In part 1 , we looked at books that are helpful to the "Apprenticed Investor," from the history of markets to investor psychology. Today, we get into the details: economics, technical analysis, short selling, the fundamental approach, life on Wall Street and everything else.
If you can understand how the crazier things happen on Wall Street, you may avoid some investing pitfalls. These two books offer insight into that arena -- and they could just as easily be filed under how to raise problem children. Fred Schwed's Where Are the Customers' Yachts? or A Good Hard Look at Wall Street. Schwed worked on Wall Street for a few years, and his book -- written 60 years ago -- is a delightful read, full of insight into both the Street and investors' psyches. For those of you thinking about working in the industry, then Liar's Poker by Michael Lewis is for you. It provides a snapshot into a major firm circa the 1980s. As much as things have changed since then, they are still very much the same.
Understanding where we are in the business cycle -- expansion, plateau, contracting, bottoming -- is crucial to understanding where the markets will be in 6-18 months. My favorite introductory econ book is Todd G. Buchholz' New Ideas from Dead Economists. Buchholz's survey of the history of economic thought is lively and informative. He avoids politics and academic squabbling, resulting in an extremely enjoyable, informative book. That's saying a lot for a subject that in the hands of a lesser writer would be dry and boring. Were I to recommend but one economics book for the layperson, this would be it. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner. This is less a book about economics, and more a book about how to approach challenging problems from a logical perspective. Outside-the-box thinking combined with intelligence, creativity and mathematics makes for a potent combination. But don't let the math intimidate you -- it's a delight to read, and is very accessible to the nonmathematician/noneconomist.