Want to take a journey through the world of financial non-fiction? Then check out these five books (six with the bonus choice) on investment banking, leveraged buyouts, high frequency trading, bond sales, options pricing, money culture, moral ambiguity, and the failure of markets and humans.
While not all of these deal directly with private equity, each one is insightful in its own way and relevant to your understanding of the broader financial markets. They are also really entertaining.
1. Liar’s Poker: Rising Through the Wreckage of Wall Street by Michael Lewis
This is the book that first put Michael Lewis on the map. It is his firsthand account working at Salomon Brothers during the heyday of the 1980s money culture. The greatest irony is that Lewis wrote the book to open young people’s eyes to stay away from the morally shallow excesses of Wall Street and pursue higher purpose, more fulfilling endeavors; yet, this tale became an unintended Wall Street recruiting manifesto for young analysts wanting to make it to the Street.
Michael Lewis has gone on to become a financial journalistic authority as well as writing insightfully on other topics. Lewis has also written interesting books on the venture capital craze in the last 1990s (The New New Thing: A Silicon Valley Story), a thoughtful analysis and explanation of the financial meltdown (The Big Short: Inside the Doomsday Machine), a digestible and timely explanation of high frequency trading (Flash Boys: A Wall Street Revolt – another book on this list), and various books of compiled essays and articles.
This book chronicles the hotly contested leveraged buyout of RJR Nabisco Corporation in the late 1980s, which to this day remains one of the larger take private buyouts on record. It reads like a novel with vivid, larger than life personalities (and egos), while still providing insights into large scale private equity buyouts around this time. These were the early days of modern private equity, so the participants are “OG.” It gives a flavor for the era characterized by junk bonds, hostile takeovers, and the money culture.
3. Flash Boys: A Wall Street Revolt by Michael Lewis
Another Michael Lewis gem, recently published in 2014. This explains the largely black box world of high frequency trading as public stock exchanges have become more computerized. If you are at all invested in the public markets, prepare to likely be angered by what is uncovered and explained in this book. What makes this even more interesting is that it is literally still playing out now in real time. Just as we here at PE | PRIMER attempt to demystify private equity by stripping away all the purposefully opaque jargon and concepts, Lewis beautifully demystifies high frequency trading by explaining it in simple terms.
4. Monkey Business: Swinging Through the Wall Street Jungle by John Rolfe and Peter Troob
Looking for an uncensored, unvarnished view into the Wall Street investment banking culture complete with outsized egos and bank accounts to match? Look no further. Two former junior investment bankers chronicle their experience working at one of the hallowed independent investment banks of the time—DLJ (before it was acquired by Credit Suisse), along with all of its shenanigans and fraternity party-like behavior. This too became a recruiting tool for investment banks—for young analysts and associates looking for a life of endless work hours mixed with endless debauchery.
5. When Genius Failed: The Rise and Fall of Long Term Capital Management by Roger Lowenstein
An amazingly well researched account of one of the largest hedge funds at the time, its meteoric rise, and its crippling demise. Most people to this day are unaware of the impact that LTCM’s implosion had on markets and even more so the far greater impact it could have had without the Fed’s brokered private bailout (there are credible parallels to be made to this event and the financial collapse that we just lived through). Lowenstein does an excellent job of trying to simplify the explanation of trading strategies and the mechanics and implications of financial derivatives that quite literally were concocted by PhD rocket scientists, physicists, mathematicians, and Nobel Laureates. If you want to better understand the “too big to fail” argument today, you need to go back and read this book.
6. **BONUS PICK**: Buffett: The Making of an American Capitalist by Roger Lowenstein
The bonus pick comes from another repeat author on the list, Roger Lowenstein, who is also an accomplished financial journalist for the Wall Street Journal. Before Alice Schroeder’s authorized biography of Buffett, this was the most comprehensive biography on Buffett. It still stands as a highly compelling and informative account of Buffett’s life and career. It makes the list in part because of the importance and expanse of Buffet’s reach and involvement with many historically large scale financial events over the last several decades. The recommendation below provides only a glimpse of this point.
Recommendation: Read Liar’s Poker before reading When Genius Failed, and perhaps consider reading Buffet: The Making of an American Capitalist before both them. While it is not really necessary to do this, it will provide some character continuity and background as well as historical chronology that might otherwise be lost. In particular, John Meriwether (a Salomon Brother’s executive and a prominent character in Lewis’s Liar’s Poker) would later go on to found LTCM, the hedge fund in Lowenstein’s book When Genius Failed. If you want to connect the dots even further and make things even more interesting, note that Warren Buffett (the subject of Lowenstein’s biography) played a pivotal role in Salomon Brother’s history when he briefly took over as Chairman of the company during a period of scandal and financial despair. It was during this period and related to this Treasury scandal that Meriwether departed Salomon Brothers only to later found LTCM. Fascinating series of seemingly unrelated, yet related events. Instead of six degrees of Kevin Bacon, maybe it should be six degrees of Warren Buffett.
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