In the past three blog postings, I have listed numbers 4-10 of my top ten books everyone in institutional investment ought to read. Before completing my list, I ought to stop and provide the obvious disclaimers: this list is entirely my personal opinion about books I consider unusually important, influential or interesting; this list does not represent an endorsement by Russell of any of the specific ideas contained in any of the books; and the exact ordering of the list does not mean much.
I did poll a number of colleagues for their own opinions as I formed the list. There are a lot of books suggested that did not make the final list. I am grateful to those colleagues who suggested The Retirement Plan Solution by Don Ezra, Matt Smith and myself (especially those who were serious), but since I doubt it has sold 1% of the number of copies of anything on the final list, it would have been a stretch to include it.
Introduction to behavioral finance
While Nudge, at #8 in my list, has a decent introduction to behavioral finance, I would have really liked to include something devoted entirely to that subject; an investor’s education is incomplete without a grasp of this field. But the best descriptions of behavioral biases are in books which do not talk much about the investment implications of these biases, so they didn’t quite manage to squeeze into my list — books such as Daniel Kahneman’s Thinking, Fast and Slow, or Scott Plous’ The Psychology of Judgment and Decision Making. Similarly, Nate Silver’s The Signal and the Noise, although not an investment book, makes a number of useful points about the nature of prediction and forecasting, that investment professionals need to note.
I would have liked to find room for Benoit Mandelbrot’s The Misbehavior of Markets. One recollection I have of reading that book – which has a black and yellow cover and hence appears similar to the popular series of guides called “such-and-such for dummies” – is being asked by a friend “Is that one of those for-dummies books?” Trust me, it isn’t.
Warren Buffett’s letters are an education in themselves, but don’t count as a book. The letters written as Chairman of Berkshire Hathaway are available at the company’s website. These are all widely quoted elsewhere but, as usual, it’s better to go straight to the original.
John Bogle’s Enough is short, basic and makes some important points well.
Other suggestions included Barbarians at the Gate, Triumph of the Optimists, Success by Ten, A Random Walk Down Wall Street, Animal Spirits, The Madness of Crowds, Economics in One Lesson, and a SMART Approach to Portfolio Management . I am sure I have overlooked other books that deserve recognition. But if I have made people think about their own opinions of what books form the foundation of a good institutional investment education and why, then I consider it a win.
George Akerlof and Robert Shiller (2009). Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton University Press.
John Bogle (2008). Enough: True Measures of Money, Business, and Life. John Wiley & Sons.
Bryan Burrough and John Helyar (1989). Barbarians at the Gate: The Fall of RJR Nabisco. HarperCollins.
Elroy Dimson, Paul Marsh and Mike Staunton (2002). Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton University Press.
Don Ezra, Bob Collie and Matthew X. Smith (2009). The Retirement Plan Solution: The Reinvention of Defined Contribution. John Wiley & Sons.
Henry Hazlitt (1946). Economics in One Lesson. Three Rivers Press (Later Reprint Edition; 1988).
Daniel Kahneman (2013). Thinking, Fast and Slow. Farrar, Straus and Giroux.
Charles MacKay (1841). Extraordinary Popular Delusions and The Madness of Crowds.
Burton G. Malkiel (1973). A Random Walk Down Wall Street. W.W. Norton.
Benoit Mandelbrot and Richard L. Hudson (2004).The Misbehavior of Markets: A Fractal View of Financial Turbulence. Basic Books.
Arun Muralidhar (2011). A SMART Approach to Portfolio Management: A New Paradigm for Managing Risk. Royal Fern Publishing.
Scott Plous (1993). The Psychology of Judgment and Decision Making. McGraw-Hill.
George F. Russell Jr. and Michael Sheldon (2009). Success by Ten. John Wiley & Sons.
Nate Silver (2012). The Signal and the Noise: Why So Many Predictions Fail – but Some Don’t. Penguin Press.
Richard H. Thaler and Cass R. Sunstein (2008). Nudge: Improving Decisions about Health, Wealth and Happiness. Yale University Press.