Fortune’s Formula: William Poundstone’s book is about systematic and math-based profiteering. In 1956, mathematician Claude Shannon and John L Kelly, a physicist, discovered a formula which prescribes what a wager should be for a given outcome, so as to maximise one’s gains. MIT mathematician Edward Thorp used the formula in stocks with his hedge fund averaging 20% annual return over 30 years. The book is not just about the formula but offers insights into business and management as well.
Reminiscences of a Stock Operator: Though it’s about the life and times of America’s most prominent market operator, the book is rich with investing insights. It tells the story of Jesse Livermore during his era on Wall Street, but his observations and anecdotes are as relevant as they were back then.
A Zebra in Lion Country: This book by Ralph Wanger is based on risk aversion. The concept is simple: zebras move in a herd and most of them huddle in the centre, assuming that they will be saved in the event of a lion attack. As a result there is very little grass to eat in the middle. A corollary to that is that there is very little return in large caps. Zebras at the side, where the perception of risk is higher, eat the best grass and when the time comes are also the fastest to run. The lucidly written book offers a fresh perspective on investing bias.
Good to Great: What differentiates a great company from a mediocre company? Jim Collins, the author, and his research team identified a set of elite companies that made the leap to great and sustained it for 15 years. Their stock returns beat the market by an average of seven times in 15 years. The book is a revelation as it decodes the DNA of great companies.
Anatomy of the Bear: Though slightly dense to read, this book by Russell Napier makes us aware that there can be and will be bear markets. It also reveals what history can teach us about forecasting future bear markets.