Last Updated on December 19, 2021 at 7:24 pm

Here are five unique books that will will completely change the way you think about stock market risk and reward. They have certainly shaped mine and my first ever financial calculator was based on one of them. The books will bust established myths about the market – its so-called efficiency, mean reversion, and the way we measure risk and reward – not with opinions, but with data.

1 Unveiling The Retirement Myth – Jim Otar

Tag line: Advanced Retirement Planning Based On Market History

I have mentioned this before. This is a must-read for all DIY retirees and investment professionals. There is a lot crappy advice being offered to retirees today and this will book might change that. I made my first calculator based on this book – finding out how long a retirement corpus will last based on S & P and Sensex returns using an instrument software called Labview. I learnt most of my personal finance here – formulae and notions of risk and reward.

Jim Otar is the inspiration behind: Nifty Valuation Analysis with PE, PB, Div Yield, ROE, EPS of 21 NSE Indices

2 The Physics of Wall Street: James Owen Weatherall

Tagline: A Brief History of Predicting the Unpredictable

This is a light read about the physicists and mathematicians who applied their skills to the market, profited from it and helped us understand risk. Their triumphs and losses. A great first book for those who wish to go beyond simplistic notions of market dynamics. Suited for those who wish to learn about the history and circumstances that shaped the mental framework of eminent wall street personalities.

3 The (Mis)behavior of Markets: Benoit Mandelbrot & Richard L. Hudson

Tagline: a fractal view of risk, ruin, and reward

A non-technical account of how markets really work, from the horses mouth – a genius in the league of Newton and Einstein.

Most aspects of nature – dust collection, stock market prices, coastlines, the shape of lungs, the distribution of wealth …. display what the nerds call “power law behaviour”, aka Fractrals.  Mandelbrot is the father of this idea.  A compelling read …. for the inclined. Here is a sample:

The 80/20 rule: Making sense of richest 1% Indians owning 58% wealth!

and

Fat Tails: The True Nature of Stock Market Returns -Part 1

Fractals: The True Nature of Stock Market Returns  – Part 2

4 Alchemists of Loss: Kevin Dowd & Martin Hutchinson

Tagline: How modern finance and government intervention crashed the financial system

I admire anyone who goes beyond discussing problems and talk solutions. This book discusses everything that is wrong with the financial system and the factors that lead to the 2008 crash. It also suggests various reforms, regulations and alternative models of risk evaluation – some that are an alternative to fractrals. A good non-technical read.

5 Chaos and Order in the Capital Markets – Edgar E Peters

Tagline: A New View of Cycles, Prices, and Market Volatility

Now, I have not read this book, but I recommend it because this is a non-technical (less-technical) version of the text book that I am reading:

And what a book this is! Both the books discuss (with varying levels of details) the properties of the power law behaviour that defines a fractal. If you wish to get your hands dirty and understand why markets crash, how to differentiate asset classes, investors and traders, this is the book to read. I prefer the text book because it gives me clear instructions to implement tools. Found this gem by chance at the IITM Library.

Now over to you. Please add some lesser known books that discuss market movements.