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Ask HN: What are the must-read books about economics/finance?

446 points by curiousgal ↗ HN
Hey HN,

I am pursuing an engineering degree in Statistics, I hope to get into finance so I am interested in knowing what books you consider a must-read for someone who doesn't know almost anything about economics (from a philosophical point of view; positive vs normative economics) and finance in general to help them grow intellectually.

Thanks!

273 comments

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tom_b
Hi,

I found Larry Harris' Trading and Exchanges: Market Microstructure for Practitioners a solid introduction to market making and trading. Terms and concepts are easy to pick up from the text. I was comfortable enough after reading it to skim stats journal papers talking about market making models. The Stockfighter team had mentioned it in older threads here. It's expensive, but I just borrowed it from the library at my university instead of buying.

I also like The Elements of Statistical Learning which is free from the authors (http://statweb.stanford.edu/~tibs/ElemStatLearn/download.htm...). Although it isn't specifically about economics or markets, you should at least read it.

I'm at a loss on general economics books.

curiousgal
I've actually been reading The Elements of Statistical Learning (The French version at least) and I've found it extremely interesting.

Thank you Tom!

fitzwatermellow
Alternatively, don't learn from books, but the markets themselves. Open a Paper Trading account via Think or Swim. Begin a steady diet of Bloomberg / WSJ / CNBC every day. Whenever a word or idea is mentioned that you don't understand, Google it or consult Investopedia. Figure out what the Fed actually does. How debt and credit markets work. The microstructure of physical and electronic commodities trading. Maybe skim an online "Stochastic Calculus" class. Join Quantopian and master every algorithmic strategy known to humankind. Dive deep into cryptocurrency and blockchain technologies.

And who knows, perhaps one day you'll invent something that obviates the need for a global system of monetary trust ;)

hga
While I didn't take it as far as faux playing the market, reading/skimming my father's copy of The Wall Street Journal from 3rd through 12 grades, roughly all of the '70s, a period with very ... interesting economics, especially our worst post-New Deal in your face government interventions (Nixon's Wage and Price Controls, which were not lifted for petroleum or natural gas until Reagan, which created the "Energy Crisis" more than any OPEC embargo, then again, we were also allowed to own gold again), did me as much good as reading the books I've commented on in this thread.

Don't know if the WSJ is still a good source today, but "a steady diet" of one or more of these day to day sources and watching what they get right and wrong will do you a world of good.

tmaly
Economics in One Lesson by Henry Hazlitt

Human Action by Ludwig von Mises

chrismealy
These books are just old reactionary propaganda. If that's your thing there's much better reactionary propaganda around.
loki49152
"Reactionary propaganda" is code for "true".
dmfdmf
What are you a communist? Talk about old.

BTW, you should also read Hazlitt's "The Failure of the 'New Economics' ". Hazlitt shredded Keynes and doesn't pull any punches. Too bad nobody listened to him.

wyclif
I wouldn't be so quick to dismiss these if I were you. One needn't be a free-market capitalist, FWIW, to get a lot out of Hazlitt's book in particular. It's very practical.
tiatia
Ludwig von Mises. The master of market economics that never understood capitalism.

"This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming. Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for nonexisting capital goods. Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too."

What he failed to understand, that in capitalism -basically give or take after 1750 in the western world - complex production has to be pre-financed and EVERY boom leads to a credit expansion. The bigger the boom, the bigger the expansion. It is tragic, that he had deep insights into market economy mechanism, but not into capitalism. He was still dreaming of a treasure box full of gold in the cellar of a company that the company uses to build things. The biggest driving force of capitalism is...debt. Debt that has to be serviced with new debt. More debt.

tiatia
Downvote but no reply. Wow. Arguments... :-)
fatdog
Mark Joshi's "The Concepts and Practice of Mathematical Finance" came recommended to me by some people in the field as a foundation. I found it quite readable.
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mitchelldeacon9
Here is my short list of favorite books on finance and economics:

FINANCIAL SECURITIES / BANKING / VENTURE CAPITAL

Bruck, Connie (1988) Predator's Ball: Inside Story of Drexel Burnham and Rise of Junk Bond Raiders

Draper, William (2011) Startup Game

Graham, Benjamin and Jason Zweig (2006) Intelligent Investor, revised ed.

_________ and David Dodd (2008) Security Analysis, 6E

Greenblatt, Joel (1999) You Can Be a Stock Market Genius

Greenwald, Kahn, Sonkin, Biema (2001) Value Investing: From Graham to Buffett and Beyond

Henwood, Doug (1997) Wall Street: How It Works and for Whom

Levitt, Arthur (2003) Take on the Street: How to Fight for Your Financial Future

Lewis, Michael (1989) Liar's Poker: Rising Through the Wreckage on Wall Street

_________ (2010) Big Short: Inside the Doomsday Machine

STATISTICS

Ayres, Ian (2007) Super Crunchers: Why Thinking by Numbers is the New Way to Be Smart

Bernstein, Peter (1996) Against the Gods: Remarkable Story of Risk

Kahneman, Daniel (2011) Thinking, Fast and Slow

Silver, Nate (2012) Signal and the Noise: Why So Many Predictions Fail, but Some Don't

Taleb, Nassim Nicholas (2005) Fooled by Randomness, 2E

_________ (2010) Black Swan: Impact of the Highly Improbable, 2E

BUSINESS DEVELOPMENT / ENTREPRENEURSHIP / INNOVATION

Christensen, Clayton (1997) Innovator's Dilemma

Stone, Brad (2013) Everything Store: Jeff Bezos and the Age of Amazon

Wallace, James and Jim Erickson (1992) Hard Drive: Bill Gates and Making of the Microsoft Empire

Walton, Sam with John Huey (1992) Sam Walton: Made in America

Wilson, Mike (1996) Difference between God and Larry Ellison: Inside Oracle Corp

POLITICAL ECONOMY / THEORY / ECONOMIC HISTORY

Arrighi, Giovanni (1994) Long Twentieth Century

Braudel, Fernand (1979) Civilization & Capitalism 15th-18th Century, vol. 3: Perspective of the World, trans. Siân Reynolds

Brechin, Gray (2006) Imperial San Francisco: Urban Power, Earthly Ruin

Heilbroner, Robert (1999) Worldly Philosophers: Lives, Times & Ideas of Great Economic Thinkers, 7E

Marx, Karl (1867) Capital, vol. 1

Stiglitz, Joseph (2003) Roaring Nineties: A New History of the World’s Most Prosperous Decade

_________ (2010) Freefall: America, Free Markets and the Sinking of the World Economy

Vallianatos, E.G. (2014) Poison Spring: Secret History of Pollution and EPA

Vilar, Pierre (1976) A History of Gold and Money: 1450-1920

Yergin, Daniel (1992) Prize: Epic Quest for Money, Oil and Power

Would enjoy email correspondence with anyone interested in these subjects: mitchelldeacon9@gmail.com All the best

wallace_f
If you want to get a picture and understanding of the development and history of economic thought I second this suggestion of the Worldly Philosophers. It is very readable. It won't help you at all with a job in finance, but it will make you a more informed citizen, and better able to understand 'how the world works.'
tomrod
Great list! See my email in my profile.
bennesvig
Basic Economics by Thomas Sowell is the book that got me interested in economics. It's a large but easy to understand read.
thr0waway1239
Thomas Sowell books which stay within the boundaries of economics are all excellent and very readable. I also recommend Applied Economics - which is more practical than Basic Economics.

A funny and probably relevant piece from Joel Spolsky:

"Super quick review if you haven't taken any economics courses: econ is one of those fields that starts off with a bang, with many useful theories and facts that make sense, can be proven in the field, etc., and then it's all downhill from there. The useful bang at the beginning is microeconomics, which is the foundation for literally every theory in business that matters. After that things start to deteriorate: you get into Macroeconomics (feel free to skip this if you want) with its interesting theories about things like the relationship of interest rates to unemployment which, er, seem to be disproven more often than they are proven, and after that it just gets worse and worse and a lot of econ majors switch out to Physics, which gets them better Wall Street jobs, anyway. But make sure you take Microeconomics, because you have to know about supply and demand, you have to know about competitive advantage, and you have to understand NPVs and discounting and marginal utility before you'll have any idea why business works the way it does."

http://www.joelonsoftware.com/articles/CollegeAdvice.html

samselikoff
Wanted to second Sowell's works, surprised to see him mentioned only once here. He's very accessible and values simplicity and clarity above all else in his writing. As he says,

"If academic writings were difficult because of the deep thoughts involved, that might be understandable, even if frustrating. Seldom is that the case, however. Jaw-breaking words often cover up very sloppy thinking. It is not uncommon in academic writings to read about people “living below subsistence.” The academic writers I edited seemed to have great difficulty accepting my novel and controversial literary doctrine that the whole purpose of writing is so that people can read the stuff later on and know what you are trying to say. These professors seemed to feel that, once they put their priceless contributions to mankind on paper, a sacred obligation fell upon the reader to do his damndest to try to figure out what they could possibly mean."

http://www.tsowell.com/About_Writing.html

kejaed
I'm curious, what exactly is an engineering degree in statistics?
pfarnsworth
In France, Statistics is considered part of engineering.
davidivadavid
That's not quite correct.

However, "engineering" in France is more of a title than a field. It corresponds to all degrees delivered by the écoles d'ingénieurs which, although they were intended to create engineers, have since evolved to meet the requirements of the job market, and have kept their name although their teachings aren't quite as strictly engineering-related as they used to be.

So yeah, you could get a degree from an engineering school that's mostly about statistics. But you could also learn about statistics while doing a math degree at the university. It's just some terminological oddity coming from our weird system.

kejaed
Thanks for the explanation.
fiatjaf
I have news for you: statistics is totally unrelated to economics. Better rethink everything you think you know.

For people wanting recommendations, I suggest Carl Menger's Principles of Economics, which has saved me from stupidification on college.

pyromine
This is a completely unrealistic statement. Our models are imperfect, but with ever increasing economic data there is ever increasing opportunity to utilize statistics with economic and financial data.

In fact look in to the field of econometrics and unless that field is a fantasy, there is a huge relation between statistics and economics.

fiatjaf
That field is obviously a fantasy.
hkmurakami
A random walk down wall Street

Reminisces of a stock operator

When genius failed

Unconventional success

And generally just read financial news and follow markets until you develop a sense for spotting BS.

pjmorris
Glad to see 'When Genius Failed' (Lowenstein) here. I felt like it was the perfect sequel to 'Liar's Poker', Michael Lewis' first book on his life as a bond trader at Salomon Brothers in the 1980's. I feel like these two books are valuable, even essential, background for studying finance as practiced by Wall Street.
p4wnc6
In addition to the many fine recommendations already on the thread, I enjoyed Winner's Curse and Irrational Exuberance.
zallarak
Books about economics- read Keynes and Friedman.

Economic history- lords of finance, too big to fail.

Most quant finance books are low quality and I'd suggest avoiding them.

jmcgough
A Random Walk Down Wallstreet.

Great introductory book on investing, especially if you're interested in personal finance.

n00b101
Options, Futures, and Other Derivatives by John Hull

Principles of Corporate Finance by Richard Brealey, Stewart Myers, Franklin Allen

Traders, Guns and Money: Knowns and unknowns in the dazzling world of derivatives by Satyajit Das

tedunangst
Second vote for Hull.

Corporate Finance by Stephen Ross is another text. I'm not sure how it compares to Brealey.

crdoconnor
Traders, Guns and Money - Satyajit Das

Debunking Economics - Steve Keen

The Volatility Machine - Michael Pettis

eth0up
Road to Serfdom, by F.A. Hayek?
quantumhobbit
Very much worth reading and not just to prove your right wing or libertarian bonafides.

I think the essence of good economic thinking is understanding unintended consequences and reading the road to serfdom is a great way to really think about unintended consequences. Basically that well-meaning policies that have a side effect of centralizing power tend to do more harm than good.

hga
The single most interesting thing for me was the information theoretic, at least in style, exposition on how trying to centralize all economic decision making at the top of society simply can not work.

Also points out how essential economic freedom is to all other freedoms, for if all jobs come from the state, to disagree with it ... well, at the extreme, as two roommates from the PRC in 1988 explained it to me, the biggest change in their lifetimes was how getting on the wrong side of the local political committee was no longer an automatic death sentence through their refusing to issue you food ration coupons, it just meant you had to spend more money buying food on the free market.

Wikipedia entry is here, haven't reviewed it except to note it has links to condensed versions (Hayek was amazed at how well the Readers Digest did it) and citations of the published editions: https://en.wikipedia.org/wiki/The_Road_to_Serfdom

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triangleman
This one provides a great foundation for how to think about economics before you get into the details. It's a must-read.
kevinburke
(Economics major and longtime econ book/paper reader here) I very much enjoyed The Cartoon Introduction to Economics as an introduction to microeconomic concepts: http://standupeconomist.com/cartoon-intro-microeconomics/

It's extremely readable and funny and covers most of the situations in real life where you can apply economic concepts to understand why something is the way it is.

Understanding why countries and economies grow (and why some grow faster than others!) doesn't always fall under the "economics" umbrella but is really useful for informing policy (and a useful reminder these days, when both US presidential candidates rail against trade agreements). "From Poverty to Prosperity" lays out a very readable and convincing argument for how countries have grown and become rich. https://www.amazon.com/Poverty-Prosperity-Intangible-Liabili...

For finance I very much enjoyed The Intelligent Investor, which also (apparently) inspired Warren Buffett's investing philosophy. https://www.amazon.com/Intelligent-Investor-Definitive-Inves...

atdrummond
Indeed, Buffet worked at Graham's (the author of The Intelligent Investor) partnership.
blobbers
This is a common misunderstanding. Buffett Partnership Ltd., Buffett's initial hedge fund, was very much was guided by the cigar butt style investment principles of Graham.

When Buffett bought Berkshire Hathaway a few years after closing the partnership, his investment philosophy had changed. Your best bet to understand his investing is to simply read his letters.

He may come across as a bit folksy or country bumpkin, but he's fairly clear in his methodology.

Here are some links you may find helpful: http://www.rbcpa.com/WEB_letters/WEB_Letters_pre_berkshire.h...

http://www.berkshirehathaway.com/letters/letters.html

Enjoy.

thanatropism
I mean, much of Graham's "investment philosophy" has been thoroughly invalidated by the Modigliani-Miller theorem published in the 1960s. But like Deepak Chopra, he's still around!
tim333
I'm not sure how a theorem is even supposed to invalidate a philosophy. Invalidation is normally done by experimental evidence not making up a theorem.
tim333
Aside from that modigliani-miller's theorem "that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed." has basically nothing to do with Graham's idea that in the real world with bankruptcy costs, agency costs, asymmetric information, and an inefficient market you should seek a margin of safety in investment. Graham's ideas have much empirical evidence and are completely unlike Chopras nonsense. See The Superinvestors of Graham-and-Doddsville for details, written by Warren Buffett who has quite a good record in this stuff https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...

http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984....

soVeryTired
How well do the assumptions behindd modigliani-miller match what happens in the real world?

I think 'invalidated' is a little strong. Do be aware that within economic models, the map is not the territory.

semi-extrinsic
Well, it assumes no taxes (so it would only apply to Apple et al.), and also symmetric information and an efficient market (which are both debatable).
soVeryTired
The assumptions are extremely strong, and the theory is not robust to changes in those assumptions. Agree?
oli5679
There is a reasonable case that 'value' (low beta) stocks exhibit excess returns in equity markets. See Fama & French

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.459...

M&M says there shouldn't be 1st order implications for a firm's dividend payout ratio on its stock price (there are potential effects caused by taxes, agency and signalling that they assume away for simplicity).

However, other popular value metrics such as low price to earnings, market cap to book value, historic beta or past/future earnings growth are not affected by M&M. The efficient market hypothesis is an assumption rather than an implication of the theorem and there is a good empirical case for the combination of value investing and leverage.

unixhero
Thank you, now this thread is going somewhere. Popcorn time
crispytx
The Intelligent Investor by Benjamin Graham

One Up on Wall Street by Peter Lynch

totalZero
+1 for One Up on Wall Street. A very smart and practical read.
itscharlieb
The Alchemists: Three Central Bankers and a World on Fire - Neil Irwin

Great account on central banking in general and central banking policy during the 08-09 crisis in particular!

gtrubetskoy
To better understand our monetary system I highly recommend watching the "Money as Debt" movie. It's on youtube as well as http://www.moneyasdebt.net/ (which I think links to y/t anyway). It provides a pretty good explanation of gold-backed vs credit-backed money and is fun to watch.
chiliap2
One I don't see recommended very often is: Fortune's Formula. It describes the lives of Claude Shannon and Ed Thorp (author of Beat the Dealer) and how they use the Kelley formula in both gambling and investing. The Kelley formula, as the book explains, is a formula for determining the optimum amount to bet on a wager (or investment) if you know the edge you have over the house.