Book Bits | 11 March 2017

Rational Investing: The Subtleties of Asset Management
By Hugues Langlois and Jacques Lussier
Summary via publisher (Columbia University Press)
Many investors believe that success in investing is either luck or clairvoyance. In Rational Investing, finance professor Hugues Langlois and asset manager Jacques Lussier present the current state of asset management and clarify the conundrum of luck versus skill. The core of Rational Investing is a framework for smart investing built around three performance drivers: balancing exposure to risk factors, efficiently diversifying bad luck, and taking advantage of relative mispricings in financial markets. With clear examples from model multi-asset-class portfolios, Langlois and Lussier show how to implement performance drivers like institutional investors with access to extensive resources, as well as nonprofessional investors who are constrained to small-scale transactions.

Tectonic Shifts in Financial Markets: People, Policies, and Institutions
By Henry Kaufman
Summary via publisher (Palgrave Macmillan)
In this wide-ranging book, Wall Street legend Henry Kaufman recounts the events surrounding the catastrophic collapse of Lehman Brothers from his then vantage point on the board. He explains how, ironically, the Federal Reserve’s shortcomings contributed to its growing power. And he argues that Dodd-Frank – by sanctioning rather than truly addressing the too‐big‐to‐fail dilemma – squandered a rare opportunity for essential reform.

The Limits of the Market: The Pendulum between Government and Market
By Paul De Grauwe
Summary via publisher (Oxford University Press)
The old discussion of ‘Market or State’ is obsolete. There will always have to be a mix of market and state. The only relevant question is what that mix should look like. How far do we have to let the market go its own way in order to create as much welfare as possible for everyone? What is the responsibility of the government in creating welfare? These are difficult questions. But they are also interesting questions and Paul De Grauwe analyses them in this book.

The Financial Diaries: How American Families Cope in a World of Uncertainty
By Jonathan Morduch & Rachel Schneider
Summary via publisher (Princeton University Press)
Deep within the American Dream lies the belief that hard work and steady saving will ensure a comfortable retirement and a better life for one’s children. But in a nation experiencing unprecedented prosperity, even for many families who seem to be doing everything right, this ideal is still out of reach. In The Financial Diaries, Jonathan Morduch and Rachel Schneider draw on the groundbreaking U.S. Financial Diaries, which follow the lives of 235 low- and middle-income families as they navigate through a year. Through the Diaries, Morduch and Schneider challenge popular assumptions about how Americans earn, spend, borrow, and save—and they identify the true causes of distress and inequality for many working Americans.

A Rabble of Dead Money: The Great Crash and the Global Depression: 1929 – 1939
By Charles R. Morris
Review via Publishers Weekly
In this sprightly—if strangely titled—volume, Morris (Comeback: America’s New Economic Boom) recounts a major 20th-century crisis. Morris characterizes himself as a “historian with a professional background in finance,” and he is at his best when writing about economic matters, alerting readers to the latest, most authoritative thinking about the causes and realities of the Great Depression. He sets his main story’s stage with a long introduction on the 1920s, which takes up a third of the book, and eventually hits his stride in the midst of the Depression. The usual characters—Herbert Hoover and F.D.R. especially—make their necessary appearances, but part of the book’s distinctiveness lies in Morris’s inclusion of little-known people, not all of them American, such as Chicago businessman Samuel Insull and the “Swedish Match King” Ivar Kreuger. Another of its strengths is that Morris goes beyond American shores to cover the Depression’s roots in, and effects on, the rest of the world.

What Algorithms Want: Imagination in the Age of Computing (MIT Press)
By Ed Finn
Summary via publisher (MIT Press)
We depend on—we believe in—algorithms to help us get a ride, choose which book to buy, execute a mathematical proof. It’s as if we think of code as a magic spell, an incantation to reveal what we need to know and even what we want. Humans have always believed that certain invocations—the marriage vow, the shaman’s curse—do not merely describe the world but make it. Computation casts a cultural shadow that is shaped by this long tradition of magical thinking. In this book, Ed Finn considers how the algorithm—in practical terms, “a method for solving a problem”—has its roots not only in mathematical logic but also in cybernetics, philosophy, and magical thinking.