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Trading Book Reviews

Book Review: Beating the Indexes by Bill Feingold

[easyazon-link asin=”0132885948″][/easyazon-link]A book about convertible bonds may not strike one as being particularly related to trading. There are aspects to it, though, which definitely fit. That’s why I decided to have a look at [easyazon-link asin=”0132885948″]Beating the Indexes[/easyazon-link] by Bill Feingold.

The first part of the book is a bit scatter shot. It has the primary focus of outlining the problems with indexing – not so much investing in an index fund as the practice whereby fund managers attempt to match their performance to and index. To that end there are definitely some interesting points made and discussion topics mentioned. It’s just a bit of a mixed bag overall, with the author wondering down a few varied paths along the way.

For example, there’s a chapter which walks the reader through the author’s experience in the convertible bond market. It’s meant, in some ways, to present the key ideas in a case study fashion. I’m not entirely sure it’s successful, though. I think that will largely depend on the reader.

There is a really good chapter which reviews all the key nomenclature, concepts, metrics, etc. involved in bond market investing in general and convertibles in specific. That is smack in the middle of the book and from there on the text becomes much more direct and focused.

Chapter 8 is titled “Enough Already…How Do Convertibles Actually Work?”. This is pretty much exactly how the reader may be feeling at that stage having waded through the first several chapters. Thankfully, the author does get on with it and goes into different types of convertible trading/investing approaches and what to look for in them. This is that part of the book I think most readers would be buying the book to get.

So I guess the bottom line is that this is a book with some quite good parts, but with a lot of stuff which is likely of minimal value.

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Trading Book Reviews

Book Review: The Secrets of Economic Indicators by Bernard Baumohl

[easyazon-link asin=”B008O7V05U”][/easyazon-link]It’s taken me about a year, but I’ve finally gotten around to having a look through the 3rd edition of Bernard Baumohl’s book [easyazon-link asin=”B008O7V05U”]The Secrets of Economic Indicators[/easyazon-link]. Now that I’ve done so, I really which I’d dug in sooner.

This book answers the question a lot of new and developing traders have in terms of what economic indicators are important and where to go to get information about them. It comprises only 6 chapters, despite being over 400 pages long in print format. They are as follows:

Chapter 1 – The Lock-Up, which looks at how indicators are released and lays the groundwork for what’s to come.

Chapter 2 – A Beginner’s Guide: Understanding the Lingo, which is a brief look at what does into economic data and the interpretation of releases.

Chapter 3 – The Most Influential US Economic Indicators is the bulk of the book (over 300 pages). It goes through each of the major releases (and not so major) with a quite thorough discussion. That starts with a quick reference on

  • Market Sensitivity
  • What Is It?
  • Most Current News Release on the Internet
  • Home Web Address
  • Release Time
  • Frequency
  • Source
  • Revisions

That is then followed by discussion sections

  • Why Is it Important?
  • How Is It Computed?
  • The Tables: Clues on What’s Ahead for the Economy
  • Market Impact

Lots of information here, for sure.

Chapter 4 – International Economic Indicators: Why Are They So Important? follows a similar pattern to Chapter 3 in looking at the major non-US data releases.

Chapter 5 – Best Websites for U.S. Economic Indicators is several pages worth of useful websites to find fundamental information and news.

Chapter 6 – Best Websites for International Economic Indicators is the same as with Chapter 5 for international data.

I can’t imagine a better, more complete resource on the subject of economic indicators. If you’re looking at using fundamentals in your trading, you’ll definitely want to give [easyazon-link asin=”B008O7V05U”]The Secrets of Economic Indicators[/easyazon-link] a look.

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Book Review: Bond Girl

[easyazon-link asin=”0062065904″][/easyazon-link]Got an interest in Wall Street and want some fairly light-weight fiction to read? If so, [easyazon-link asin=”0062065904″]Bond Girl by Erin Duffy[/easyazon-link], may fit the bill. It is, in short, the narrative of a young woman’s experience working on a bond sales desk at a major financial institution. Think of it as [easyazon-link asin=”039333869X”]Liars Poker[/easyazon-link] (the book that launched Michael Lewis) written from a female perspective, set in the lead-up to the Financial Crisis rather than the Crash of ’87, but without as much of the detail and with less of a moralistic undertone. Lewis was writing of his own experience specifically, but while Duffy’s is a work of fiction, it definitely has a strong feeling of realism throughout, which leads one to suspect quite a bit of the author’s own experience has made its way into the book.

Those looking for a lot of insight into the markets or financial operations on trading desks will be disappointed. There isn’t much. This is a book written by a woman about a woman’s experience trying to navigate her way in a largely male-dominated arena. Some of what the lead character (Alex) goes through would also be experienced by a male in terms of her treatment as a freshly hired analyst (lowest level of trading desk employee), but it takes on a different perspective seen through a young woman’s eyes. Most of the story involves relationships and trading room antics rather than stories about trades and deals and the like.

While I found the end of Bond Girl rather abrupt and disappointing, it did do the desired job of making the train trips I read it on go faster. If you go into it with serious expectations, you’ll likely be disappointed, but if you pick it up as a light read then you’ll probably find it fairly enjoyable.

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Book Review: Broken Markets

[easyazon-link asin=”0132875241″][/easyazon-link]In the retail foreign exchange market there is a long history of complaints about brokers taking advantage of customers to their own benefit. Having now read [easyazon-link asin=”0132875241″]Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio by Sal Arnuk and Joseph Saluzzi[/easyazon-link], I can’t help but think things in the equity market are so much worse. At least in the forex market the types of front-running and conflict of interest activities the book talks about tends to draw the attention and ire of the regulators. In the US stock market, though, this stuff and worse is going on at the hands of high frequency trading (HFT) systems, and it’s largely thanks to regulatory changes that have been made over the last number of years. Not only that, but nothing has really been done to prevent another Flash Crash from happening. At least that’s the takeaway I get from reading this book. It’s an eye-opener.

We’re not just talking about front-running, which was a complaint often aimed at the old specialist system. We’re talking about what information is being provided to which market participants and not to others. We’re talking about the way orders are being routed and how brokers are being paid to send orders to specific exchanges and/or dark pools. It’s no wonder so many individual investors think it’s a rigged game!

Now, as much as there’s a lot of really interesting (and potentially horrifying) information and ideas in the book, it is a text with a clear agenda. The authors are advocates for change – in some cases a reversion back to prior market structures. They make good arguments (and there are copious footnotes), to be sure, but as someone who doesn’t have a deep knowledge of the mechanics and inner workings of today’s equity market, I would personally need to hear from the other side of the debate before forming my own position on specific proposals. That said, the case I have heard made in the media in support of HFT in terms of added liquidity, etc. thus far is not sufficient to overcome the objections presented by the authors of Broken Markets.

As much as this book is a good argument for a change to the system and the need to rein in HFT, however, it gets marks off for how it was written and structured. There is a lot of repetition of ideas and arguments. It has the feel of a book comprised of a collection of articles rather than being something purposefully written. The inclusion of a couple of guest chapters furthers that impression. While I haven’t (yet) read the white papers written by the authors (they are included as an appendix), I get the distinct impression most of the book comes right out of them. As a result, I can’t help but wonder if it wouldn’t be better to just read them and not bother with the book. The white papers can be found on the web, and the authors blog regularly on the HFT subject.

So the bottom line is that [easyazon-link asin=”0132875241″]Broken Markets[/easyazon-link] has a lot of important information and ideas, but isn’t the greatest book because of how that stuff is presented, so I give it a middling rating overall.

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Book Review: Hedge Fund Market Wizards

[easyazon-link asin=”1118273044″][/easyazon-link]It’s been a while since Jack Schwager has treated us to a collection of the insights and experiences of a collection of successful market participants, but he’s back with [easyazon-link asin=”1118273044″]Hedge Fund Market Wizards[/easyazon-link]. This is the fourth installment in the series which started with [easyazon-link asin=”1118273052″]Market Wizards[/easyazon-link] in 1989, added [easyazon-link asin=”1592803377″]The New Market Wizards[/easyazon-link] a couple years later, and got market-specific with [easyazon-link asin=”1592803369″]Stock Market Wizards[/easyazon-link] as the third of the sequence. I will admit that I wasn’t blown away by the latter book, but have long rated the first two very highly. I actually interviewed Schwager back in 1992 in his office at Prudential Securities (if I’m remembering correctly). His advice to me at the time when I asked was to learn computer programming to facilitate system development and testing, perhaps reflecting his own thinking toward taking a more systematic approach to the markets at that time.

Before I get into my thoughts, I think sharing the author’s own words will go a long way toward establishing expectations for the book as I’ve found that those few folks who have panned the series have only really done so because they went into reading the books with a mistaken view of what they would get.

“Readers who are looking for some secret formula that will provide them with an easy way to beat the markets are looking in the wrong place. Readers who are seeking to improve their trading abilities, however, should find much that is useful in the following interviews.” (from the Preface)

And of course interviews is what the book is all about. There are 15 in this latest variation on the Market Wizards series, each with its own introduction and concluding summary of key takeaways. Again, we have a diverse collection of money managers represented. They are grouped in to “macro”, “multistrategy”, and “equity” categories. I wouldn’t call this as broad a set of discreet categorizations as we saw in the earlier books, but this probably reflects the way trading and money management has evolved in the 20+ years since the first book came out.

I think those who have read one or more of the prior books will find some subtle differences in this new edition. It is clear Schwager is more confident in both his interviewing and his own views on trading and markets. There is more editorializing in this book than I remember from the others. At the same time, the author isn’t shy at all about drilling down on subjects and pressing interviewees to get the most out of them. This adds to the quality of the end product.

I was actually somewhat surprised how into the book I got personally. As an experienced traders, I found a kind of affirmation from some of the interviews (Colm O’Shea especially reflected a great deal of my own thinking as it has developed over the years). There were also a few “I never really thought about it like that” moments to give me new things to ponder, which is a plus.

I think having a significant recent (financial crisis) event central to the interviews helps. It also creates the same kind of contextual linkage the Crash of 1987 had for the interviews in the first book. This common reference point for readers makes it easier to be engaged by the text. It also helps developing readers from an application perspective in terms of allowing readers to have “Oh, yeah. I see what he was doing there” type of realizations.

There are a couple of interviewees in this book who present a challenge to individual investors in that they operate in markets where no individual really can take part (there is plenty of good footnoting to support explanations and definitions of subjects discussed). Most of them, though, operate in ways largely applicable by individuals, and even those who don’t still offer insights into how they are thinking about the strategies they are employing and the way they are positioning themselves in the market.

And really that’s really the crux of what’s on offer in [easyazon-link asin=”1118273044″]Hedge Fund Market Wizards[/easyazon-link].

It’s about hearing how successful traders think about risk, strategy, research, and everything else that goes into their efforts – getting inside their heads. There are a couple of more systematic traders in the group who don’t share much in the way of specifics, but the rest (who I would largely describe as being discretionary types) seem to have no problem at all in talking pretty specifically about the kind of technical and/or fundamental cues they look for to find good trades. If you’re after “I buy when the 15-day average crosses the 30-day” type of rules, you’re not going to find any. Most of the gentlemen interviewed (it’s all men in this one), though, are very open about the way they look for trades, manage positions, etc. For this reason, I believe there is a lot of value to be had here for new and developing traders.

Schwager ends the book with his own takeaways from all the interviews he’s done through these books. Those 40 observations alone are worth getting a copy of [easyazon-link asin=”1118273044″]Hedge Fund Market Wizards[/easyazon-link], especially knowing from whence they came. There’s also a very good epilogue written by his son talking about his own introduction to the Market Wizards concepts and their presentation which is well worth reading.

The bottom line is I think this is a good read no matter where you are on the spectrum of market experience.

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Book Review: Currency Trading in the Forex and Futures Markets

[easyazon-link asin=”0132931370″][/easyazon-link]I’ve just finished going through [easyazon-link asin=”0132931370″]Currency Trading in the Forex and Futures Markets[/easyazon-link] by Carley Garner. This is the second of Carley’s books I have read following A Trader’s First Book on Commodities. That book, and her regular article writing, motivated me to include Carley as a contributor to my Trading FAQs book and to do an interview with her in support of that. As you will soon find out, this existing relationship has little bearing on my objectivity where this new book is concerned.

On the plus side, this book does a pretty good job of outlining the different ways one can trade the currency market (spot, futures, options, ETFs). There are good explanations of the mechanics of forex trading in its different forms, as well as the primary methods used in the analysis of the market. This includes an in-depth discussion of the Commitment of Traders (COT) report as well as a limited section on forex seasonals.

My major issue with the book is the author’s bias. She is a futures broker, which puts a major lean in her perspective. This is not unexpected, but the blatantly manipulative fashion in which she casts retail spot trading in a negative light is something I find distasteful. She does it repeatedly in the early parts of the book by presenting some of the often-discussed concerns that have come up in the spot arena over the years (mainly related to forms of potential dealing-desk broker manipulations) with full commentary about how and why this could be a risk for someone getting into the market. Then, at the very end, after ratcheting up the reader’s fear level, she finishes with a line something like, “But that almost never happens.” This is the sort of thing I come to expect from politicians, not from book authors.

The casting of spot forex in a negative light, either directly or specifically relative to futures, happens throughout the conversation. I don’t mind that she has a preference, but I’d like to see a more objective discussion with less of an outright attempt to influence the reader. (I personally have traded forex through all the markets she discusses and continue to do so in different ways based on what I’m trying to do in the markets)

There’s also something of an error of omission in the comparison of spot and futures in terms of interest rates. The author rightly comments on the whole roll-over, interest carry mechanism that takes place in the spot market at the end of each trading day. She fails (as far as I saw) to note that the interest rate differential is also a factor in the futures market as it is priced in.

For me the negatives outweigh the positives, so I’m not inclined to recommend this book, though I did like her previous one.

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Book Review: Buy and Hedge

[easyazon-link asin=”0132825244″][/easyazon-link]While it may be generally classified as an investing book [easyazon-link asin=”0132825244″]Buy and Hedge[/easyazon-link] by Jay Pestrichelli and Wayne Ferbert could easily be classified as a trading book because of the way it advocates the use of options. I’ll leave the reader to classify it for themselves, though, based on their own definitions of the two terms.

In a nut shell, the philosophy of Buy and Hedge is that any positions one takes in the stock market (and we’re really talking long-only here) should be hedged. Individual hedging is best, but portfolio hedging is also considered acceptable by the authors. Options are the favored tool to accomplish that hedging.

About the first half of the book puts forth the reasoning and justification for hedging. Mainly it comes down to reducing the volatility of your returns. The authors make the statement that the one thing you can control in the investing process is the risk. I’m not totally comfortable with putting it that way, but I get the point they are trying to make.

The second half of the book is focused on options and option strategies which can be used for hedging purposes. In fact, the authors go so far as to recommend strategies (though not necessarily in all cases) where no position in the underlying security (stock, ETF, etc.) is held – the position is totally created with options. This is probably something that will make traditional investing advocates a bit uncomfortable.

It should also be noted that the authors don’t have anything against a straightforward index approach. They just think that it should incorporate a hedging element.

All in all, I think [easyazon-link asin=”0132825244″]Buy and Hedge[/easyazon-link] is a worthwhile read for those who favor playing the stock/ETF market from a longer-term position perspective.

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