The best books that will open your eyes about the nature of financial markets

Robert R. Prechter Jr. Author Of The Socionomic Theory of Finance
By Robert R. Prechter Jr.

The Books I Picked & Why

Wiped Out. How I Lost a Fortune in the Stock Market While the Averages Were Making New Highs

By Anonymous

Book cover of Wiped Out. How I Lost a Fortune in the Stock Market While the Averages Were Making New Highs

Why this book?

This is one of my favorite books because rather than observing the follies of others, this author details his own. Reading it is like watching a tragedy when you already know the well-meaning protagonist is going to die.

The author chose to remain anonymous for obvious reasons: He thought he was a rare fool. But getting wiped out happens all the time, to many people. If you want to experience vicariously a dangerous thrill ride that you may or may not already have taken, this is your ticket. The book is out of print and hard to find.


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One-Way Pockets: The Book of Books on Wall Street Speculation

By Don Guyon

Book cover of One-Way Pockets: The Book of Books on Wall Street Speculation

Why this book?

Over 100 years ago, a stockbroker wondered why his clients lost money over a full cycle in the stock market. After all, if stocks were back to where they started, shouldn’t they have broken even? He found that at bottoms, investors were cautious short-term traders, whereas at tops, they were confident long-term owners.

This little booklet is available inexpensively on Amazon.


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The Crowd: A Study of the Popular Mind

By Gustave Le Bon

Book cover of The Crowd: A Study of the Popular Mind

Why this book?

Some academics dismiss this book because it lacks statistical support. They have a point, but it’s still a great book. It’s also over a hundred years old, so what do you expect?

Gustave Le Bon was a medical doctor who became Professor of Psychology and Allied Sciences at the University of Paris. Le Bon’s key proposal is that crowd thinking is not the sum of individuals’ minds but an interdependent psychological entity. The Crowd is a short book and perennially in print.


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Victims of Groupthink: A Psychological Study of Foreign-Policy Decisions and Fiascoes

By Irving Lester Janis

Book cover of Victims of Groupthink: A Psychological Study of Foreign-Policy Decisions and Fiascoes

Why this book?

When I was at Yale, Professor Irving Janis became aware of my interest in mass psychology and asked if I would be interested in seeing a manuscript he was working on. I jumped at the chance and soon was reading Victims of Groupthink.

The book relates histories of bureaucratic decision-making that went wrong. Janis postulated that in a group setting, people defer the hard work of reasoning to others, whom they assume must be working on the problem. As a result, no one works on the problem, and whatever decision emerges derives from the dynamics of group psychology. This book is out of print and hard to find.


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Extraordinary Popular Delusions and the Madness of Crowds

By Charles Mackay,

Book cover of Extraordinary Popular Delusions and the Madness of Crowds

Why this book?

Many market analysts have extolled this book, and for good reason. It details activities related to the South Sea Bubble, a stock frenzy that captured the imaginations of Britons in 1711-1720, John Law’s demonically clever Mississippi scheme of 1719–1720 in France, and the Dutch tulip mania of the early 1600s. One of Mackay’s observations:

We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.

Some recent editions are seriously abridged. Be sure to buy the full version.


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