Much of the world is in quarantine but, as many people have noticed, the financial market has not stopped. With open markets and a smartphone in hand, few can resist the temptation to fill time by trading in hopes of winning from the exchange or the stock market.
The problem is that in the face of so much uncertainty, the only fact we have is that there is no economic model to give us clues about the resumption that we will have in the future, since the economy simply stopped working, which is something new.
So, instead of spending the days “shooting in the dark”, I suggest a different exercise: take advantage of this atypical period to extract some precious tips. The purpose of this article is to present very interesting finance books, but they are little known for not falling into the category of self-help or the organization of personal finance.
Starting with behavioral economics and going through some of the characteristics that make a company a good choice, the selected books also address the origins of the 2008 crisis and the factors that lead to excellence when investing.
Books on behavioral economics
Richard Thaler, of the University of Chicago, won the Nobel Prize in Economics in 2017 for an unusual fact: the acceptance, by the academic community itself, that homo economicus (the individual who acts only to maximize his economic benefit) is far from representing the reality of an ordinary person.
In his book “ Misbehaving: The Construction of Economics Behavior 1”, the humorous author uses real cases to explain the limitations of the human being with regard to self-control and his difficulty in giving up immediate pleasure in exchange for a benefit in the future (aspect directly related to the famous “marshmallow test”, conducted with a group of children).
Thaler gained notoriety for his practical approach, having advised several countries in the elaboration of their public policies, among them the USA, Sweden and the United Kingdom.
“ The Undo Project: The friendship that changed the way we think ” by Michael Lewis goes in the same direction. The book portrays how two Israeli psychologists ( Daniel Kahneman and Amos Tversky ), with such different personalities, revolutionized the academic world by describing some of the typical behaviors of investors, such as:
- Overconfidence:the human being acts as if unforeseen circumstances did not exist;
- Anchorage:the price adopted as a reference by someone and that has no relation to the fundamentals of the assets.
Also exploring real situations where rationality falls short, this is another source that shows how much we appeal to our emotions when we need to make important decisions.
Corporate governance books
The fundamental analysis explains not alone the elements that affect the smooth running of a business. “ Corporate Governance in Brazil and in the World ” by Alexandre Di Miceli da Silveira explains how a relatively recent theme (from the 1980s) has evolved so much.
The book is a must-read for anyone who wants to invest in stocks , at least to understand why companies with the highest levels of governance are worth more. To illustrate how this occurs, the author reports how governance developed in the USA, Europe and Asia, while comparing it with what is practiced in Brazil.
Still on this point, given that our capital market has several companies of family origin, assimilating its “culture” is vital to understand its dynamics and to anticipate problems. This is the proposal for “ Centenary Brazilian Companies ” by Renato Bernhoeft (family business consultant) and Chris Martinez.
Considering that approximately 2/3 of family businesses do not survive when the leadership moves on to the next generation, the book shows what care they took in looking more closely at family relationships, family assets and the company itself.
2008 crisis books
The stimuli announced by central banks around the world are very similar to those adopted in the crisis of 2008. Recalling the facts of the time sheds some light when everything seems so chaotic and uncertain.
“ The Play of the Century ” by Michael Lewis (author previously quoted) reports how the crisis that started 12 years ago, within the financial system itself, took on global proportions.
A mechanism created to facilitate the financed purchase of homes became a huge problem when people with few resources saw themselves as homeowners whose prices kept rising. With widespread real estate speculation, the “snowball” only grew because nobody wanted to be left out.
Despite the complex terminology of some of the investments, the book ended up being used as a reference for the film “ A Grande Bet ”, in 2015. In it, all the elements that identify financial bubbles , such as abundant credit, complacency and greed can be observed, especially in the scene where a Las Vegas dancer confesses that she owns 5 financed houses.