A strong level of financial literacy— theory, understanding financial statements, budgeting and planning, corporate structure, how equity and debt markets work, what derivatives are—will be a huge boost for almost any career.
Finance is a much more general and broadly applicable skill than most people think. Having financial skills will help you in your personal life, any nonprofit work you participate in, or if you want to start your own company.
It’s hard to describe why, precisely, finance is so broadly useful. It certainly didn’t seem that useful to me when I was starting my career. Perhaps at the most basic level, finance is about how money moves around. Money, you may have noticed, is a pretty big explainer of how humans work. So, if you understand how money works and moves, it can go a long way to understanding how humans work.
You can almost think of the capitalist era since the Industrial Revolution like a video game where pots of money (as a proxy for wealth) “spawn” on different parts of the map with entrepreneurs running around trying to find them. Finance is like the armorer in the village that determines who has the best gear to fight their way through to the pot of gold. Gear alone is not that useful. But, when you are competing with many other people, even slightly better gear can be the difference between finding the pot of money and getting nothing.
Most of us, however, didn’t learn anything about finance as part of high school or college and so, for the most part, we need to be self-taught.
I started reading books on finance after school and over the years have learned a lot and found it increasingly useful. Here are some of the books and resources I’ve found most useful. I’ll start with business finance (how to understand the finance going on in your company), move on to investing books (how to reinvest those profits) then cover some of the theory and history underlying both.
Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers – Karen Berman and Joe Knight
Accounting is the language of business. And if you don’t speak it, you can get yourself into some nasty trouble. This book was recommended to me by an entrepreneur who blew up his first business because he didn’t understand the finances, a far more common experience than you would think (particularly with inventory-based businesses).
Berman and Knight walk through the essential tools entrepreneurs need to understand their business: how to read and manage income statements and balance sheets.
Profit First – Mike Michalowicz
Profit First is a simplified accounting system for small business owners. The point is simple (you should take profits), but it offers a very practical set of helpful tips and systems for actually setting up bank accounts and moving money between them.
The Essays of Warren Buffett: Lessons for Corporate America (My Notes) – Warren Buffett
You can’t have a list of finance books without including Warren Buffet. Love him or hate him, he is the (almost) multi-Billion dollar gorilla in the room. This is an edited collection of Buffet’s writing over the course of his (lengthy) career.
The book cover the three biggest ideas of Buffett’s investment philosophy: sticking to your circle of competence, making sure you have a margin of safety, and not falling prey to the emotional whims of “Mr. Market.”
A large percentage of the best investors I know personally have cited Howard Marks as one of the greatest living investors. With an astounding track record of ~20% per annum returns for 25+ years, he certainly has the right to make the claim. He became well known publicly for his semi-annual memos (which are worth subscribing to) when he called the dot-com bubble in the late 90’s. Marks is a value investor in the vein of Warren Buffett and Seth Klarman.
The Most Important Thing is an annotated collection of his memos sorted by theme including understanding risk, the relationship between value and price, and market cycles. If you read my notes, you’ll notice I highlighted about half the book which should say enough about what I thought of it.
The Intelligent Investor – Benjamin Graham
Benjamin Graham was Warren Buffet’s mentor and The Intelligent Investor was his definitive work and the most popular guide on stock selection ever written. Graham was one of the original “value investors” which focused not on profit maximization, but loss minimization.
The book walks through a number of different ways of constructing a portfolio and case studies on stock picking using Graham’s methodology. All in all a good introduction that covers a lot of terminology and market structure.
The Star Principle: How it Can Make You Rich – Richard Koch
Richard Koch is most well known for his book The 80/20 Principle on how individuals can better prioritize to achieve more with less. In The Star Principle, Koch shows how he applied his 80/20 philosophy to make over £100 million from spotting ‘Star’ businesses.
The book focuses on a framework developed by management consulting firms that categorizes firms as stars, cash cows, dogs or question marks based on the growth rate of their industry and their relative position in it.
What I Learned Losing A Million Dollars (My Notes) – Jim Paul and Brendan Moynihan
There are many ways to make money investing, but there are only a few ways to lose money investing. If you can avoid losing money for long enough, you’ll eventually figure out some way to make money.
It follows then that studying how to lose money is perhaps a better way to learn to invest. What I Learned Losing A Million Dollars follows the story of Jim Paul’s meteoric rise from a small town in Northern Kentucky to governor of the Chicago Mercantile Exchange and his equally meteoric fall in one fatal attack of excessive hubris. Understanding the events that led to Paul’s disastrous decision and the psychological factors behind them is an invaluable tool.
The Incerto – Nassim Taleb
Nassim Taleb’s five-volume work, The Incerto, is probably the most influential work on my thinking about investing. The entire series is an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision-making in an uncertain world. Over and over Taleb shows how individuals underestimate the role of luck and volatility, leading them to be on the wrong side of black swan events.
The Evolution of Cooperation – Robert Axelrod
The classic game-theory example is the prisoner’s dilemma. You have two crime suspects being interrogated by the police separately. If they both refuse to talk, each will go to jail for one year (2 years total). If one talks and the other doesn’t, then his partner goes to jail for 3 years (so 3 years total), and if they both talk, they both go to jail for two years (4 years total). The problem is that the “rationally self-interested” thing to do is to talk, because if you don’t and your partner does then you get three years. However, from a group perspective, it’s better if both of you say nothing.
The Evolution of Cooperation lays out an explanation for how cooperation can emerge over a series of repeated prisoner’s dilemmas leading to better outcomes for both players even though it requires acting against one’s short term self-interest. The most effective strategy in the experiments run was tit for tat. That is, if your partner cooperates on the previous turn, then you would cooperate on the following or if they defected, you would defect. There’s a cool little game that shows how this works from Nicki Case.
Axelrod also lays out basic problems where cooperation doesn’t emerge. Understanding these helps you not get into these situations, or, at least, recognize what is going on.
The Use of Knowledge in Society – Friedrich Hayek
This 1945 article by German economist Friedrich Hayek lays out the case for why markets are important and how they work. He asks readers to consider (and dismiss) a world in which all information is known to a single mind. In this world, Hayek points out, allocating resources in the most rational or efficient way is strictly a math problem.
He continues to show that “[t]his, however, is emphatically not the economic problem which society faces.” In the real world, information is dispersed, incomplete, and frequently contradictory. How can we use all this dispersed, incomplete, and contradictory information to make the best use of the resources we have? (Hint: Markets!)
Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages – Carlota Pérez
Drawing on the work from economist Joseph Schumpeter, Carlota Perez shows that technological revolutions arrive with remarkable regularity, and that economies react to them in predictable phases. Her argument provides a framework not just on history, but on our own times.
She links these technological cycles to finance by analyzing the changing relationship between finance capital and production capital during the different stages of technological development, drawing parallels between technologies as different as railroad and microchips.
Not a breezy read by any stretch, but one that has greatly informed my view of Finance. Fred Wilson, a VC at Union Square Ventures, claims it was the most influential book on their investment thesis.
Poor Charlie’s Almanac – Peter D. Kaufman
Though much less well known than his partner, Warren Buffet, Charlie Munger is widely cited by successful investors as one of their greatest influences. Though Munger has spent a career as a value investor in public markets, his lessons have been cited by angel investors, venture capitalists and private equity managers.
Poor Charlie’s Almanac is the definitive compendium of Charlie’s writing and teaching over the course of his career.
Charlie’s philosophy centers around building a “latticework of mental models” which allow you to see companies and investments through a great range of perspectives allowing better decision making. The lessons on how Charlie has done this are broadly applicable to not just investing, but life.
Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed – James C. Scott
Though this book is probably the least obvious on the list in terms of what it has to do with financial markets, it is one of the most influential on my thinking and I think points out a blind spot for many in the industry.
In Seeing Like a State, Scott, a Yale professor with a specialty in Early East Asian Agriculture, examines how, across dozens of domains, ranging from agriculture and forestry, to urban planning and census-taking, a very predictable failure pattern keeps recurring.
Scott calls the thinking style behind the failure mode “high modernism” whereby someone that doesn’t understand the intricate details and local knowledge of a domain comes up with an idealized blank-slate version of what it should look like or how it should work. This creates a problem, model risk—the risk that your model is not right. This runs rampant through finance. Most memorably, The 2008 financial crisis was a result of this model risk—all the models were based on the assumption that house prices could not go down because they hadn’t gone down since the end of the Second World War. Oops!?!?
Scotts’ work helps to understand and avoid this type of model risk.
The (Mis)Behavior of Markets – Benoît B. Mandelbrot
Benoit Mandelbrot is a scientist, most famously known for his study of fractals in nature. In The (Mis)Behavior of Markets, he turns his research on how fractals occur in nature to how they occur in markets.
Most notably, he shows that the bell curve model(*cough* model risk *cough) of financial markets, widely taught in business schools, is wrong. Markets are in fact much
“From 1916 to 2003, the daily index movements of the Dow Jones Industrial Average do not spread out on graph paper like a simple bell curve. The far edges flare too high: too many big changes. Theory suggests that over that time, there should be fifty-eight days when the Dow moved more than 3.4 percent; in fact, there were 1,001. Theory predicts six days of index swings beyond 4.5 percent; in fact, there were 366. And index swings of more than 7 percent should come once every 300,000 years; in fact, the twentieth century saw forty-eight such days.”
Mandelbrot correctly points out that by underestimating these outlier events (also called tail risk or black swan events) many investing strategies boil down to picking up nickels in front of steam rollers. Mandelbrot goes on to show what his research suggests is a more robust model for thinking about financial markets.
The Ascent of Money – Nial Ferguson
In many ways, money to modern day humans is like water to fish. It is so normal and everywhere that we don’t stop to think about exactly what it is and how it affects you. Of course, it does affect us, and rather a lot. When you stop to consider how much of your life is dictated by money and how it moves around (AKA finance), the answer is “a lot.”
The Ascent of Money is a (relatively) brief history of money and finance. I love the brief-history-of-big-topic genre and thought Ferguson did an excellent job with this one. Beginning with money, then moving on to equity, debt, derivatives, and real estate, Ferguson shows how the biggest components of the modern financial system evolved and what impact they have on our lives.
The History of Money – Jack Weatherford
Weatherford, a cultural anthropologist, traces the role of money in shaping human affairs beginning with the invention of coins in Lydia 300 years ago, running through Greece, Ancient, and Renaissance Italy all the way to present day.
The book ends by predicting we are moving into an era of “cybermoney.” Like everyone else that has fallen down the bitcoin/crypto rabbit hole, I realized I didn’t actually know what money was or how it worked and I thought this was a nice scaffolding to start to think from.
Reminisces of a Stock Operator – Edwin Lefèvre
Considered one of the classic books on investing, Reminiscences is a lightly fictionalized biography of stock speculator Jesse Livermore who made and lost four fortunes in his lifetime.
Starting in the late 1800s going up through the early 1900s, Reminiscences first provides a great history of financial markets at a time that seems like the Wild Wild West compared to today. It also dives into the psychology of investing and trading with lots of lessons that remain true to this day. One of my favorites:
‘It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
The House of Morgan – Ron Chernow
This monster of a book (812 pages) covers over a hundred years of financial history beginning in Victorian London in the 1800s running through the shift from London to New York as the financial center of the universe and ending with the 1987 crash.
Told through the lens of four generations of the Morgan banking dynasty, the book is as full of intrigue and excitement as it is lessons. Drawing from a huge array of sources, Chernow shows how world politics and events were shaped by the financial side—especially the influence of one dominant family: The Morgans.
Liar’s Poker and The Big Short – Michael Lewis
In the 1980s, Michael Lewis worked as a bond trader at Solomon Brothers, one of Wall Street’s premier investment firms. Liar’s Poker is his inside account of those frenzied years looking at the combination of frat boy comradery and killer instinct that characterized Wall St. in that era.
Little did he know that Lewis Ranieri, one of his colleagues at Salomon, planted the seed for what would become the 2008 financial crisis by developing the first mortgage-backed security. In The Big Short, he chronicles what happened from the time he left Salomon leading up to the financial crisis.
Lewis is perhaps the most talented and entertaining narrative nonfiction writer of his generation, certainly in the finance space so these are both absolute page-turners.
Snowball: Warren Buffett and the Business of Life – Alice Schroeder
The definitive book on Warren Buffett. Historically very reserved, Buffett gave journalist Alice Schroeder open kimono access to his past. Similar to the House of Morgan or Reminisces, this book offers a great history of financial markets through the lens of Warren Buffett’s life and reveals the evolving nature of his investment philosophy from “picking up cigar butts” to “a great business at a good price.”
It also shows his personal foibles and some of the costs of his success in a way that is not widely publicly known.
Debt: The First 5,000 Years – David Graeber
There’s a story you have heard about how money was invented that goes something like this: There were a bunch of villagers sitting around and realized it was hard to barter for a hundred different things and so they came up with this thing called money that would act as a medium of exchange, store of value, and unit of account. Thus barter ended and money began.
Graeber shows that the one problem with this story is that there is not a shred of anthropological evidence that supports it. He argues that before there was money, there was debt. More than that, he argues that debt, and debt forgiveness, has been a driving force through history starting from farmers in Mesopotamia through the 2008 financial crisis.
(Not a book, but Nick Szabo’s paper, Shelling Out: The Origins of Money, offers a great counterpoint to Graeber’s argument.)
Mr. Money Mustache – This was the blog that taught me personal finance. I don’t take my personal finance discipline to the extremes talked about, but the fundamental notion that money and time are two sides of the same coin is a powerful framework that’s influenced how I think about spending both. Start with The Shockingly Simple Math Behind Early Retirement.
Philosophical Economics – Great in depth analysis of different market issues from a factor investor. Start with The Best Predictor of Future Stock Market Returns.
Matt Levine’s Money Stuff – Matt Levine is a Bloomberg Opinion columnist covering finance. Previsouly, he worked as an investment banker at Goldman Sachs, and a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz. Combining insight and humor, he offers a daily tour through what’s going on financial markets.
Invest Like the Best – Part investing, part self-help, features interviews with investors and non-investors about how to better invest your time and your money. Start with How to Live a Longer, Higher Quality Life, with Peter Attia, M.D and Modest Proposal – Value is Dead, Long Live Value
Hidden Forces – Most episodes aren’t specifically finance related but the host, Demetri Kofinas, has a deep understanding of markets and weaves it into a number of fascinating fields from China to Astronomy to Blockchain. Start with The Rise of Xi Jinping and the Dawn of a New Imperial China.
EconTalk – Hosted by Russ Roberts, an economist and a research fellow at Stanford University’s Hoover Institution, EconTalk is a great exploration of economics. Start with Graham on Start-ups, Innovation, and Creativity
A16z – A rotating cast of hosts anchored by Sonal Chokshi, a16z’s podcast focuses more on the tech/venture capital side of things. Start with whatever topic interests you.
How the Economic Machine Works – A simple explanation of market cycles and debt from hedge fund investor Ray Dalio.
Further Reading Lists
I also got a lot of great recommendations in this Twitter Thread
Want to learn about finance and investing?
So many people have great intentions of reading about new fields and interest areas, but never seem able to make it happen.
Sometimes it seems like there’s not enough time in the day. It can be hard to choose where to start (without getting in over your head), plus it’s hard to stay motivated.
Join my free four-part email course and I’ll show you:
- How to learn about new fields of interest in a way that keeps you motivated and excited.
- Why trying to remember everything you read is counterintuitive, and the simple mindset shift that will make reading more effective and enjoyable.
- How to finally start reading more - with simple strategies and techniques to make sure it happens once and for all.
This course has helped hundreds of people start reading more, to finally get into the topics they’ve always wanted to learn about, and change their lives along the way.
Enter your email below to get started!
Last Updated on September 9, 2019 by Taylor Pearson