangerous tactic for a stock speculator.
Chapter 16
This chapter is a series of stories of other people's investment experiences, most of which involve losing money on a tip.
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
Chapter 24


My thoughts from reading the book

Note: these were notes I had written in the front of the book; some of them may not be relevant to the book if I was thinking about something else.

- he was able to make money off the movements of the stock because he knew who the players in the game were and how the players went about making decisions

- he also had developed an intuitive sense of how stock prices tended to behave in certain situations (kind of just a dif. way of saying the same as the thing above). What he was doing is referred to nowadays as technical analysis.

- I wonder why he didn't set up a more sustainable and sophisticated method of taking money from the bucket shops, or why he didn't try to employ more accomplices the way the other guy did (p20)

- people seem to naturally do a type of technical analysis when making decisions based on what those around them are doing. People don't try to understand the fundamentals about a lot of decisions they make, but instead look at the patterns of what others are doing.

- He was able to make money off the bucket shops because they had been set up to prey on very unsophisticated people. You may be able to profit by looking for areas where people are assuming their opponents will be unsophisticated. Maybe penny stocks? idk how those work, though.

- On p50 he mentions that bucket shops were at risk of seeing a run on their establishments just as banks were. You should create a list of all the businesses/institutions that may be at risk of having the same thing happen to them.

- This guy was very lucky to have had a consistent source of starting capital via the bucket shops (ie just basically taking money from them every time he went bust in the real market). It gave him many opportunities to learn from his mistakes.

- One thing I'm getting from this book is that technical analysis really does seem to have worked remarkably well at times.

- The discussion of Polaroid in Why Stocks Go Up (And Down) was really very useful. I wonder if there are any other histories like that out there...

- People who make a living off the stock market seem like they may be living off the crumbs of the companies they are messing around with in the same way that a family of mice can live off the bits of food that a family of humans drop on the floor or leave on a counter.

- On pp63-64 he talks about how it was a mistake to listen to the advice of others to take profits early during a bear market. You need to listen to your own experience.

- Q: What would be the effect on the stock market if you disallowed speculation/investing by individuals via brokerages? What would be the effect if pensions were not allowed to invest in the stock market?

- I need to figure out how I can go about back-testing ideas

- this book really drives home just how common it was to buy and sell on margin

- pyramiding seems to be when you reinvest your profits from your stock holdings to buy / sell short even more of that stock. I think this only works when you can buy and sell on margin (p178)

- While reading p181 it occurred to me that speculators who use solely/mainly TA are just magnifying the effect of the few(?) traders who are making decisions for other (possibly fundamental) reasons

- I should find out if this "line of least resistance" idea has any academic/other support. I'm pretty sure that there are studies out there confirming that people listen to info that agrees with their preexisting bias

- I should learn more about putting my money into a trust as a way of protecting it (pp186-187)

- I like how well-structured this book is (compared to Taleb's "Fooled By Randomness"). It's pretty easy to come up with page-by-page and chapter summaries.

- Q: Is it insider trading if the inside information would influence the price of another stock, and you buy/sell that other stock? A: I would guess yes if the movement of the stock you buy/sell could affect the price of the stock of the company from which the information is coming (ie indirect effects). But in other situations...idk. Although, actually, trading on gov. info is illegal even though it doesn't affect the government, so maybe there's just a blanket ban on using any kind of nonpublic information.

- Add to a checklist for investments: the effect of gov. regulations/laws (pp192-193) and exchange commission rulings (p194)

- Q: p183 suggests that profiting from advance info was illegal; was it? Is that always the same as insider trading?

- p195 he defines a "raid" as unjustified short selling to start a run on a particular stock

- he tells at least three separate stories (as of p204) in which famous/smart investors do the opposite of what some tipster has advised them to do. The stories don't have the smart people all acting for the same reason, though.

- I should see if I can catalogue/test the TA trading rules that Livermore mentions here, eg on p212 he says the stock didn't "act right" in response to his buying it. What could he have meant by that? My best guess is that if you take a good chunk of the supply of stock you should see the price go up unless insiders are trying to quietly sneak out. So "not acting right" meant "not going up by the amount I would've expected". Just a guess, though.

The School of Hard Knocks: The Evolution of Pension Investing at Eastman Kodak

• https://www.amazon.com/The-School-Hard-Knocks-Evolution/dp/1933360011/ref=cm_syf_dtl_txt_13

Soros: The World's Most Influential Investor - Robert Slater

Games intrigued [Soros], all sorts of games. He was especially taken with one called Capital, a Hungarian version of Monopoly. From the age of seven, he played it frequently with the other children, among whom he was the best. The worst was George Litwin. It was no surprise to George's childhood friends that George Soros became a master of high finance, and Litwin...a historian. Winning at Capital all the time proved boring to young George. To liven up the game, he introduced new rules. One was to make the game more complex by adding a stock exchange. When Soros the financier returned to Hungary in the 1960s, he sought out Ferenc Nagel, who asked him what he did for a living. "You remember as children we played Capital?" Soros asked with a smile. "Well, today I do the same." [p23]

The Big Short by Michael Lewis

Amazon page (good source of reviews):
http://www.amazon.com/Big-Short-Inside- ... 0393072231

The First Billion is the Hardest by T. Boone Pickens

II. A Short Chapter-by-Chapter Summary:

1. Blood, Guts, and Feathers
2 "A Big Deal Takes as Much Time as a Little Deal"
3. Starting Over
4. The Bottom of the Canyon
5. Loading the Boat
6. It's All About the Team
7. Learning to Live with Peak Oil
8. Going Long and Scoring Big
9. Stepping Up My Giving
10. "Roll Up the Maps!"
11. Mixing Oil and Water
12. The Biggest Deal of My Career: Wind
13. The Big Idea: An Energy Plan for America

The Great Crash 1929 by John Kenneth Galbraith

Section-By-Section Summary

Foreword to the Third Edition - 3pp

Main point: having a good memory of what's happened in the past is the best way to avoid future bubbles and collapses. This foreword was written right after the stock bubble of the late '60s, so he describes the crazy behavior of that bubble and how it wouldn't have happened if people remembered the crash of '29. He asserts that regulatory action is not enough: "when the memory of the 1929 disaster failed, law and regulation no longer sufficed." 

On the Origins of This Book - 11pp

First page talks about how he started this project in 1954 because he was bored with another book he was working on and a friend suggested writing the definitive account of the Great Depression. The rest of the section (10pp) is spent describing how he was called to testify before Congress once they heard he was working on the book, and the market dropped as he was giving his testimony, so the news printed stories about him and he got tons of angry letters (including death threats) from people. And then some Republican Senator tried to jump on the hate-Galbraith bandwagon by accusing G of being a communist. The section ends with Galbraith remarking that the book didn't sell well at first.

A Note on Sources - 1p

Main point: the vast majority of the book is drawn from WSJ/NYT/mainstream newspaper articles of the day; if he uses another source he indicates the source via footnote

1. A Year to Remember - 5pp

Main ideas:
1) Many people think the crash was a secondary event to the depression; the depression would've happened anyway. But, in fact, "the crash and the speculation that made it inevitable had an important effect on the malperformance of the economy in the ensuing years."
2) 1929 is a good year for social historians to study because it "marvelously illuminated human motives and the very wellsprings of human behavior".
3) He's not out to bash Wall St. - "No one [person] was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decision of hundreds of thousands of individuals."
4) i) He's going to try to explain why things happened (the economics), not just what happened. ii) "a good knowledge of what happened in 1929 remains our best safeguard against the recurrence of the more unhappy events of those days". We can't trust the government to protect us because they'll get carried away with the rest of us in future bubbles.

2. "Vision and Boundless Hope and Optimism" - 28pp

3. Something Should Be Done? - 19pp


4. In Goldman, Sachs We Trust - 23pp


5. The Twilight of Illusion - 22pp


6. The Crash - 20pp


7. Things Become More Serious - 20pp



8. Aftermath 1 - 16pp


9. Aftermath 2 - 24pp


10. Cause and Consequence - 27pp


Related Books to Check Out:

Lords of Finance by Liaquat Ahamed



Check Out:

- brokers' time loans (p26) (what're those?)


Thoughts

- on p15 Galbraith says many lay blame on the Fed for cutting interest rates in the spring of '27. Find out if the Fed (or anyone else) would disagree about that [later: Galbraith himself disagrees on p16]. Find out when the Fed has cut interest rates and by how much and what happened afterwards.

- I'm reading Ch2 right after watching Bernanke give a class on the crash of '08 and I"m really blown away by how similar the two episodes seem. [Later: the similarities are uncanny]

- learn more about how people predict the weather (and earthquakes? is that possible?). From p20 it seems like there may have been some market foreshocks that could have been used to predict the coming crash if someone had the right method of drawing conclusions from the available data.

- What, exactly, is the significance of increased daily trading volume (pp20-22)? It seems like it could increase from at least 3 different causes: 1) an increase in the # of people who are participating in the market (eg people pulling money out of their bank account and putting it in stocks), 2) an increasing focus on the short-term among existing participants in the market, and 3) an increasing use of margin, so that a given person can buy/sell more shares

- while reading Galbraith's description of the stock market's advance and the attendant skepticism of the sustainability of the advance (p20) I'm reminded of the way that people and other animals sometimes behave around some risky activity: the animals get into a group and seem to take turns going one step further. I should look for video examples of this kind of behavior. eg I saw a video of two groups of people getting into a fight, where members of the two groups seemed to take turns making more aggressive moves. And there's that video of the African water buffalo saving the youngling from crocodiles/lions. It seems like each individual of the group may have an inclination to move in a particular direction but needs to make sure that the rest of the group agrees, or else that individual could end up in a very bad situation by acting alone.

- unrelated: Why aren't hedge funds incorporated? What would need to happen for that to be an advantageous form to have the business in?

- unrelated: Estimate the economic benefit a parent would get by being cared for by a child and then see when it would be cheaper to save up to pay for a caretaker and when it would be cheaper to raise a child to do the same job. [later: I would guess it would be cheaper to collect older people together and have them watched over by a smaller number of caretakers rather than have a 1-to-1 ratio of elderly-to-caretakers, in the same way that it's cheaper to collect young children together]

- unrelated: Make a page on the website where I conduct interesting thought experiments, eg "What would happen in the financial markets if we found out an asteroid was going to destroy the planet in 6 months?", "What would happen if stock markets were outlawed?"

The Greatest Trade Ever by Gregory Zuckerman

Amazon:
http://www.amazon.com/Greatest-Trade-Ev ... 427&sr=8-1

this seems like a pretty good summary (I'm saying this before I've read the book):
http://davianletter.com/articles/2010/6 ... cap-review

The Money Masters by John Train

• 2010/07 - Jim Rogers:
  • http://www.cfapubs.org/doi/pdf/10.2469/cp.v27.n4.6
  • I loved reading John Train’s The Money Masters (1994) and learning about great investors, such as John Neff, (Sir) John Templeton, and Peter Lynch. John Templeton said that to get above average return, you have to do what the average person is not doing. I think those beliefs will come back and be popular again.

Vandal's Crown by Gregory Millman

I got this book after seeing that it was recommended on Allston's website. I hadn't heard of it before.