The most recommended hedge fund books

This is a beautifully written story about bankers who rise, and fall spectacularly – into crime, in this case insider trading, with the loss of money, status, and prestige that followed.

What’s particularly fascinating is the historical, ethnic, and sociological backdrop. The book begins with a scene in which Indian-born Rajat Gupta, having come to the US and ascended to the highest echelons of the US business world, was attending a White House dinner for India’s Prime Minister.

The book ends as some people who had been on top are dealing with the aftermath of trials that went very badly for them. The word “Shakespearean” has been used to describe this book, and aptly so.

This fascinating read tells the story of the rise and then spectacular fall of the once celebrated hedge fund Long-Term Capital Management.

What made LTCM so attractive to Wall Street investors was its stable of "dream team" quants and financial minds, led by the laconic John Merriweather. Merriweather (featured in the opening Chapter of Liar's Poker) was a former Solomon Brothers bond-trading guru, who after leaving the firm amid a scandal managed to assemble a team of financial powerhouses that included two Nobel Laureates as well as a cadre of respected traders.

From 1993 to 1997 LTCM's returns were first-rate; the sky seemed the limit for this small band of supertraders, professors, and modelers who arrogantly considered themselves a cut above the rest of The Street.

But in 1998, it all came crashing down...and right quick. Having believed their financial models could accurately predict price action not just in… show more.

This book is more than a decade old, but it is so smart, so well written, so ultimately enraging that I devoured it.

Part history lesson, part colourful character study, it begins with the origin story of the hedge fund industry and takes the reader through the most important events and changes in the space over time. Mallaby does a great job of explaining the technical details and industry intricacies in approachable and understandable ways that helped me see things in a new way.

I started working at Depository Trust Company in New York in September 1987 – a month later the “Black Monday” stock market crash happened! At the time, it was very difficult to see exactly what caused it. “When you are up to your neck in alligators, it is hard to remember why you drained the swamp!” This book explains how Wall Street banks hatched all those alligator eggs by hiring MIT math-whizz-kids and turning them loose without explaining the simplest thing about the stock market to them. One of the errors in their models was that they did not take bank holidays into account when calculating the time value of stocks and option prices.

I found this book absolutely thrilling as a real-life story of one of the biggest bullshit busts in history. Bernie Madoff’s Ponzi scheme ran for almost 18 years without much concern or investigation by the U.S. Securities and Exchange Commission (SEC). But, Harry Markopolos, a little-known number cruncher from a Boston equity derivatives firm, was onto Madoff after looking at Madoff’s financial records, several years before the bust made headlines. Page by page, Markopolos details his pursuit of the greatest financial criminal in history, and reveals the massive fraud, governmental incompetence, and criminal collusion that has changed thousands of lives forever-as well as the world’s financial system. All the while, no one, including the SEC, would listen. As such, the book is the quintessential example of how spellbinding bullshit can be. 

In Storm Lake, published in 2018, Pulitzer-winning editor, publisher, and author Art Cullen writes with passion, insight and humor about immigration, family, community and the history and future of this part of Iowa – and, to an extent, much of America.

His family’s newspaper, the Storm Lake Times Pilot, serves as a model for local coverage and investigative reporting in an era when hedge funds and out-of-town chains have left many parts of the country without newspapers or with “ghost papers,” shells of their former selves. 

I often wondered who and when indexed investing was invented. This work discusses the history of investing and how indexing came to be. Turns out there were many people working independently initially, just like many other inventions earlier in the 20th Century.

Who knew the latter half of the 20th Century saw technology as well as a lot of academics come to bear on making investing for people easier and less expensive. Out of all random events and experiences different players had, Vanguard and Dimensional were born.

I’m a history nut as well as being concerned about our personal finances. This work hit all cylinders on both those accounts. It’s important to understand history and where things come from to better understand how it properly applies to yourself.

A relatively new arrival on the list, Dreyfuss’s diligently crafted book is the most in-depth look at one of Wall Street’s most spectacular, if lesser-known, collapses in 2006.

The book takes us through the rise of two forces in energy trading embarking on a collision course that would be the ruin of one and an immense windfall of the other. Amaranth hedge fund was an up-and-comer and darling of the hedge fund space. Boasting stellar returns on its several billion in capital, it was able to raise massive sums to hand over to its wunderkind energy trading guru, the Canadian Brian Hunter.

Hunter had set out to dethrone John Arnold at Centaurus (the former Enron whiz kid and youngest member of the Forbes 400) as the biggest energy derivatives trader on the Street. Hunter’s ego soon got him into trouble when a series of disastrous and massively overleveraged bets collapsed,… show more.

This book was not only educational to students of the markets but was also entertaining with a compelling narrative storyline that showed how Jim Simons transitioned from a math academician to become the most successful hedge fund manager in history.

Although not stated explicitly, Simons and the team at Renaissance Technologies developed models that adhered to the Casino Paradigm by combining a positive expectancy model with solid risk management protocols. 

In this book, Ray Dalio shares the invaluable knowledge he has gathered throughout his career.

He believes that principles of life, management, economics, and investing can all be systematized and understood like machines. With hundreds of practical lessons that revolve around his principles of "radical truth" and "radical transparency," Dalio highlights the most effective ways for individuals and organizations to make decisions, approach challenges, and build strong teams.

He also describes the innovative tools that his firm uses to bring idea meritocracy to life, including "baseball cards" for employees that distill their strengths and weaknesses and computerized decision-making systems that make believability-weighted decisions.

While the book provides novel ideas for organizations and institutions, Principles also offers a clear, straightforward approach to decision-making that Dalio believes anyone can apply, no matter their goal.