10 Books You Must Read if you Want to Work in Banking or Finance
Investment banking and financial management are incredibly competitive fields; the potential to make money and progress based on merit makes them particularly attractive to graduates wanting to make their mark. Yet the day-to-day work of traders, brokers and analysts can often be obscure to the uninitiated, making it hard to understand just how well suited you are to a role in this field.
To be successful, you’ll certainly need to be ambitious and driven; people working in banking and finance often work long hours in a pressurised environment, and they need to have the resilience to cope with that.
Equally, you need to quickly grasp and apply new concepts, and maintain an intellectual flexibility and curiosity that will enable you to identify and respond to market information and new opportunities. And you’ll need an analytical and commercial skill set to understand and interpret data and risks.
Before you apply for a job in the sector, it's absolutely worth doing some research that will allow you to understand what you’ll be getting into, how the industry works, and what successes and failures others have had in the past.
This will help you to understand how well suited you are to the work and how interesting you’re likely to find it. It will also enable you to talk knowledgeably about the industry in your interviews, and impress potential employers with your understanding of the issues and opportunities – being able to explain your own ideas in the context of theories, models and what has gone before is even better.
Reading is one way of getting that insight. We asked people working within the banking and finance sector what books they thought would be valuable for graduates considering a career in the field and these were their top recommendations (in no particular order):
1. Capitalism and Freedom by Milton Friedman
Milton Friedman is a key thinker and advocate for the free market, and his ideas have had a huge impact in the world of economics and finance. This books sets out strong arguments about the need for economic freedom and minimal government intervention, and argues that economic freedom is a precondition for political freedom.
For anyone wishing to work in finance or economics, this is a great book for understanding the theory behind economic capitalism and the governmental conditions necessary for success. It’s useful to go back to the source of these ideas and then consider how you’ve seen them work in practice.
2. Intelligent Investor by Benjamin Graham
This is rightly viewed as a classic text for giving people a good general introduction to value investing (i.e. buying shares in sound and undervalued companies and holding them for a long time).
Graham advocates growing wealth steadily rather than trying to beat the market (he says it’s not possible to beat the market average) and reminds that the real value in investing, is as it always has been, is in owning and holding securities, receiving interest and dividends, and benefiting from their longer-term increase in value.
He provides a number of ways you can identify ‘value’ shares and warns about getting sucked in by market behaviour. Read this book to understand where the real value in the stock market lies, develop sensible long-term strategies and avoid making amateurish mistakes.
3. The General Theory of Employment, Interest and Money by John Maynard Keynes
In striking contrast to the view of Friedman (above), Keynes disagreed with the idea that markets were optimised by self-regulation and argued for state intervention to promote full employment and economic stability. He was one of the most influential thinkers of the 20th century and this book sought to bring about a revolution in the way that economists thought.
Specifically, by challenging a number of key assumptions such as the belief that demand always outstrips supply, or that money and savings weren’t irrelevant.
Read this book to understand why key historical decisions were made and policies introduced, and to understand the context of the markets today.
4. The Great Unravelling: Losing our Way in the New Century by Paul Krugman
This is a provocative and thought-provoking book that considers the interplay of power, money and politics. Krugman predicted the recent recession as far back as 2002, and this book develops some of the ideas around the behaviours and policies which contributed to the eventual collapse of the markets.
He’s good at explaining complex issues in plain English and although primarily considering America, this book will make you think about the economy and civil rights. The Great Unravelling is based around Krugman’s influential New York Times articles and as such is very easy to read and accessible.
He has written a number of other books as well, which are also well worth a look.
5. Freakonomics by Stephen Dubner and Steven Levitt
A bit of a cult book in some circles, *Freakonomics* takes the tools of microeconomics and applies them to a huge range of other fields ranging from sumo wrestling to crack gangs.
This allows the authors to demonstrate how economics can be related to behaviour (and society as a whole) by exploring how people get what they want or need, particularly when they all need the same thing.
It’s a light and entertaining book that’s easy to read, and useful for exploring how psychology and common sense affect the routes to money.
6. Liar's Poker by Michael Lewis
Liar’s Poker provides a behind-the-scenes view of what it was like working on Wall Street during the late 1980s; specifically the culture and behaviours of people who worked there.
Michael Lewis worked for Salomon Brothers at the time, and this autobiographical book is interesting in looking at how traders and salesmen really work, and how government deregulation in the 1980s allowed unscrupulous people to take advantage of others’ ignorance and grow wealthy.
It also vividly brings to life the intense workload, stress and unhealthy competition experienced by employees, and their willingness to gamble, intimidate and exploit others’ weaknesses to get ahead.
An interesting, amusing and horrifying read that provides an insight into the antecedents of financial crises and what the working culture can be like in finance.
7. Capital in the Twenty-First Century by Thomas Piketty
This controversial bestseller explores the distribution of wealth and considers how that has changed over time. Based on extensive data from 20 countries and covering the period since the industrial revolution, Piketty argues that invested capital (i.e. capital invested in the stock market, property etc.) will grow faster than income: capital has become a substitute for labour in generating wealth.
The implication of this is that anyone who doesn’t have the initial wealth necessary to invest will become relatively less well off, so the rich will get (relatively) richer and the poor will get (relatively) poorer. This, Piketty argues, is a structural feature of capitalism.
This book has influenced significant discussions about inequality and redistribution of wealth and is a must for understanding the moral and philosophical background to capitalism.
8. The New Market Wizards by John D. Schwager
This is an interesting book in which Schwager interviews superstar traders, explores their unique perspectives and pulls out the key lessons. He really does dive into the details to clearly explain why they chose one course of action over another, and how and why they do what they do.
Naturally there are limitations in what they’re willing to share but it’s useful to get the insights nonetheless.
The rest of the book looks at trading psychology, the importance of attitude and self-belief, and some techniques (like neuro-linguistic programming) that traders can use. It ends with a summary in the form of 42 golden rules. This book is full of interesting tips and lessons, and will really help you understand whether you want to work in finance or not.
9. The Wealth of Nations by Adam Smith
Adam Smith is sometimes called the Father of Economics, and this classic book, originally published in 1776, remains highly relevant today. In it Smith explores the fundamentals of economics and the roots of modern-day capitalism.
This is where you can find the original source of the terms 'the invisible hand’ and ‘Gross Domestic Product’, explore the interplay between social dynamics and economics, and consider the appropriate roles of government.
This isn’t the easiest of reads but it’s a great place to start if you want to get a robust background and understanding of the principles of economics and capitalist society.
10. The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
This book explores risk, and more specifically our way of thinking about risk. Taleb argues that people are hard-wired to look for predictable patterns in events based around normal distribution and inertia, and this narrows the range of risks we consider.
In reality, sometimes highly unlikely events do occur, they’re unpredictable and they have a massive impact (9/11 is a classic example) and these are the ‘black swans'.
To deal with these black swan events, Taleb advocates ‘empirical scepticism’ (doubting everything, particularly anything based on statistics) and worrying instead about things you’ve not even thought about. Useful background reading for understanding risk, statistics, economics and managing money.