For your reading pleasure, below is a list of books that come highly-recommended by our CEO Keith McCullough across a variety of topics, from markets to behavioral economics and leadership.
Enjoy!
On Markets...
1. THE MISBEHAVIOR OF MARKETS: A FRACTAL VIEW OF FINANCIAL TURBULENCE
by Benoit Mandelbrot, Richard L. Hudson
Amazon: "Mathematical superstar and inventor of fractal geometry, Benoit Mandelbrot, has spent the past forty years studying the underlying mathematics of space and natural patterns. What many of his followers don't realize is that he has also been watching patterns of market change."
Hedgeye CEO Keith McCullough: "This is one of the best books about markets I’ve ever read. In investing more broadly and macro specifically, the multiple factors we have to consider across multiple durations is considerably large. That’s why I’m such a big fan of Mandelbrot. The mother of all encompassing concepts is fractal geometry. It knows no bounds. It abhors the consensus path of linearity and it embraces the uncertainty of our ever-changing ecosystem. I love that."
2. How Not to Be Wrong: The Power of Mathematical Thinking
by Jordan Ellenberg
Amazon: "The Freakonomics of math—a math-world superstar unveils the hidden beauty and logic of the world and puts its power in our hands. How Not to Be Wrong presents the surprising revelations behind all of these questions and many more, using the mathematician’s method of analyzing life and exposing the hard-won insights of the academic community to the layman—minus the jargon."
McCullough: "If you’re looking to improve your decision making process (i.e. improving your ability to change your mind, positioning, etc.), read Ellenberg’s book. I can’t stress how important using a rigorous, data dependent, Bayesian overlay is to our process."
3. Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Amazon: "A fascinating intellectual journey filled with compelling stories, Adaptive Markets starts with the origins of market efficiency and its failures, turns to the foundations of investor behavior, and concludes with practical implications--including how hedge funds have become the Galápagos Islands of finance, what really happened in the 2008 meltdown, and how we might avoid future crises."
Hedgeye Senior Macro Analyst Darius Dale: "The overarching message of Lo’s book, from the introduction to the chapter I couldn’t wait to skip ahead to roughly 300 pages later, is that an overreliance on either classical economics and complex financial models (e.g. Fama’s Efficient Market Hypothesis, Black-Scholes-Merton Model) has led to misguided views among investors, academics and policymakers about how financial markets actually work."
On Behavioral Economics, Investor Psychology...
4. Messy: The Power of Disorder to Transform Our Lives
by Tim Harford
Amazon: "For those who think that a spick-and-span desk is an indication of high productivity, Harford's fascinating investigation of how disorder can spark innovation will open your eyes to all kinds of situations when tidiness is not a virtue."
McCullough: "In Tim Harford's book Messy, he discusses the dangers of shutting your mind to new ideas:
'The idea is to keep opening up new conversational possibilities rather than shut them down... [otherwise] the pattern repeats endlessly. We gain new choices about whom to listen to, whom to trust, and whom to befriend – and we use those choices to tighten the circle around us to people who are more and more like us.'
I humbly suggest that you don’t do that. For market practitioners, having the mental flexibility to change your mind is critical."
5. Hooked: How to Build Habit-Forming Products
by Nir Eyal
Amazon: "Why do some products capture widespread attention while others flop? What makes us engage with certain products out of sheer habit? Is there a pattern underlying how technologies hook us? Nir Eyal answers these questions (and many more) by explaining the Hook Model—a four-step process embedded into the products of many successful companies to subtly encourage customer behavior."
McCullough: "At a recent Hedgeye offsite meeting, I focused our senior leadership team on some of the learnings from Nir Eyal’s Hooked book that I’ve cited in recent Early Looks. One of the behavioral models he considers is the Fogg Behavior Model. The formula for Fogg is B = MAT:
“... which represents that a given behavior will occur when motivation (M), ability (A), and a trigger (T) are present at the same time… Fogg states that all humans are motivated to seek pleasure and avoid pain; to seek hope and avoid fear; and finally, to seek social acceptance and avoid rejection.”
Sound familiar? The polarizing, partisan, and political media is perpetually trying to tap into our predictable behavior. As you glance or glare at the latest Trump headlines this morning, I encourage you to emphasize repeatable investment #process over politics."
On Leadership...
6. American Ulysses: A Life of Ulysses S. Grant
by Ronald C. White
Amazon: "In his time, Ulysses S. Grant was routinely grouped with George Washington and Abraham Lincoln in the “Trinity of Great American Leaders.” But the battlefield commander–turned–commander-in-chief fell out of favor in the twentieth century. In American Ulysses, Ronald C. White argues that we need to once more revise our estimates of him in the twenty-first."
McCullough: "If you’re into having an ongoing education about US History (published in 2016), I highly recommend this book. It’s decorated with leadership lessons in American life. As Grant said:
'Our business here is prosperous and I have every reason to hope to be entirely above the frowns of the world.' In our profession, the frowns of the world are manifest.'
For the last 9 years I’ve thought that was a tremendous opportunity and I've built my business around that. There’s a better way. In fact there’s a way better way. So let’s embrace that opportunity."
7. Mandela's Way: Lessons on Life, Love, and Courage
by Richard Stengel
Amazon: "A compact, profoundly inspiring book that captures the spirit of Nelson Mandela, distilling the South African leader’s wisdom into 15 vital life lessons."
McCullough: "I don’t think the opportunity to lead in this business has ever been better. As Mandela taught many, that doesn’t always mean leading from the front. Sometimes the opportunity to “lead from the back” of a movement is as powerful as any: “The way to do that is by empowering or pushing others to move forward ahead of you.” Autobiographer, Richard Stengel, asked Mandela how prison changed him.
“How was the man who came out in 1990 different from the man who entered in 1962? Emotional? Passionate? Sensitive? Quickly Stung? The Nelson Mandela who emerged from prison is none of those things… time and again the words I heard him use to praise others were balanced, measured, and controlled."
When it comes to running your (or other people’s) money, how would you describe yourself? I know how I used to be. And it was me, but it was not good. Playing this game with the emotion I had on the ice didn’t work. Becoming measured did."
