What I Did on My Winter Vacation
By Ed Ponsi, President, FXEducator.com
If you think I spent the past week chilling on a beach in Rio and enjoying the scenery, you're only half right; I also took the opportunity to catch up on some long-overdue reading. Not all of these books are new, but each of them has something unique to offer. My highly subjective scoring system will rate these books on a scale of one to five pips, with the lowest score equaling one pip and the highest score equaling five. Here we go!
"A Bull in China" by Jim Rogers – Trading legend Rogers is best known for success with the Quantum Fund, which he co-founded with George Soros, and for making the early call on the huge commodities rally that ended in 2008. He is a trader/investor who chooses his battles very carefully and holds for the long-term. Despite his tremendous success in the financial arena, Rogers comes across as extremely down to earth, someone you'd like to swap trading stories with over a cold beer. Previous books by the author detail his adventures riding a motorcycle around the world ("Investment Biker") and his fervor for the futures markets ("Hot Commodities").
You've got to hand it to Rogers; he doesn't just talk the talk, he walks the walk – his belief that the U.S. Dollar is destined to fall has led him to divest himself of all U.S. assets and move his family to Singapore, where he can better participate in the ongoing economic explosion that is China. Rogers compares China in 2008 to the U.S. in 1908 in terms of economic potential. Then comes the strength of the book; the author quickly moves beyond the introductory portion and reveals solid, practical reasons and methods for investing in China. Rogers breaks down the myriad share classes that Westerners must navigate if they wish to participate in this market, and explains why China's present currency policy should lead to a future boom in share prices. The book is an extremely easy read; if you've seen Rogers on TV you know that he gets right to the point, so let's give our highest score of 5 pips to "A Bull in China".
"The Age of Turbulence" by Alan Greenspan – I can't tell you how many times in the past I've stood in a trading room, sharing puzzled looks with other traders as we tried to determine what the heck Alan Greenspan was trying to communicate to us. Is he bullish or bearish? Greenspan was a master of the art of obfuscation; his comments were intentionally ambiguous as he attempted to inform the markets without roiling them. So of course, I was reluctant to read a book written by a man who has a reputation for talking in circles. What a pleasant surprise that his book turned out to be straightforward, informative, and entertaining. The first half is a fast-moving biography, filled with entertaining anecdotes and insightful commentary. Greenspan presents himself as a somewhat nerdy economist who worked hard and became a success, but at the same time he is ever willing to poke fun at himself. The stories are great; Greenspan talks about his relationships with economic and political luminaries and gives his fair assessment of every U.S. President from Gerald Ford to George W. Bush. He also writes about his friendship with philosophical novelist Ayn Rand and her influence on his work (she nicknamed him "The Undertaker" for his dour demeanor and dark suits). The second half of the book has a slower pace, but presents interesting lessons on his policies and how he sees the future. The bottom line: this is a worthwhile read; get it if only for the first half, and you will get a good sense of who Greenspan really is, and what it is like to be a Fed Chairman. This book gets a score of 4.5 pips.
"Freakonomics" by Steven Levitt and Stephen Dubner – This book has a fascinating premise; why not take the statistical measures that an economist like Greenspan might use to determine the direction of the economy and apply them to everyday life? This is a great concept, and the book begins promisingly, as the authors apply economic models to everything from real estate agents to Sumo wrestlers to schoolteachers. The surprising results often reveal the hidden motives of the subjects in question. One of the so-called "economic detectives" infiltrates a street gang and breaks down its structural hierarchy, describing its economic model as similar to a McDonald's franchise. However, this promising book fizzles as it keeps repeating the same themes, such as crime and cheating. I'd like to see the authors apply this concept to a wider range of subjects, as many types of human behavior are driven by economic concerns – meaning that there is virtually no limit to the potential applications of the book's unifying concept. Good in parts but wildly uneven; let's give Freakonomics a score of 3.5 pips.
"Fooled by Randomness" by Nassim Nicholas Taleb – Here's an interesting question; how much of our performance as traders is based on skill, and how much of it is due to luck? Taleb clearly believes that financial markets contain a high degree of random activity, and that good risk management is the only protection from it. In the process, he rips financial engineering as a pseudoscience, and calls into question the importance of the heretofore all-important track record of a trader (what if the trader was not really good, only his style worked well during a specific period of time?). The author compares various traders and explains why the best trader isn't necessarily the one who makes the most money. He calls into question the importance of back testing, since you can only test things that have already happened, and the future does not always equal the past. Taleb mocks the Nobel Prize winners who led the Long Term Capital Management hedge fund to ruin, for failing to even consider the possibility that their analysis might be wrong. Finally, the author warns of the "Black Swan" – those seemingly unforeseeable random events that render analysis useless and send the quants back to the drawing board, over and over again. This eye-opening book gets a score of 4 pips.
That's all for now, but tune in next week as we get back to charting the market and answering your questions. See you then!
