Summer reading ideas from the UMB Investment Management group
It’s time to get your summer reading program started and UMB’s Investment Management Group wants to help. This year, I have asked a few of our senior investment professionals to offer one of their favorite investment books that have helped shape their decision-making process. See what is hot reading in the investment world below.
Below are our 2019 summer picks for readers interested in learning more about investing.
FOR THE SPECULATOR AND MARKET WATCHER
Spencer Berndt, CAIA
Director of Investment Product Research
“Devil Take the Hindmost; A History of Financial Speculation‡” by Edward Chancellor
Spencer’s story: One of my favorite concepts of Chancellor’s is that speculators who are directionally correct about where the future is heading become impatient in trying to reap the rewards now, thereby driving up prices and creating bubbles. In the end, the theory is often right, but the timing is wrong.
Book description: Edward Chancellor takes readers on a journey that combines history, psychology, economics and sociology in a sweeping story of investing and finances. He reviews speculative folly with a deep dive into financial bubbles from the past 300 years. Ranging from the Dutch Tulip frenzy in the seventeenth century to more recent examples such as Japanese equities in the 1980s, Chancellor explains new research and confronts myths for a high-level view of the events that create or influence financial bubbles.
FOR THE HISTORY BUFF
KC Mathews, CFA
Chief Investment Officer
“The Forgotten Man: A New History of the Great Depression‡” by Amity Shlaes
KC’s Story: If you enjoy American history, this may be a book for you. I believe understanding history can provide hints toward what the future may bring. As Mark Twain said, “History doesn’t repeat itself, but it often rhymes.”
Book Description: In The Forgotten Man, renowned economic commentator, Amity Shlaes, retells the events and aftermath of the Great Depression through the experiences of individual Americans, both known and unknown. She critiques and interprets the actions and policies of Franklin Roosevelt, and whether they helped or hurt the country’s return to economic stability. Dive into her engaging narrative that puts the “forgotten” map at the top of the economic ladder.
FOR THE SCIENCE GEEK
Director of Investment Research
Eric’s Story: This book was one of the first I read regarding risk taking and the impact it has on us physically – specifically how it impacts neurological functions and decision-making. The author is a former Wall Street trader turned neuroscientist, so he writes from a perspective that is directly correlated with our line of work. It was interesting to learn sobering information on some our hard-wired shortfalls in terms of decision-making when under stress. It’s a great introduction to the subject.
Book Description: John Coates, a trader-turned-scientist, reveals the biologic responses and factors that influence decision-making. Specifically, Coates investigates the chemical feedback we receive during times of stress, in pressurized situations, and after a loss or win. Using his knowledge of the trading desk environment, paired with neuroscience, Coates discusses the impacts of gut feelings, judgment and health, and how we can train to strengthen our bodies and minds against stress.
FOR THE COIN FLIPPER
Jason Harrison, CFA
Senior Portfolio Manager
“Thinking in Bets‡” by Annie Duke
Jason’s Story: Because of uncertain outcomes and our loss aversion bias, a primary point Annie makes is that we all suffer from “resulting”. Resulting is our tendency to judge the quality of a decision by its associated outcome. Our minds have a difficult time understanding that we can make a good decision and have a bad outcome. Conversely, we can make a bad decision and have a good outcome. Her contention? This is where the cross-section of luck and skill exist. Misidentifying the two based upon outcomes will lead to poorer choices and even worse results in the future. Understanding our less-than-rational decision-making tendencies can go a long way toward closing the gap between index returns and average investor results.
Book Description Annie is an accomplished poker player, winning more than $4 million in tournament money during her career. Before playing poker professionally, she was conducting graduate level research in psychology at the University of Pennsylvania. During her career, Annie has successfully applied her understanding of how the human mind processes information to increase the chances of winning over the long term. While the odds of success for stock investors are significantly higher than gambling at the casinos, there are parallels between the decision-making processes—in both situations, we can never have all the information and the future is always uncertain.
FOR THE DETAIL HUNGRY
Tom Goetzinger, CFA
Senior Portfolio Manager
“When Genius Failed‡” by Roger Lowenstein
Tom’s Story: As an investment analyst and portfolio manager for almost 20 years, I find it useful to read about market history. I learn the most from books that chronicle mistakes made by investment firms and financial industry leaders, often accompanied by ruinous results for clients, employees, and in some cases, the entire market. Numerous books have been written in this area since the financial crisis of 2008, which is now a decade in the rearview mirror. My favorite is When Genius Failed, which is written about events from a decade before 2008. Its narrative regarding the pitfalls of overconfidence and overleveraged investments reappear a decade later and will likely reappear again at some point in our future.
Book Description: The story covers the creation, initial success and eventual crash of the hedge fund, Long Term Capital Management. The fund employed highly credentialed traders and academics including two Nobel Prize winners. After numerous profitable trades in their area of expertise within bond trading, they eventually branched out into other strategies including the stock market, where they had little to no experience. When both bond and stock markets eventually moved against them, their high use of leverage intensified losses and led to the fund’s rapid and ultimate failure. The book does a good job shedding light on the interconnectedness of Wall Street and the Federal Reserve, especially during volatile markets. And its lessons regarding overconfidence and too much debt are applicable to nearly everyone’s approach to financial management.
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