I've mentioned Michael Lewis' best-selling The Big Short a few times recently, mainly because it's one of the most enjoyable business books I've ever read. I thumbed through it again and wanted to share my "takeaways" from the book:

The Ratings Agencies are a Joke – I've never paid much attention to ratings agencies, simply because they weren't part of my world. Having read the book, though, it's astonishing to me that these organizations are still in business, let alone remain as large, publicly-traded corporations. They gave AAA ratings to virtually every financial instrument that the investment banks paid them to "rate." It would be like finding out Underwriters Laboratories have been bribed by shoddy toaster manufacturers whose products were causing house fires all across the nation. Why Moody's, Fitch, and S&P haven't gone the way of Arthur Anderson is beyond me.

The Shorts, As Usual, Are the Good Guys – All the heroes in the book are shorts. They're smart, cynical, and discerning. There's one clever short for every 999 frat-boy, rah-rah bulls.

The Shorts, As Usual, are Shunned by Everyone – In turn, the shorts – as usual – are held in contempt by everyone else. Before they were proved right, they were universally laughed at. The bright young chaps at Cornwall Capital were referred to as "Cornhole Capital" by the investment banks whom they were trying to land as their brokerage.

The Most Interesting Investors are Kooks – Michael Burry and Steven Eisman, who receive most of the attention in the book, are total characters. I find them fascinating. The world seems fixated on Warren Buffett, who yuck-yucks it up in Omaha playing his banjo for BRK investors and has this Sweet Old Uncle schtick going. I'd rather spend 30 minutes with Steven Eisman than an entire day with Warren Buffett, no question about it.

Steven Eisman would be a Sloper – Added to which, if Eisman hung out on blogs, I imagine he'd be here or – more likely – Zero Hedge. The guy is cool.

The Spirit is Willing, the Flesh is Weak – Michael Burry's investors were perfectly fine with him as long as he was cranking out multi-hundred percent returns in the stock market. But when he took on a truly far-sighted, daring bet by putting everything into CDO swaps, they turned on him. They sent him nasty emails; they threatened him; they never stopped making their doubts clear. In the end, his bet more than doubled the size of everyone's portfolio. My impression is that the investors took their gains without so much as a "sorry" for doubting him. I feel bad for the guy, since he was so alone all that time.

Investment Bankers Put Themselves First. Period. – My contempt for the likes of Goldman is well known here, but all the investment bankers in the book are shown to be interested in one thing and one thing only – – getting as much money for themselves as they can. The notion that investment banks put their customers first is a riot.

Rich White Guys Rarely Suffer Consequences – Read about Joe Cassano of AIG (a firmly effectively destroyed) or Howie Hubler of Morgan Stanley (who helped deliver a $9,000,000,000 loss to his employer) and see what the consequences for them were. Since some poor black man who steals $100 gets thrown in prison for years, one would assume these guys would have already been put to death by lethal injection. Nope – – they got paid hundreds of millions and went on their merry way.

Being Right is Overrated – In the end, when the likes of Steven Eisman and Michael Burry were shown to have been right all along, there was no celebration in their honor. Nobody held a ticker-tape parade. Even they, the victors, in spite of now being tremendously rich, felt the victory was somewhat hollow. We might collectively want to keep this in mind, since the victorious conclusion of a multi-year trade thesis might be more of a let-down than any of us imagine.

In spite of the cynical conclusions drawn from this book, I strongly recommend it as a thoroughly enjoyable read.

I imagine most of you have heard of The Big Short by famed author Michael Lewis. It's been a best-seller for weeks.

One might assume that I would be standing in front of his publisher's office when the book came out to get the first copy, given the subject matter. Well, I was awfully interested, so a day or two after it came out, I went to Amazon to order it. I was surprised to see that there were many reviews, and almost all of them were one star (which is the worst). 

I thought – wow, Lewis finally has a stinker on his hands, after a series of best-sellers! What I didn't realize, since I didn't read the reviews, was that all those one-stars were simply people griping that the book wasn't on the Kindle! The nasty reviews had nothing to do with the content; the "reviewers" hadn't even read the book. They were simply frustrated that they couldn't download it, so they were venting. Not cool.

In any case, I bought a good old-fashioned made-from-trees book, and I'm absolutely loving it. I highly recommend it to Slopers, since it's as good as its best-selling status suggests. (I will also note that now the average rating is about three and a half stars, now that actual readers have had a chance to put in their two cents).

I wanted to share a post on books that I recommend. There are many terrific books on markets and trading.  However,  I recommend these books because I still remember their profound impact on my development as a student of the market–being a student of the market is always the base from which I write. These books provide the context in which everything else I read gets processed.

Long term Slopers have seen me recommend and/or quote from these over the years.  My hope, too, is that this post will engender some discussion from the Slope community to proffer their own suggestions for books that have shaped their development as a market participant.

Importantly, books are like people: some settle better with our personalities than others.  Accordingly, your mileage (enjoyment) might vary from mine.

• Psychology of the Stock Market,
  G. C. Selden: A 1914 copyright date reminds you as you reading it that
  the more things change, the more they stay the same. Though I recommend
  your buying this slim volume, it can be downloaded from Google books here. While many recommend Reminiscences of a Stock Operator, all of the pith of that book can be found in this slim volume.

• Secrets to Profiting in Bull and Bear Markets,
  Stan Weinstein. The charts in the book are not of the quality that our
  contemporary eye would hold them to. I wished the book would get
  updated. But this book is the best "must read" for new
  investors/traders. The book does a great job codifying do's and don'ts–basically it helps you to minimize 'stupid stuff'.  My only regret is that I didn't read this book in my first year of trading.

• The Nature of Risk,
  Justin Mamis. This book will inform your thinking about risk in the
  market and cultivate an understanding of time risk, price risk and
  information risk. I realized from this book that my expectations of risk are counter-intuitive to what I thought.

(Side note: I read Weinstein long before
I discovered Mamis. And in reading Mamis, I was struck that Weinstein's
book spoke about similar principles. I later learned that Weinstein
became the editor of Mamis's The Professional Tape Reader. For fans of
Helen Meisler, she was mentioned in the forward to one of Mamis's
books. He was her mentor–"the very best mentor one could have.")

I'm now going to add a fourth book to the the trio above:

• Beating the Stock Market,
  R. W. McNeel. Another oldie–1924. It's a slim volume that reminds us
  that while the market seems complicated, it really isn't. I will
  forgive his chapter on Women, Poor Losers.

I particularly
recommend these older books to people prone to thinking about the
market as something rigged against them by ranting against the
proverbial "They". Both McNeel and Selden's books address this sinister
"They". Both authors opine, and I paraphrase, that it is the hobgoblin
of minds that do not understand the speculative process. I believe them
to be correct.

Best to free our minds of such shadows. The greatest force that prevents our being successful in the market is ourselves.

I'll leave you with a fitting phrase from Selden:

(The photo is of Minnah.)

A few days ago, I finally finished reading Evidence-Based Technical Analysis. This book was part of the required reading for the Chartered Market Technician examination, but since only a portion of the book was required for the test, I had never read the whole thing. I decided to do so, and although I didn't really learn anything practical from it for my own trading, it was an interesting read nonetheless.

The book's principal message is that the vast majority – – practically all, really – – of technical analysis is a big, steaming pile o' crap since it isn't based on the scientific method. I found it curious that this book was required by the CMT since the author seems to diss probably 95% of what the CMT membership uses as the basis for their own analysis and trading. It would be sort of like the Catholic Church requiring its membership to read The God Delusion.

The book's message shouldn't be dismissed, of course. The author puts his arguments out there with force and logic, and it is a very reasonable premise. My take on it is that he believes any method that doesn't conform to the rigors of the scientific method (being testable, verifiable, refutable, etc.) is no better than reading goat entrails. The author takes particular aim at the entire realm of Elliott Wave; I won't detail the image that came to mind as I read the author's views about Elliott Wave, but it definitely involved a stack of EW material on the ground and the author unzipping his fly to relieve himself.

In any event, if you're of a scientific or statistical frame of mind, you will probably love the book.

Just about the most different volume I can imagine from the above is the new biography of George Carlin, Last Words. Regular Slopers know that George has been a long-time hero of mine, and although I'm just one-third of the way through this book, I imagine he'll be promoted to Idol by the time I'm done reading it. I am absolutely loving reading this book, and I can tell the final two-thirds will be just as much of a treat. If you're a Carlin fan, you should get it; it's really marvelous, and these days, I am really appreciate of anything that can put a smile on my face.