Showing posts with label bonds. Show all posts
Showing posts with label bonds. Show all posts

The Billion Dollar Mistake: Learning the Art of Investing Through the Missteps of Legendary Investors Review

The Billion Dollar Mistake: Learning the Art of Investing Through the Missteps of Legendary Investors
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I gave it three stars. It was a good book, but not as good as it could have been. How could it have been better?
First, though the introduction indicates that the author had access to many of the investors profiled, there are precious few statements in the investors' own words about what THEY THINK about their mistakes. It seemed like most of the book was just culled from newspaper accounts.
Second, I don't know specifically how the author could have avoided this (admittedly, it's the point of the book I suppose), but I'm uncomfortable with the idea of the guy on the sidelines employing 20/20 hindsight to critique the missteps of the guy who was actually in the arena. A great book called the Halo Effect makes the compelling case that so much supposed business analysis is simply ex post narration of what happened as though it was inevitable (if a new product works, they were bold and smart, if it fails, they "strayed from their core competencies"). For instance, in the Cooperman chapter, Cooperman is criticized for playing in an inefficient market with little information. But that's the whole point: homeruns are found in inefficient markets where no one is looking. If he had been right, we'd all say he was a genius. I guess what I'm saying is that I resist the notion that there is always some folly or brilliance at work in a given investment.
Although I'm skeptical that each mistake can be distilled down to pithy truths as the book implies, I still think it's worth reading. The biographical backgrounds in each chapter are interesting and inspiring to any aspiring investor, and the reader will gain insights into how each investor approaches investing generally, even if that's a more complicated thing than a few bullet points can convey.

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Leo Melamed: Escape to the Futures Review

Leo Melamed: Escape to the Futures
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Commodity Futures have been called "The Last Great Frontier of Capitalism". A characteristic of frontiers is that they produce interesting people. But while we know a good deal about the interesting people in other industries - Bill Gates in software, for example, or Peter Drucker in management consulting - until recently the public has heard little of the human side of the futures business.
A few years ago a remarkable book was published by the options trader Jack Ritchie called God in the Pits - Confessions of a Commodities Trader. The book had much to say about author's spiritual journey and little about the financial markets in Chicago, but he described his motivation for writing the book as follows: "...the common stereotype is that integrity and commodities trading go together like Al Capone and Mother Teresa. While they are seldom accurate, neither are common sterotypes completely erroneous".
Escape to the Futures goes a long way towards dispelling that stereotype, and therefore is a most overdue book. It is the memoirs of Leo Melamed, a former Chairman of the Chicago Mercantile Exchange (known in the commodities world as simply "the Merc") and one of the more important figures in the Chicago financial markets. As well as being better known than Ritchie, Melamed has more to say about his industry. One comes away from the book with an impression of the heroic qualities of the markets as well as an appreciation for the pioneering men who made this new frontier possible. The book's title refers to Melamed's origins. Like that other well known investment figure, George Soros, Melamed is of European Jewish extraction - he was born in Poland. His family managed to escape the Holocaust by fleeing, first to Lithuania, then, barely escaping the Nazi occupation of that country, emigrating to the United States via Japan (pre Pearl Harbour) after a long train ride across the Soviet Union. The twists and turns of this exciting story hints at the origins of Melamed's succ! ess. As Soros has said, describing his experience in the Budapest of 1944: "I learned the art of survival...that has had a certain relevance to my investment career"
Like many careers prior to the arrival of post-industrial society, Melamed's began by accident - he answered an advertisement for a "runner" for what he presumed was a law firm but was in fact a member firm of the Merc. He quickly fell in love with the market: " I was enthralled with the open outcry system of buying and selling contracts, with the speed at which things happened, with the colorful players in this arena of capitalistic hope and sweat." (p.88). This appreciation of what Keynes called the "animal spirits" of capitalism seems to be decidedly lacking these days. In the 1990s, if one want's to be a "player" in the financial markets, the correct route seems to be via a bachelor's degree in business followed by some high-priced graduate study, an MBA or something. Contrast this with the advice the young Jimmy Rogers got in the 1960s: "Go short some beans and you'll learn more in just one trade than you would in two years at `B-School.' "
Now, reading Escape to the Futures will not give you many trading "tips". Great traders are not going to give away their secrets like that. What it will give you an insight into is how an industry gets built. Melamend himself illustrates the phenomenal growth of the futures business in his preface to the book: "In 1971...14.6 million contracts traded on US futures exchanges. Twenty years later, in 1991, the total transactions of futures and options on US futures exchanges was 325 million contracts." How did it happen? Your average B-School guy would attribute the growth to the US dollar de-valuations of 1971 and 1973, to the commodity price booms of the 1970s, and the financial de-regulations of the 1980s. What he is missing is the role played by men like Melamed who had a vision about what they wanted to achieve with thei! r organisations. Reading his book one is struck by how his working days were more those of a politician rather than a trader.
But I use the word politician to mean "statesman", or "leader". One characteristic of such men is vision. Look, for example, at the Merc's International Monetary Market, the futures market for currencies: "Of one thing I was certain by the mid-1970s: agriculture was never going to be the future. But finance was. If the Chicago Mercentile Exchange had any future, it was on the back of the International Monetary Market. But that was something I couldn't prove in 1975 because the currencies and financial futures still had a long way to go. One had to believe" (p. 242).
One of the downsides of financial statesmanship is that you don't get to concentrate as much on making money yourself. For instance, Melamed would show delegations of visitors to the Merc how a trade was executed, but the trade lose money! It is no surprise to learn, at the end of the book, that Melamed is now concentrating more of his efforts these days on building up his own firm, Sakura Dellsher.
In Melamed we get a picture of a man who allied vision with an ability to persuade people of the virtue of his ideas, who knew how to cultivate relationships with people, and who knew how to effectively use his time and resources to achieve his organisation's goals. I commend this book to everyone interested in capitalism as people and not as abstract concepts as taught in the textbooks. Like another great book written by a trader but not about trading - Bernard Baruch's My Own Story - you will get an idea of how one man made things happen..

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The Smart Investor's Money Machine: Methods and Strategies to Create Regular Income (Wiley Trading) Review

The Smart Investor's Money Machine: Methods and Strategies to Create Regular Income (Wiley Trading)
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Kraft delivers an easy to understand, descriptive roadmap for an assortment of investor preferences. By profiling three families (each with diverse generational and risk tolerances), Kraft outlines investment mediums to assist the reader in creating extra income opportunities. Although fictional, each family scenario parallels true-to-life questions and challenges faced in the current financial headwinds.
Suitable for beginners, advanced options traders and investors searching for alternative investment vehicles. I have since focused my 401K monies on dividend paying stocks and MLPs.
If you find yourself empowered by possibilities of trading options as I did, you will want to read Kraft's equally insightful book, Trade Your Way to Wealth: Earn Big Profits with No-Risk, Low-Risk, and Measured-Risk Strategies (Wiley Trading). For more on how Kraft helped me earn 23% and 12% profits in fewer than 2 weeks go to this book review.

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Praise for The Smart Investor's Money Machine
"Kraft writes in a style that is easy to read with attention to a large audience of investors and retirees (current and soon-to-be) that may have avoided some financial market opportunities because of perceived complexities. Bill makes clear sense of investor and retirement income possibilities. Apropos and useful to the financial market today."—Kerry-Ben Kelly, small business owner and friend
"If you liked his first book, you'll love his second. Kraft builds on what the reader learned in his first book by going much deeper into the strategies and by discussing some new products, as well as viewing these from an investment perspective as well as a trading perspective. A must-read if you are serious about wealth accumulation."—Phil Schwegler, Vice President, Investments, Smith Barney
"The Smart Investor's Money Machine is essential reading for investors of all ages. The timeless and tested strategies detailed by Mr. Kraft are well written and logically set forth. Superb information for the investor who desires to learn the intricacies of investing for maximum returns."—Eric Aafedt, Publisher of MarketFN.com

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The Treasury Bond Basis: An in-Depth Analysis for Hedgers, Speculators, and Arbitrageurs (McGraw-Hill Library of Investment and Finance) Review

The Treasury Bond Basis: An in-Depth Analysis for Hedgers, Speculators, and Arbitrageurs (McGraw-Hill Library of Investment and Finance)
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I've been working in Futures & Options research for 3 years now, and this has proven to be the best refernce guide available. Terrence elucidates the concepts and mechanisms underlying the treasury bond basis with eloquence and intellect. His other work, Eurodollar Futures and Options, is also a great reference for the shorter end of the curve.

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The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits) Review

The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits)
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The `Little Book' series continues to produce good work as this 10th installment is an exceptional introductory to our mental traps that we tend to slip into and then often repeat. The book is a quick and enjoyable read and is very clear with only the minimal amount of psychology jargon. This book comes highly recommended for any bookshelf on how to invest better and to make better decisions. Good reading and enjoy the journey of how not to be your own worst enemy :)
A sample of the first few chapters and mental traps are as follows: (seventeen chapters in total)
Chapter 1 - Paralysis Of Empathy Gap
Chapter 2 - Fear/Risk Aversion
Chapter 3 - Overoptimism
Chapter 4 - Authority Respect/Overconfidence
Chapter 5 - Anchoring
Chapter 6 - Information Overload
Chapter 7 - Reason Respecting
Chapter 8 - Conformational BiasAs a side note: I have pointed out in other reviews of additional books below that are in the same genre and which are some of my favorites. So if you like this very good introductory book, then you may be interested in other social influences and hidden traps our minds fall into. If so, I provide the following recommendations: Think Twice (introductory), Influence: The Psychology of Persuasion (polymath classic), How We Know What Isn't So (very good), Mean Markets and Lizard Brains (Hidden Gem), The Psychology of Judgment & Decision Making (Classic), and Poor Charlie's Almanack (Charlie's Insights).
Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin
Influence: The Psychology of Persuasion (Collins Business Essentials) by Robert B. Cialdini
How We Know What Isn't So: The Fallibility of Human Reason in Everyday Life by Thomas Gilovich
Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality by Terry Burnham
The Psychology of Judgment and Decision Making by Scott Plous
Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger by Peter D. Kaufman

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Interest Rate Markets: A Practical Approach to Fixed Income (Wiley Trading) Review

Interest Rate Markets: A Practical Approach to Fixed Income (Wiley Trading)
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Interest rate markets is a different book than many published for the rates space as it focuses on intuition. Unlike many rates books on the market, the aim is not to price complex securities, but rather to understand and forecast the movement of liquid rate products such as Treasuries, mortgages and swaps. There are very few equations in the book and the emphasis is on a logical thought process to forming views on rates.
The book starts out with an introduction to the wide range of liquid products traded in the rates space including bonds, swaps, and futures. Once the basics of these products have been described, basic frameworks around taking views on the outright direction of rates is described. This includes both very long term factors as well as short term data releases. After the basic framework is outlined, common types of rates trades are discussed which allow traders to express more specific views. Examples include swap spreads and carry trades which are not discussed frequently in other books. In addition to trades related to underlying securities, the book addresses interest rate options and their place in a rate portfolio. Finally, practical hedging strategies are expanded upon including pros and cons of using empirical methods such as regression.
Overall, I believe this book would be useful to anyone trying to gain a more intuitive understanding of interest rates and fulfills a needed niche in the space of fixed income books which tend to be either very model intensive or very basic in their discussion.

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How to build a framework for forecasting interest rate market movements
With trillions of dollars worth of trades conducted every year in everything from U.S. Treasury bonds to mortgage-backed securities, the U.S. interest rate market is one of the largest fixed income markets in the world.
Interest Rate Markets: A Practical Approach to Fixed Income details the typical quantitative tools used to analyze rates markets; the range of fixed income products on the cash side; interest rate movements; and, the derivatives side of the business.
Emphasizes the importance of hedging and quantitatively managing risks inherent in interest rate trades
Details the common trades which can be used by investors to take views on interest rates in an efficient manner, the methods used to accurately set up these trades, as well as common pitfalls and risks?providing examples from previous market stress events such as 2008
Includes exclusive access to the Interest Rate Markets Web site which includes commonly used calculations and trade construction methods

Interest Rate Markets helps readers to understand the structural nature of the rates markets and to develop a framework for thinking about these markets intuitively, rather than focusing on mathematical models

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An Introduction to International Capital Markets: Products, Strategies, Participants (The Wiley Finance Series) Review

An Introduction to International Capital Markets: Products, Strategies, Participants (The Wiley Finance Series)
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It is actually a good introduction to capital markets. An interesting book for those students who are entering to this complex industry and knowledge field. Dr. Chisholm develops carefully every subjet in an excelent work.

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Fully revised and updated from the hugely popular first edition, this book is an accessible and convenient one-volume introduction to international capital markets, ideal for those entering or planning to enter investment banking or asset management. As well as serving as an invaluable reference tool for professionals already working in the industry looking to extend their knowledge base it will also benefit all those working in trading, sales and support roles.

Describing how the key products and markets work, who the principle participants are and their overall goals and objectives, Andrew Chisholm provides a thorough overview of the global capital markets. The book covers a wide range of equity, debt, foreign exchange and credit instruments as well as the principal derivative products. In a step-by-step fashion, making extensive use of real world cases and examples, it explains money markets, foreign exchange, bond markets, cash equity markets, equity valuation techniques, swaps, forwards, futures, credit derivatives, options, option risk management and convertible bonds. An extensive glossary also explains concisely many of the ‘jargon' expressions used in the financial markets.

Boasting an international focus, examples are drawn from major international markets around the world. It makes extensive use of numerical examples and case studies to help explain a wide range of cash and derivative products used in the capital markets business. It covers both debt and equity products and includes new material on credit products such as collateralized debt obligations and credit derivative structures; equity fundamental analysis, portfolio theory and convertible bonds. Market data has been fully updated from the first edition and recent events such as the ‘credit crisis' are discussed.

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Trading and Exchanges: Market Microstructure for Practitioners Review

Trading and Exchanges: Market Microstructure for Practitioners
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I have been trading for 8 years. 6 years prop trading, I now run a hedge fund. We make about 10,000 trades/day. I wish I had read this book years ago. I've had to pay Mr. Market a large sum to learn many of these lessons. Larry Harris has written what I consider to be the best book in the field of trading. He covers nearly all topics, from structural & regulatory issues, to descriptions of the players; costs to performance evaluation. Presentation is excellent - the numerous sidebars, tables & graphs serve to illustrate the text. My only complaint is that the book does not take the quantitative side far enough. I recommend a technical appendix plus specific references (perhaps annotating the excellent bibliography) for the mathematically inclined reader.
If you are interested in trading, or curious about the markets, buy and read this book!

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This book is about trading, the people who trade securities and contracts, the marketplaces where they trade, and the rules that govern it.Readers will learn about investors, brokers, dealers, arbitrageurs, retail traders, day traders, rogue traders, and gamblers; exchanges, boards of trade, dealer networks, ECNs (electronic communications networks), crossing markets, and pink sheets.Also covered in this text are single price auctions, open outcry auctions, and brokered markets limit orders, market orders, and stop orders. Finally, the author covers the areas of program trades, block trades, and short trades, price priority, time precedence, public order precedence, and display precedence, insider trading, scalping, and bluffing, and investing, speculating, and gambling.

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Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio Review

Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio
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Luck can go bad. Very bad. But skill is something that's not down to the roll of a dice. "Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio" is a guide to finding the ability to be an agile business person, using one's mind to find the ventures that will make you money and how to avoid the obvious failures. With plenty of stocks tips that encourages keeping a varied portfolio, understanding a business's future, and more, "Better Good Than Lucky" is an ideal read for anyone who wants to treat the market as an informed decision, rather than a fancy slot machine.


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In his work as a financial analyst, Vice President with the American Association of Individual Investors, and frequent contributor to SFO Magazine and Forbes.com, Charles Rotblut came to realize that most average investors are overwhelmed by too much investment information and misled by confusing, conflicting, or unrealistic investment advice. Then, he set out to create a solution: a concise, accessible, and exceptionally useful investment book. In Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio, Charles Rotblut gets back to basic, time-tested investment principles and practices. Instead of wasting time on tricks for beating the market, Rotblut explains the cornerstones of smart investing and shows investors how to apply them, step by step, to create their own luck. ''Maximizing reward is about identifying the bargain stocks,'' as Rotblut makes clear and simple. In easy-to-understand language, he can let everyday investors in on how to: Quickly assess the information provided by the financial media and investment gurus and use it to their advantage to build a winning diversified portfolio; Judge the future profitability of a business by its business model; Read a business s balance sheet, income statement, and cash flow statement for valuable clues into its stock s growth potential; Determine how much a stock is worth by understanding its valuation, which isn't the same as its price; and more. Reliable and user-friendly, Better Good than Lucky is a welcome guide for investors with no time or money to waste.

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The Big Short: Inside the Doomsday Machine Review

The Big Short: Inside the Doomsday Machine
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Based on reading Michael Lewis' Liar's Poker and Moneyball, I wondered whether The Big Short would prove to be entertaining and informative. If you've read some of Lewis' books, you might agree that the "entertaining" part would seem to be a reasonably safe bet. It turns out, it is. The Big Short is fast-paced, straightforward, conversational and salty--very much like his earlier works. Indeed, if you didn't know Michael Lewis had written this book, you could probably guess it. It is easy reading and very hard to put down. In short (no pun), The Big Short doesn't disappoint in being entertaining.
In a sense, this book is similar to Moneyball in that Lewis tells his story by following a host of characters that most of us have never heard of--people like Steve Eisman (the closest thing to a main character in the book), Vincent Daniel, Michael Burry, Greg Lippmann, Gene Park, Howie Hubler and others.
How informative is the book? Well, it may seem that Lewis has his work cut out for himself, since the events of the recent financial crisis are already well known. More than that, lots of people have their minds made up concerning who the perps of the last few years are--banks and their aggressive managers, "shadow banks" and their even more aggressive managers, hedge funds, credit default swaps, mortgage brokers, the ratings agencies, Fannie Mae and Freddie Mac, the Fed's monetary policy, various federal regulators, short sellers, politicians who over-pushed home ownership, a sensationalist media, the American public that overextending itself with excessive borrowing (or that lied in order to get home loans), housing speculators, etc. The list goes on--and on. Okay, so you already know this. The defining aspect of this book, however, is that it asks (and answers) "Who knew?" about the impending financial crisis beforehand. Who knew--before the financial crisis cracked open for everyone to see (and, perhaps, to panic) in the fall of 2008--that a silent crash in the bond market and real estate derivatives market was playing out? Indeed, the good majority of this book addresses events that occurred before Lehman's failure in September of 2008. In describing what led up to the darkest days of the crisis, Lewis does a good job helping the reader to see how the great financial storm developed. All in all, this is an informative book.
Interestingly, in the book's prologue, Salomon Brothers alumnus Lewis explains how, after he wrote Liar's Poker over 20 years ago, he figured he had seen the height of financial folly. However, even he was surprised by the much larger losses suffered in the recent crisis compared to the 1980s, which seem almost like child's play now.
For a taste of The Big Short, Steve Eisman was a blunt-spoken "specialty finance" research analyst at Oppenheimer and Co., originally in the 1990s, and he eventually helped train analyst Meredith Whitney, who most people associate with her string of negative reports on the banking industry, primarily from late 2007. Giving a flavor of his style, Eisman claims that one of the best lines he wrote back in the early 1990s was, "The [XYZ] Financial Corporation is a perfectly hedged financial institution--it loses money in every conceivable interest rate environment." His own wife described him as being "not tactically rude--he's sincerely rude." Vinny Daniel worked as a junior accountant in the 1990s (and eventually worked for Eisman), and he found out how complicated (and risky) Wall Street firms were when he tried to audit them. He was one of the early analysts to notice the high default rates on manufactured home loans, which led to Eisman writing a 1997 report critical of subprime originators. Michael Burry (later Dr. Michael Burry) was, among other things, a bond market researcher in 2004 who studied Warren Buffett and Charlie Munger, and who correctly assessed the impact of "teaser rates" and interest rate re-sets on subprime loans. In 2005, Burry wrote to his Scion Capital investors that, "Sometimes markets err big time." How right he would be.
Greg Lippmann was a bond trader for Deutsche Bank, who discussed with Eisman ways to bet against the subprime mortgage market. Before home prices declined, he noted, for example, that people whose homes appreciated 1 - 5% in value were four times more likely to default than those whose homes appreciated over 10%. In other words, home prices didn't need to actually fall for problems to develop. (Of course, home prices fell a lot.) When Lippmann mentioned this to a Deutsche Bank colleague, he was called a Chicken Little. To which, Lippmann retorted, "I'm short your house!" He did this by buying credit default swaps on the BBB-rated tranches (slices) of subprime mortgage bonds. If that's not a mouthful, read further in the book for a description of Goldman Sachs and "synthetic subprime mortgage bond-backed CDOs." Then there's the AIG Financial Products story, told through the story of Gene Park, who worked at AIG, and his volatile boss, Joe Cassano.
Did I say this book is informative? Here's a bit more: Did you know that a pool of mortgages, each with a 615 FICO score, performs very differently (and better) than a pool of mortgages with half of the loans with a 550 FICO score and half with a 680 FICO score (for a 615 average)? If you think about it, the 550/680 pool is apt to perform significantly worse, because more of the 550 FICO score loans develop problems. Think about how that got gamed.
There's more, but hopefully you've gotten the point. This is a very interesting, entertaining and informative book that accomplishes what it sets out to do. Chances are you'll enjoy it.


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Trading for a Living: Psychology, Trading Tactics, Money Management Review

Trading for a Living: Psychology, Trading Tactics, Money Management
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If somebody bought, read and judged the book by whether it could really help him or her to go "trading for a living", that somebody would definitely be disappointed. Even the author himself pointed out that the success rate for the conversion of ex institutional traders to independent traders was very low owing to the much higher psychological load of trading one's own money than that of trading OPM.
Despite the over-promise of the book title and the second half of it discussing mostly technical tools, the book is quite well written. There are plenty of bright ideas, some with originality that can be attributed to the author's M.D. and psychiatrist background. In particular I like the following points much:-
- That trading is a minus sum game (considering commission and slippage) and the mass media or gurus or prevalent market view are almost always wrong.
- The analogy of the market as an ocean and a huge crowd of people, in either case an individual can have no control of but have to follow (or leave) emotionlessly for long term profit.
- The analogy of Alcoholic Anonymous with Loser Anonymous that requires the same treatment for true recovery, whereas accepting oneself as an alcoholic or a loser is the very first step of healing.
- The need for discipline and patience as individual traders' only weapon to against institutional traders advantages in faster information, better research reports, lower psychological burden for trading OPM, etc
- Price is a psychological event, a momentary balance of opinion between bulls and bears, its pattern reflects the mass psychology of the market.
- Last but not least, the opening prices are determined primarily by amateurs whilst the closing prices are determined by professionals.
In short, the book is well worth the price and I do recommend it to those who study continuously for self improvement in their trading. Remarks:- The author claimed that he personally did so, too.

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Trading for a Living Successful trading is based on three M's: Mind, Method, and Money. Trading for a Living helps you master all of those three areas:* How to become a cool, calm, and collected trader* How to profit from reading the behavior of the market crowd* How to use a computer to find good trades* How to develop a powerful trading system* How to find the trades with the best odds of success* How to find entry and exit points, set stops, and take profitsTrading for a Living helps you discipline your Mind, shows you the Methods for trading the markets, and shows you how to manage Money in your trading accounts so that no string of losses can kick you out of the game. To help you profit even more from the ideas in Trading for a Living, look for the companion volume--Study Guide for Trading for a Living. It asks over 200 multiple-choice questions, with answers and 11 rating scales for sharpening your trading skills. For example: Question Markets rise when* there are more buyers than sellers* buyers are more aggressive than sellers* sellers are afraid and demand a premium* more shares or contracts are bought than sold* I and II* II and III* II and IV* III and IVAnswer B. II and III. Every change in price reflects what happens in the battle between bulls and bears. Markets rise when bulls feel more strongly than bears. They rally when buyers are confident and sellers demand a premium for participating in the game that is going against them. There is a buyer and a seller behind every transaction. The number of stocks or futures bought and sold is equal by definition.

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Lessons From the Trader Wizard Review

Lessons From the Trader Wizard
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If you have traded for some time don't use money and time on this book. This book is for the beginner who wants to have some understanding of the markets. It is very superficial in its description.

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Part 1 What is the Market? What is Trading?1. Getting your head around capital markets and your place in itWhat is the market?Stop listening & talking; start reading & thinking, then doing2. Deciding to self-trade securities, get help, or do a little in betweenDo you really want to be a professional trader?3. Choosing your advisor carefullyChoosing advice & administration from the sell-sideLicensed buy-side portfolio managerChoosing a fee-based financial plannerAdopting a published portfolio: A case of the blind leading the blindMarket advisory letters: A few things to know4. The purchase of investment products called mutual fundsThe case for mutual fundsThe case against mutual fundsOpen-end load fundsOpen-end no-load funds5. So, Mr. Trader, you decided to take control of your own affairsBuilding a trading planThree basic aspects of markets you will have to learnFive mistakes even professional traders makeA strategy for the conservativehow to deal with inflationA strategy for the enterprising trader; zero in on corporate managementA strategy for the speculative trader; seeking hidden opportunityPart 2 Cara s Approach to Trading Bonds, Bond Funds & Cash1. What is a bond?How interest is calculated & paidHow bonds are ratedDifferences in bondsHow to read bond quotations & figure yieldsAbout prices & yields of bondsWhat you should consider before trading bondsThe relative safety of fixed income securitiesGuidelines for trading the bond marketThe yield curve2. Choosing between bonds & bond fundsOpen-end bond fundsClosed-end bond fundsRetractable bond fundsHigh-yield bond fundsBond ETFs3. Money market funds: Cash is an asset class tooPutting money to work to preserve capital & beat inflationPart 3 Trading Stocks (Also Called Equities)1. Macro-economics: where public and private sectors meetTrying to understand economics, the Fed & the marketEconomic analysis protocols I ve used for over 20 years & still recommend2. Fundamental (Corporate) DataHow to read & analyze corporate financial dataHow to read a corporate balance sheetHow to read the statement of incomeQuick review of corporate resultsA proposed set of financial statements3. Combining Corporate and Market Data for Quantitative AnalysisThe quant gurus The automated decision system gurus 4. Technical (Market Data Analysis)Technical analysis studiesWhen dealing in price series data, the subject is timingUnderstanding my approach to technical analysis5. How equity markets are sliced & diced6. CountriesTrading considerations of foreign stocksTrading considerations for Dow 30 stock watchersCanadian stocksLatin American stocksBritish and European stocksAsia-Pacific stocks7. Knowing the playing fieldA rising tide floats all boats (and vice versa)A study of market interrelationshipsFastest moving industries and groupsBuying big-cap stocks and ETFsBuying small-cap and mid-cap stocks and ETFs8. Selecting equity mutual fundsThe importance of what to buy9. About growthSearch for growth-oriented common stocksDifferentiating the valuation of growth from priceHow stupid can one get?How to relate future earnings and current market pricesA growth stock price evaluatorFinding growth stocks objectivelySeeking growth from well-established companiesFinding growth potential in unseasoned companies10. About Value11. Growth + Approximate Fair Value = Quality [the Cara 100 concept]12. The Importance of What to Buy13. About Timing: The Cara Market Phases Model and Oscillator14. Preferred, Rights & Warrants15. Special Situations16. The How To guidelines on the Mechanics of Buying & SellingPart Four

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Trader's guide to the repo market Review

Trader's guide to the repo market
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This paperback book is intended to be a useful primer for both bond traders and investors involved in the enormous US bond- and derivatives-backed repurchase agreement (repo) market. It contains information on how repos are constructed and how they work, as well as discussing the many repo-related defaults that ended up forcing major structural changes in how the instrument is priced as well as forcing the creation of legal contracts that have ensured greater safety for investors since the mid 1980s. Repos were the single instrument that allowed many investment firms and hedge funds to leverage themselves up so they could underwrite huge positions in exotic derivatives ahead of the 2008 default. It's a book about leverage and its inherent risks and how everyone, even individual investors, probably has been an "owner" of a repo at some point. That's because even most large mutual funds also use the overnight repo market as a venue in which to park cash and receive a market return. Though out of print, the book is still available through etaylorrepo@gmail.com.

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A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin (Wiley Trading) Review

A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin (Wiley Trading)
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Thank you to John T. Morris for buying "A Trader's Money Management System" book and for reading it. And, though his review was less than glowing, I appreciate his comments here on Amazon.com because it opens up a valuable dialogue for traders about "effective" money management.
In response to his comments, let's just say I'm the first to admire the work of Douglas, Elder and Tharp -- and encourage anyone not familiar with their work to study them. My concern for Morris is that he makes no mention of Nauzer Balsara or Ralph Vince -- arguably the two greatest mathematicians in the field of trading. These men are mentioned in my book because their timeless concepts (both wrote books over 15 years ago) are the basis for truly "effective" money management.
With that said, many will agree that Balsara and Vince, while they are pure genius, can be at times difficult to comprehend for the new trader -- and even for some very seasoned traders. What "A Trader's Money Management System" does for the reader, is to make some of these complex concepts -- like using the risk-of-ruin tables and optimal f formulas -- easy to understand and instantly implement.
Apparently my simplicity in the book has worked since Morris says in his review that "...I do give this book two stars rather than one because it does contain some ideas that I have never run across before in my study of trading: The Risk of Ruin concept plus optimal percentage formula to determine the amount of equity capital to be risked on any one trade...".
If he has gained that insight from the book, then he is one step closer to developing more "effective" money management. The next big step for him would be to realize that there is no "magic percent" to risk on each trade. The 2% figure is purely an example and a frame of reference for the reader and that is why there is an "Important Note" stated when ever the 2% figure is mentioned. The important note directs the reader to Chapter 9 so that they can use the risk of ruin tables and optimal f formulas to calculate the exact amount that should be risked on each trade.
When Morris states that "...except in very exceptional cases, 2% is way too much to risk on a trade and that it should be more like half at most..." he is not basing his analysis on any mathematical probabilities. Instead, it's more of a hunch, since he's taking numbers out of a hat from interviews in the Market Wizards book. He doesn't know what the pay off ratios or win ratios for the traders interviewed were.
By looking at page number 79 in "A Trader's Money Management System" you'll see that my recommendation for a trader producing a win ratio of 35% (meaning you are winning only 35% of your trades) and a payoff ratio of 2 to 1 (meaning for every dollar you lose you earn 2 dollars) -- they should be risking only 1% . Where as on the same page of the book you'll see that if you have a win ratio of 50% and a payoff ratio of 3 to 1 you would in fact be able to risk 10%.
Why can one trader risk only 1% and another risk as much as 10%? It is simple, from a mathematical probability, their historical performance warrants -- less risk -- OR -- more risk -- depending on how well they trade.
I've been working with traders for over ten years and have to say that my passion is trading and education. Hopefully this response to John T. Morris will give other traders, if not Morris himself, some insight into effective ways to structure their risk -- depending on what their current trading results are telling them through their win ratio and payoff ratio.


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Fiasco: The Inside Story of a Wall Street Trader Review

Fiasco: The Inside Story of a Wall Street Trader
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There are several very interesting parts of this book, the most notable being the chapters (4, 7 - 10) in which Mr. Partnoy gives a high level description of some of the transactions that he was involved in. Some of his anecdotes, particularly those in which he discusses the atmosphere in an investment bank around bonus time (pg.40 - 42, 202 - 205), are pretty amusing and dead on accurate. The author's descriptions of some of his deals are clearly told from a junior banker's perspective, but they do a good job of putting forth what was being done, how it was being done, what everyone's perceived incentives for the transaction were, the work required to get the deal done, what kind of money, and importantly what kind of fees were involved. In this regard, the book offers more than both "Liar's Poker" by Lewis and "When Genius Failed" by Lowenstein.
Like all books written by former investment bankers the book contains liberally sprinkled anecdotes regarding job interviews from hell, the ridiculous daily escapades that can occur on a trading floor, strip clubs, the lack of personal lives, gambling trips and other stories which could easily have been pulled from the pages of Mr. Lewis's book or "Monkey Business" by Rolfe and Troob. All of these shenanigans culminate around the bank's (in this case Morgan Stanley), or more specifically, his group's annual sporting clay outing, FIASCO. The book also suffers from a somewhat poorly defined timeline and the lack of a defining event which drives the story. Due to these faults, it is at times little more than a book about the evils of investment bankers, the ignorance of their customers, all put forward to enforce Mr. Partnoy's somewhat guarded thesis; Derivatives are used by organizations that are legally prevented from investing in certain areas in order to skirt those laws.
This is a good book that could have been better, the occasions where it shine through make it worth reading, but also unfortunately let us know the author could have produced a somewhat better product.

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FIASCO is the shocking story of one man's education in the jungles of Wall Street. As a young derivatives salesman at Morgan Stanley, Frank Partnoy learned to buy and sell billions of dollars worth of securities that were so complex many traders themselves didn't understand them. In his behind-the-scenes look at the trading floor and the offices of one of the world's top investment firms, Partnoy recounts the macho attitudes and fiercely competitive ploys of his office mates. And he takes us to the annual drunken skeet-shooting competition, FIASCO, where he and his colleagues sharpen the killer instincts they are encouraged to use against their competitiors, their clients, and each other. FIASCO is the first book to take on the derivatves trading industry--the most highly charged and risky sector of the stock market. More importantly, it is a blistering indictment of the largely unregulated market in derivatives and serves as a warning to unwary investors about real fiascos, which have cost billions of dollars.

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