Below are brief reviews of three books (highly) recommended by Hedgeye CEO Keith McCullough. Keith explains why these three books have shaped how he thinks about markets.
Incidentally, our investing research process is based on the pillars of math, financial market history and behavioral psychology. Each one of the books below form the foundation upon which our process was built.
Bottom line: If you're looking for a thoughtful book about how to simplify the complexities of financial markets, these three books are an excellent place to begin.
"This is somewhat of a Bible to me," explains McCullough about "The Misbehavior of Markets" by mathematics legend Benoit Mandelbrot.
As Hedgeye subscribers know, he quotes it regularly in his morning market note The Early Look.
"I learned a ton from Mandelbrot, if only what not to do. It's an alternative to establishment economics. It's certainly an alternative to how people think about markets relative to economic data."
#2 Thinking Fast and Slow
“This book provides a real baseline for understanding, ‘What is behavioral finance?’” McCullough says of Daniel Kahneman’s seminal book, Thinking Fast and Slow.
“What this book does is it teaches why human beings should embrace uncertainty.”
McCullough says Thinking Fast and Slow should push anyone “who is not a believer in behavioral finance” to prove “why this isn’t a better way.”
#3 Models of My Life
“I’d like to thank Mr. Simon for being not only a revolutionary in this space, but for challenging the status quo,” McCullough says of Nobel laureate Herbert Simon’s witty autobiography, Models of My Life.
“That’s a really important component of this book. It contextualizes where we were in economics back in the 1970s and outlines a better path forward.”
Simon's insights influenced myriad disciplines including economics, political science, sociology, psychology and computer science.“To be good at this, the people that I’ve found to be most useful, at the foundational level of what I do, are the people whose insights cross disciplines,” McCullough explains.
“They’re not ideological or people that only navigate one domain of the social or natural sciences.”