How to ace a hedge fund job interview

How to get through a hedge fund interview with flying colors

Reading time: 2120 words

Warning, this post is a bit unusual. It’s a run-through of a job interview case I used at my hedge fund Futuris.

It takes about five to ten minutes to read, and will teach you a lot about what I was looking for when hiring analysts (PMs to be), and what you probably should keep in mind during an interview.

Executive summary

Don’t crack under pressure was probably the most important part of the test – the ability to pick oneself up and continue, to try new ways and ideas, after failing one route. Functioning under pressure, keeping communication up, and being able to make decisions, ask questions and try, despite having made a few mistakes.


…and keeping neat notes, following a logical order, formulating a plan, communicating, demonstrating an ability to do quick sanity checks on the fly, to combine a bird’s eye view with at least a quantum of sense for details and plausibility in the micro perspective.


How long is a string?

(“piece of string” – I know, but I want it to sound a little retarded)

Well, a quantum string is around 10-35 meters long, so they’re pretty well defined in terms of length, if that’s what you’re asking.



Unfortunately, you never know what kind of string the question is about, so the answer is usually completely arbitrary. What it means is simply “there is no (known) answer to your question”.

I love using it as my turn-around to a lot of questions I get about valuation, timing, subjective judgement calls etc. 

-It works for most truly important questions regarding life, the universe and everything:

  • How far will the stock market bounce go? What multiple is warranted for this and that biometrics company?
  • Is micro or macro most important for valuing this stock?
  • Is it different this time or not?

The answer is typically “both” or some variation of that.


On required skills (measuring strings) for getting a job at a hedge fund

When I hired people at my* hedge fund, I wanted to know the person could manage switching perspectives back and forth, while being organized and keeping calm enough to keep track of the task at hand. Not least I wanted to see how they handled pressure and (rectifying) mistakes.

I asked them one simple question:

“Does all the physical legal currency (bills and coins) in Sweden fit in the Stockholm Globe arena?”

The question is similar to asking if all the physical money in New York would fit in the Madison Square Garden arena.

globen case

The math is quite easy, and the assumptions needed are hardly rocket science either. Without pressure, a person of average intelligence and math skills should manage to do it within 5-1o minutes using just a pen and paper.

  • First you need to calculate the size of the arena.
  • Then the amount of physical currency.
  • Third, how many bills and coins that amount is, and how much space that many bills and coins would occupy
  • Fourth and final, you have to remember to compare the volumes of one and four, and answer if the bills and coins fit.

You get a pen and a stack of papers and about an hour, during which you’re allowed to ask questions, and supposed to explain what you’re doing and thinking.


The Globe arena

(*my = I was one of three partners, as well portfolio manager and the managing director)


Size of the arena

Is it 10 meters, 100 meters or 1000 meters? If you don’t know, just try to imagine a hockey rink or a soccer field.

Let’s go with 100 meters. It’s obviously larger than 10 meters across, and less than 1000 meters…

The globe arena building is (almost) spherical, but never mind that. Think of it as a cube instead. The volume thus can be estimated at around 100 x 100 x 100=1 million cubic meters.


A few guys tried using the formula for a sphere but got it wrong. Once they got the correct formula from me they couldn’t handle the (very simple) calculations due to stress and inability to use rounding. Worst of all, they didn’t verify the answer against the volume of a cube of the same size. Those mistakes are not what you want to see an analyst or portfolio manager make.

You can always go back and refine if needed. FYI: the real answer is 0.6m cubic meters. Close enough. At least it’s not just 1 000 cubic meters or as much as 1 billion cubic meters…



Triangulate the amount of currency in SEK:

  1. a certain percentage (2%? 1%? 10%?) of GDP (4 000bn SEK) is physical money
  2. assume how much cash all physical people (1000 SEK each?), stores (twice as much as the people? Four times?) and banks (as much as the stores?) are holding
  3. make alternative calculations based on total national wages or something similar, followed by circulation and accumulation in stores before being shipped to banks daily or weekly.
  4. make an assumption of the proportion of bills vs. coins… how much do you typically carry of each?

Answer: There is 68bn SEK in bills (8bn USD) and 5bn SEK in coins in Sweden.

When I first did this, 10 years ago, there were 100bn SEK in bills and 5bn in coins. Let’s go with the current number 68+5bn SEK.

By this time, many had already forgotten why they were trying to calculate the amount of money in Sweden, or estimating GDP etc.

Some were so confused they started comparing GDP in SEK to the cubic meter volume of the globe arena.

What?! Comparing GDP to a volume?! What were they thinking? What if an investment decision was made using a similar approach? 

They had to be nudged into calculating the physical amount of money needed to drive GDP, people’s wallets, cash registers etc., i.e. how many coins and bills there were and their physical volume requirements.


How many bills and coins?

Well, assume an average value per bill or guess the amounts per each type of bill. The answer is the average value per bill is 200 SEK and consequently there are around 68bn/200 => 340 million bills (317m actually). Let’s go with 300 million typical bills.

Do the same for coins. The average coin is worth 2-3 SEK and there are thus 5bn/2.50 => 2bn coins.

100 SEK

How much space does a bill or a coin occupy

So, how much space do these slippery little buggers occupy?

Could the amount of money in New York occupy Wall Street? Madison Square Garden?

How big is a bill?

How long is a piece of string, some applicants seemed to think and just froze. And, yet, they had a stack of papers in front of them – just like a stack of bills…

applicants freezing up

Anyway, a typical Swedish bill is around 70 mm x 140 mm x 0.1 mm.

At least it’s not 200 x 100 mm.

Nor is it 1 mm thick (I seem to remember somebody going for 2 mm (1/10 inch) thick for a while. That guy did not know the length of a piece of string).

Sure, you’re free to think out loud, but you should always do a quick “in and out” (of micro and macro perspective, to make a sanity check: What would a stack of 2 mm thick bills look like. Just ten of them would be an inch thick! Is that plausible? What if you folded it 5 times, making the equivalent of a stack of 32 bills?)

Bill x32

Anyway, a reasonable assumption, given the time and task was to say a bill had the dimensions 100 x 100 x 0.1 = 1000 mm3, or 1 cm3. However, any assumption within half or twice those dimensions in all directions would have been more than OK.

Some stopped right there.

Some just forgot about the coins (sloppy notes) and went on to do all kinds of crazy things.

Some tried comparing the volume of one single bill to the arena. Some compared the volume of a bill to the volume of a coin. Some tried stacking the bills on top of each other in one single stack 30 km high (300 kilometers in one case) and draw conclusions from that.

OK, a few just took the volume of the notes and compared it to the arena. Pretty good, albeit a bit sloppy. They were asked to repeat the original question (in order to remember the coins), which they should have written down neatly on top of the first page. I repeatedly throughout the case urged the applicants to keep neat and clear notes. None of them did.


OK, back to the coins:

A typical coin is about half that size (20mm diameter and 2mm thick), but assuming it occupies the same space as a bill is perfectly ok.

Those lucky enough to get this far, often went right ahead and made a stack of coins 4bn mms high = 4 000 kilometers, and then went through all sorts of trouble trying to fit it inside the arena in various ways (rarely succeeding)

Total volume then comes to: 300 million bills x 1000 mm3 each + 2 billion coins x 1000 mm3 each = 2.3tn mm3. Scaling it to cubic meters means dividing by 1bn (1000 x 1000 x 1000), or 2300 cubic meters.


Comparing volumes

Here and now, you should have a couple of neat notes saying

  1. “Arena volume=1 000 000 cubic meters” and
  2. “Money volume=2 300 cubic meters”

Some did (very few – actually not a single one of all applicants had such neat notes. However, four of them were at least able to eventually find the numbers, with some barely legible notes attached).

Most had to go back and redo a lot of their calculations, while trying to keep their notes in better order (often stressing and failing again, this time freezing up on simple calculations like 2+3 or 4/2)

And, yet, even those with the two appropriate numbers at the ready still found it somewhat difficult to answer if the money would fit. Mostly because they weren’t entirely sure which number was the volume of the arena and which was the money volume, due to… sloppy notes… and inability to make a simple quick verification of the easiest volume to calculate (1003=1m).

Four finally did answer, trembling and sweaty (they claim to still get shivers down their spines, just hearing about the “Globen Case”), that yes, the money fits.



Then I asked them to draw the arena and the money in it (remember it would only would occupy some 0.2-0.4% of the volume), and invariably got way, way, way too big piles on the drawings. By then, however, we couldn’t exclude more people or we would never be able to hire anybody.

I’m sure you are feeling smug by now, thinking the above case was super easy.

Actually, you’re right. It is. The case in itself is easy.

It’s just that when sitting down at a job interview for a hedge fund, with me in your face, and not really knowing how long you have and not wanting to look stupid, can give anybody stage fright and freeze up.

And that was probably the most important part of the test – the ability to pick oneself up and continue, to try new ways and ideas, after failing one route. Functioning under pressure, keeping communication up, and being able to make decisions, ask questions and try, despite having made a few mistakes.


…and keeping neat notes, following a logical order, formulating a plan, communicating, demonstrating an ability to do quick sanity checks on the fly, to combine a bird’s eye view with at least a quantum of sense for details and plausibility in the micro perspective.

Actually, the real lesson here probably is that hedge fund managers can be quirky.


Bonus: How to write a CV

If you want to help a friend prepare for a job interview, share this article with him or her. Even if it’s not for a job in finance, they might find it useful anyway. If, nothing else, you could always talk them into subscribing to my newsletter and reading my book about investing.

Read more about applying for a job in finance here (how to write a CV), and why you shouldn’t here (please don’t waste your life in finance), and what you should do instead (robotics).

How to join the 4% that can successfully manage money, before it’s too late

You know nothing* Jon Snow

I have friends and acquaintances opening new funds all the time, it seems. This post is an open letter to them. This is my advice to you, P/S, who are thinking about going live managing money right now.

To be perfectly clear though, everybody who recently started investing or is thinking about it should read this article carefully. Not only because of the negative start to the year for most, but because the bigger picture is so much…bigger than a January loss.

*about managing money

cv interview job finance application

Well, ehm, first we bought GoPro…

If you haven’t managed money before, you really know nothing about the craft (luckily, both of you actually have)

That’s okay, it’s not that hard, really, it’s “just” multifaceted and complex (and actually inherently non-understandable… -or was it just me?). On the other hand, most things worth pursuing are.


A watch is complicated,

the three body problem is complex


Quite understandably though, I constantly have to field questions about investing. The main problem is that I typically don’t adhere to the same underlying basic strategy, thus rendering most detailed tactical inquiries moot.

So, grab a container of your favorite hot beverage and make yourself comfortable. Turn off all notifications, e-mail etc. and get ready to concentrate for a good 25 minutes (shamelessly plugging my podcast in Swedish: “25 minuter”)

This article is in a way part of a series of articles about managing your own money (or possibly client money). Check out my archives for all my articles on finance in one place.


Hence, you should refer back to the linked material, whenever you feel anything is unclear.


This particular post outlines a few general points you need to consider before commencing managing your or clients’ money. I don’t provide any answers per se, only suggestions and a smorgasbord of choices.

Beware. After all, this is treacherous ground. Managing money is both difficult, complex and dangerous, albeit not very complicated (i.e. not too many moving parts, but as Newton knew, three is plenty).

That said, it isn’t for everybody, maybe not for you. How would you feel, e.g., about losing 50%?


Suggested reading

Among the relevant articles in this context, my post about books and other reading material for budding investors stands out.

At the very least you should be familiar with the free pdf outlining 30 big ideas from Seth Klarman’s book “Margin Of Safety”.

I also think you should browse through at least one weekly comment from John Hussman. Just one single weekly, free, comment from Dr Hussman contains more market wisdom than most people acquire in a lifetime.

If you have the time (which you should), try reading a “memo from the chairman” (Howard Marks) or a quarterly letter from Jeremy Grantham at GMO.

There are many more useful (and timeless) links in this post from July 2015.

Last, I’d like to refer to my own eBook, The Retarded Hedge Fund Manager. Subscribe, download the book and at least take a look at the summary (10 bullet points) on pages 3 and 4:

Retarded advice summary

How to manage a fund

It’s pretty straight forward. Anybody could do it.

Just open an account and start buying things (stocks, bonds, commodities, derivatives, whatever you fancy). Once your cash runs out, you simply sell something whenever you want to buy something else, or borrow and use leverage.


You’re managing

ape face

(probably poorly though)

However, if you want some (professional) structure to it, listed below are the basic building blocks. Most of all they help you avoid common mistakes, as well as keep losses to a minimum (given your chosen strategy).


Avoiding mistakes is much more important than hitting homeruns when it comes to serious long-term professional investing


Decide on a strategy

This is probably the most common mistake of all. Investing is like air to us or water to fish. Most take it for granted and never take a closer look at what it really entails. Thus…,

Decide explicitly what your overall investment strategy will be:

  • International or domestic (hint: international)
  • Which asset classes (stocks, bonds, commodities, currencies, derivatives, precious metals, etc. – yup, investing is not about stocks only)
  • Long only (remember I thanked the “long-only herd” when receiving the 2008 Hedge Fund Of The Year award)
    • index independent
    • index hugging 
      • which index (Whaddya mean, which index; are there other than S&P500? It’s never easy, is it?)
  • Market neutral (Good luck Chuck! Sounds good, but alpha is often elusive and you end up doing an involuntary epic split between two different trucks)
  • Market timer (if there ever were a losing strategy…)

The fund I managed, Futuris (Brummer) – the European Hedge Fund Of The Decade (Nota Bene), invested in stocks only and we were to some extent market timers, in as much as we deliberately controlled the overall net exposure of the fund. We invested internationally, albeit with a focus on northern Europe. We were completely index independent and non-biased in every way.


Tactical considerations

-How will you decide what individual positions to take?

  • Fundamental analysis (FA, valuation)
    • Key ratios (I don’t like P/E:s, but this cash flow yield approach is a nice shortcut sometimes)
      • Btw, do you think of fair multiples in terms of what others (“the market”) is likely to pay, or in terms of true intrinsic value from your own point of view – i.e., a kind of yield calculation shortcut?
    • DCF analysis (“true” valuation, but rather impractical and deceptive sometimes. Numbers in a spreadsheet are no truer than lines in a chart)
    • Operations momentum (are fundamentals accelerating or surprising?)
    • Should you heed broker recommendations?
    • How do you plan to use analysts?
      • In-house
      • broker firms
        • For information only
        • Implement their alpha recommendations
  • Technical analysis (TA)
    • Momentum
      • Manual (intuitive, ocular)
      • Computer driven, data mining
      • Simple regressions (work until they don’t)
      • Complex (e.g., Lorenz’ strange attractor analysis for style gliding and trend change detection/prediction)
    • Patterns
      • General, commonly acknowledged, patterns (see “Reminiscences of a stock operator” for some background on the psychological underpinnings)
      • Stock specific patterns with statistical backtracking
  • Combination of FA and TA
  • Cross asset signals
    • What do commodities, bonds, precious metals, high-yield fixed income instruments etc. say about risk tolerance and growth, and consequently about the potential for stocks?
  • Macroeconomics
    • Investments, productivity, inventories, sales, employment, policy rates and economic growth, and their effects on profits and valuations

Futuris was mainly based on fundamental, bottom-up,  analysis, with a focus on unrecognized operations momentum and DCF analysis. Key ratios did play an important part as well.

FA often is based on triangulation of several valuation methods, which is exactly what we did. We did apply some experience-based intuitive hedging as well; whether that should be considered FA or TA isn’t clear. On top of it all, we kept track of coross-asset signals as well as the macroeconomic trajectory and its potential impact on specific industries and stock markets.

Considering we won the “European Hedge Fund Of The Decade” award from HFR for the period 2000-2009, I’d say Futuris’ overall approach worked, even if it could have been refined and optimized further. Sometimes hubris got the better of us.

futuris awards

Futuris’ Awards, ominously quiet 2003-2007


What do you do when things go south?

-Plan B

You will lose money.

Yeah, yeah, I know…

No, you will lose money, more than you anticipate, and you need a plan for that (Hedgehogging by Barton Biggs, or my own eBook both tell you a lot about the particularities of finding oneself deep in the red):

  • Stop loss levels and procedures
    • How much and for how long are you (and your clients) ready to lose for something you believe in
  • Length of pause between a stop loss and restarting
  • Procedure for restarting
    • All at once, or gradually
    • Are the same (losing) positions acceptable alternatives? Under which circumstances?
  • Stop profit?
    • a somewhat unorthodox principle of investing, where “enough is enough” and you cut your cash cows when they’ve run far enough, or rather too far. That way you avoid sudden mean reversions.

Futuris had an informal, soft stop loss level of 5% losses at the portfolio level. Individual positions, however, were allowed much more leeway. There were instances of doubling up at a 50% loss, and at least one (albeit marginal) instance of going 10-fold on a -90% loser. We had no specified pause length before restarting, but we almost always eased back into the market gradually over a few weeks. I personally did apply a kind of stop-profit methodology, trimming winners on surges.



Alright, so you have your strategy and some tactics in place. What about where the rubber meets the road? How do you perform the actual deals?

  • How frequent trading?
    • minutes and seconds
    • days
    • months
    • years
  • Number of instruments
    • Some advocate a maximum of 5-10 positions – to make every investment matter and count, as well as increase the depth of knowledge
    • Some take hundreds of small market neutral “spreads”, reducing single stock and market risk to a minimum
    • Perhaps, you plan to just buy and sell here and there and see how many you’ll get to over time?
  • Overall exposure range (+/-10%, 50-80%, 97-100%, 70-130%, +/- 100%)
  • Liquidity management
    • Do you plan to have any cash at all?
    • If so, where will you keep it?
  • Level of aggressivity
    • Marginal opportunistic changes within a strategic position
    • Catching both up swings and down swings, no matter the trend direction (aggressive)
  • Commission and research expenses
    • How much are you prepared to pay per trade, or per year
    • Are you buying execution services (placing power) or will you rely mainly on DMA (Direct Market Access, self-help)?
    • Will you pay for research? How much? What is an acceptable ROI on that investment? How do you plan to measure the effectiveness of third party research? 

For a fund of 1-1.5bn USD, Futuris was unusually agile. Sometimes we bought or sold the entire portfolio (100% of assets under management, AUM) in a single day. Most days, however, we typically executed less than 5 minor trades (less than 1% of AUM each). The extreme measures outlined above were reserved for stop-losses or profit taking in extreme market situations, such as 9/11 (2001), Hedge Fund Hell (August 2007), the Kerviel debacle (2008) and the Fukushima disaster (2011 tsunami and nuclear meltdown).

Futuris usually held around 40 different instruments (38 stocks, one long or short future and perhaps an index sell option), albeit more (60) the last few years.

Our overall exposure range was approximately -50% to +100% of AUM. We managed our liquidity conservatively (cash at bank or in short dated treasury notes). We were minimally aggressive regarding trading – once we had decided an instrument was going up or down we held the basic position steady with only minor trading on the margin (10-25% of the position), rather than actively calling temporary counter trends. Going both ways we left to more free-thinking spirits.


So, how should you manage your money?

I can’t tell you that, and I can’t recommend you follow my example either. I only want to make sure you understand the universe you’re about to enter.

Anyway, I think most investors should apply some sort of passive Buy and Hold stock strategy or a semi-passive Quattro Staggione strategy (stocks, gov bonds, gold, corp bonds). Going deeper is just a waste of time and a source of frustration for most.

I, however, am not most people (so I’ve heard).

I am currently heavily net short the stock market. Yes, that’s right; I haven’t just reduced my quattro stock slice from 25% to 20% or 15% or 0% for that matter. I’m way down at -100%!

It’s served me well recently, and even if I’m still basically 100% short, it’s less short than just a week ago. Hence, I’m actually ready for a temporary market bounce right now.

I know it sounds strange to some, but I have decided on a negative stock market exposure for the mid term, and will thus only trade around that position marginally – for fun and to stay tuned to the market.

I will not go tactically long on a gut feeling and risk being caught in an air pocket. It’s a bear market and they famously make everybody look stupid before they’re over.

Apart from (negative) stocks, I own quite a bit of gold (GLD) and gold mines (GDX), and I keep buying oil (Brent, and the oil exploration stocks DNO and Shamaran, which are both highly speculative punts on the KRG actually paying for the oil. That in turn probably means the oil price must rise above a certain threshold within a certain time lest they all go bankrupt, including the Kurdistan Regional Government).

portfolio Syding Current 22 jan 2016

This is not responsible. Do not follow my lead.

NB that I don’t really manage my money in the true sense of the word. I’m betting on a downturn, after which I will start managing again. I’m doing it in part for fun, in part because I think I’m right.

Usually, and for most, it’s not a good idea to try to time the market. It only brings unnecessary frustration and consumes a lot of time.

Once it’s time to get professional again, I need to buy a much more diverse set of international companies. Depending on how far down the market goes, I just might go 100% long stocks, or more, for some time, while possibly using leverage in order to hold some gold as well. My oil investments are not for the long run, but how can you resist the world’s most important commodity when it’s down by 80%?

Yes, I know all about the Saudis needing the money, Iran coming online again, the promise of Shale, not to mention the expansion of solar power, carbon taxes etc. Please note that most oil people knew all about that already 2 years ago, with oil 300% higher than today (i.e. at 4x today’s price). This is not the place to discuss peak oil or its inversion, today the topic is overarching principles for managing a fund.



OK… so what’s in it for me, you think. I don’t get it, should I invest or not? What stocks should I buy? Or should I sell the ones I own?

No, no, no!

What you should do is just think through the following before starting to manage a fund or your own money:

  • Should you at all manage your own money? Check out the pitfalls here. Is it worth it? Read the pitfall article and then decide whether active investing is something for you. It really isn’t for everybody.
    • Is there some other alternative you could pursue, that would be more predictable, worthwhile (and fulfilling)
  • What asset classes and regions?
    • Doing everything and everybody is seldom a good strategy unless you have plenty of experience or a large staff ;)
    • Jumping haphazardly from one thing to another just means more time spent learning and losing. You could trade just one single stock or currency profitably for your entire life.
  • What overarching strategy in terms of net exposure (long only or market neutral, e.g.)
  • Fundamental or Technical – on what basis will you select, rotate and replace your investments? How will you know if your M.O. is sound and workable? Are you a trader or an investor?
  • How frequently should you trade? How much time (and money) are you going to spend on investing and monitoring?
  • Plan B?
  • Most of all, do you think it will make you a happier person, experiencing a fuller life, considering not least the loss of time, and the gain (sic.) in frustration?

Check out my eBook for more useful information on investing, not least my ten most important lessons for any investor, private or professional, including the most important one:


There is never any hurry to invest

Opportunities always cycle back


And if you are at all toying with the idea of going fundamental, first check out this article about the only two steps you need as a fundamental analyst or investor. Warning, it’s actually 50…

Final note: This post doesn’t tell you anything about how to choose your actual investments, the actual stocks or instruments. That’s up to you. I’m ‘just’ telling you to be explicit about the framework within which to operate, and under which circumstances to abort.

Please share this article with your social network in order to help at least one person avoid financial ruin due to some simple error of omission.

The headline? Sorry about that… Pure clickbait

Required reading for the budding investor

Tip: this post is really just a long [50-ish items] book list for the aspiring investor

SpreZZaturian’s guide to becoming an investor

You want to work in finance, become a finance mogul?! You want to know the truth? You think you’re entitled to? 

required reading for the budding investor

You can’t handle the truth!

You will not get rich working in finance

Unless you went to the right school, hardly any firm will look twice at your application (more on how to write one here)

Job opportunities in finance are shrinking, and it will get much worse. If hired at all, prepare to be fired soon.

Before being fired, expect long and meaningless hours as a general “resource” (at best collecting data and preparing power point presentations, at worst working as a caterer).

The skill set for getting in has hardly anything to do with the skill set needed to invest. Consequently, if hired at all, you will waste a lot of time collecting and serving instead of learning, understanding and practicing.

You won’t learn much useful on the sell-side (analyst) either. And it will take forever before you make any money on the buy-side (founding partners and seniors will take it all, and you, my friend, are replaceable). Joining a new fund won’t make much difference, since any outfit that would consider you will be sub-scale, potentially forever.


DIY investing is a better way

But if you really want to be an investor anyway, do it yourself.

Apart from HFT/algo and bonds, you won’t need any fancy math, high up-front investments in infrastructure or complicated strategies. Investing in stocks (and some other asset classes) is mostly about psychology (not least patience).

You don’t need to get coffee for bosses to learn about investing. You don’t need to prepare giant spreadsheets or power points during the weekends to understand the basics. You need to read good books, and take risk with your own money.

If you are good enough and can prove your results, who knows, maybe after a little while, some hotshot will hire you or buy your operation. If you still want to by then.

You’ll get all the fun of investing, of being your own man, and at least the potential of making serious money sooner or later.

If you are not good enough, how did you ever expect to make money in the finance industry?

Do you want some reading tips for becoming a better investor? Can you handle the required reading list? Here goes…


Required reading

To become an investor you need a little bit of money, some basic accounting skills (being able to read an annual report), patience and a bit of luck. And most important of all, you need the right frame of mind, stability and being aware that investing is mostly about psychology, not math and accounting.

Not least you need a frame of reference and perspective.

The following are my best book recommendations for reading up on (mainly the psychology of) investing. And some for historical references and perspective in case you just started investing (less than 15 years ago) and don’t have good sources of long term financial records.

Plus some books to avoid.

First, the ten truly required reads:


Margin Of Safety – Seth Klarman (great summary for free here)

It’s really all you need to become aware of the most important pitfalls and opportunities in investing. This one is truly required reading; many times over.

Reminiscences of a stock operator – Edwin Lefevre

This book covers one of the greatest traders/investors ever, from his humble beginnings as a quotation boy to becoming one of the richest people in the world and a stand off against the U.S. government. His mistakes, luck and success imprint the reader with the foundations of investing psychology, technical analysis, macro/micro and sound, productive, investment.

Remember that “technical analysis” isn’t all about drawing arbitrary patterns in a stock chart, it’s about trying to infer the psychology that drives human herd behavior and stock prices.

Technical analysis has been a dirty word since my first finance classes in college, but prices still do hold some information.

Exactly what and how to use it is another story. I don’t think it’s black or white but a lot of shades of grey between macro, micro and technicals.

The Most Important Thing – Howard Marks

Everything you need to know about risk. Marks is a master of breaking down “risk” in components of risk, which clarifies the concept, and educates the reader on how to manage risk. You might think risk is just (historical) price volatility, or earnings volatility, VaR or something similar.

Nope. Marks will teach you about dozens of different risks that will make you see investing in a whole different light. 

Hedgehogging – Barton Biggs

Biggs’ story of how he started a hedge fund, managed setbacks in funding as well as investing (not least in oil). It’s entertaining and very useful. I learned more reading that book, than in my previous 10+ years in the market (I said something similar in an Amazon review way back).

You will literally feel Barton’s angst as he struggles with whether to cut his losses, or hold on to sinking assets that might be about to bounce or turn around. Better him than you.

Fooling some of the people all of the time – Einhorn

The perils of shorting, of being right but early and alone – and drawing fire from the authorities. If you are at all enticed by the dark side of shorting, you need to read this.

The Black Swan – Taleb

More about hidden risks and how to take them into account. Taleb’s epic book about the unknown unknowns that risk undoing everything unless you manage the fat tails of (im)probable outcomes.

BULL! – Maggie Mahar

The breathtaking story of the worst stock market mania ever in the late 1990s. Read and compare the IT bubble 1995-2000 with the central bank bubble of 2010-2015.

The great crash – Galbraith

The only objective recount of the markets and the economy in the early 1930’s. Did investors actually commit suicide? Didn’t anybody warn before. What responsibility did the Federal reserve have? Back then, the world’s greatest economist right before the crash claimed stock prices had reached a permanently high plateau. Should celebrity pundits like that be trusted?

How an economy grows and why it crashes – Peter Schiff

It’s about macro, I know, but it’s also about the foundations of entrepreneurship, investment, productivity and wealth creation. It’s the best book on economics ever written. It’s required reading on every book list. Here, it might just keep you a little more level headed when feeling the urge to buy into the Snapchat or Uber IPOs.

The death of money – James Rickards

What might happen to fiat money when the current money printing era draws to an end. Also, why you might want to buy gold instead of most stocks. Perhaps a bit dystopian and scary for a young investor, but nevertheless a good reminder that stocks are not all about stocks…

The Retarded Hedge Fund manager – Karl-Mikael Syding

My own honest tale about taking risk, and the importance of realizing the difference between luck and skill and avoiding hubris.


Very useful and readable, but perhaps not required per se

Thinking Fast And Slow – Kahneman (About the limitations of the human mind. Economic psychology and behavioral finance 101. You’ve already read it all if you have a masters degree in finance, but it’s a good summary nevertheless)

The user illusion – Norretranders (insightful and important regarding the interplay between the conscious and the subconscious; the real self and the narrating I). Learn to trust your intuition (which is the 1m times faster subconscious way of trying to communicate important things to your slow I) and be fascinated to learn that your “I” actually live half a second in the past, which is how long it takes the self to filter and sort and communicate the info (as well as make a fake time stamp -0.5s).

The Logic of Life – Tim Harford (a new slant on homo economicus, how superficially illogical decisions actually are super rational. It can help explain why some unlikely companies prosper and some ‘sure things’ fail)

Abundance – Diamandis & Kotler (about the wonderful future of technology and mankind [not sci fi; very concrete actual technologies]. Great for insulating yourself against doomsayers and perhaps understanding which new new things are more likely than others, and what kind of competition they will soon face)

Tomorrow’s gold – Marc Faber (Macro. Power centers and currencies you thought would last forever didn’t. None. The dollar and the U.S. won’t either, and definitely not the euro. Please note though that the time scale is in the hundreds or thousands of years, not next Monday)

Lords of finance – Ahamed (important lessons from central banking’s early days, not least the quick-step dance between currencies, real estate, stocks and bonds required to protect your savings during the Weimar hyperinflation)

Manias, panics and crashes – Kindleberger (everything you ever needed to know about the history and dynamics of manias and panics. The book is unfortunately a bit of a slow read, but the information is important and useful to gain perspective on what a bubble is, how it forms, the psychology behind its build-up and its bursting, what parts are fundamental and what parts are irrational feed back loops, how long to ride a bubble and how to trust a strong advance actually isn’t a bubble at all)

Endgame – Mauldin (not as good as I had hoped, but interesting macro take on the future for various [all] geographies. China, Japan, Russia… here is a prescient look into the future of geopolitical risk)

Irrational exuberance – Shiller (bubble theory from the man behind the Shiller cyclically adjusted price earnings ratio: CAPE)

Holy grail of macroeconomics – Koo (what really happened in Japan, and what was done about it, albeit not updated for the last few years’ insanity)

Animal Spirits – Akerlof/Shiller (the micro behind the macro of recoveries and bubbles)

The return of depression economics – Krugman (believe it or not, it was actually quite good – I read it in 2001 but he’s released an update including both crashes since then)

The great reflation – Boeckh (perhaps it’s over now, but here Boeckh shows the opportunities created by reflating the world after a trough. For next time, perhaps.)



Gödel Escher Bach – Hofstadter (A heavy and dificult tome about recursivity, reflexivity, self reference and feed back loops. No market talk at all, but a very important book about the limitations of math, where consciousness comes from, and related to the circular issue of central banks basing their decisions on variables that are affected by earlier CB decisions).



More fun than important, but still offer some psychological insights into markets and its participants

Cityboy – the ugly truth about financial analysts (you’ll never trust a recommendation again)

Wall Street Meat – A great book for understanding the immoral machinations that underpinned the IT mania (good IPOs go to insiders, bad go to you)

Liar’s Poker – Early days of the stock market’s comeback from the dead in the 1980’s. My guess is we could very well end up in a “death of markets” situation again in a few years; the early 2020’s?

The new new thing – Lewis’ story about the IT mania in the end of the 1990’s

Trading with the enemy – Jim Cramer’s colleague recounts Cramer’s borderline illegal antics at his hedge fund’s office and in the stock market


These you can do without:

The Intelligent Investor – Graham (Boring, dated, methods still works though but it’s way too long for saying keep stocks and bonds in your portfolio, buy more of whatever falls in proportion to the other)

Market Wizards – Schwager (Wtf?! Utter junk. Some fun stories, but nothing actionable – just hundreds of recounts of gut feeling and luck)

Wealth, War and Wisdom – Barton Biggs (I learned a few things about WWII, but the market stuff is borderline ridiculous – almost religious)


I haven’t read the following myself but they are probably worthwhile:

Antifragile (what is actually new here vs. The Black Swan?)

The little book of sideways markets (expect sideways markets for decades, with huge swings… this book might come in handy) 

Flash boys (Lewis is always entertaining and educational, here in a scary tale about HFT front running and rigging. Do you really want to invest in that environment?)

When genius failed (interesting tale about the Nobel prize winners that almost broke the financial system, by miscalculating the thickness of financial tails)

The big short (Lewis’ narrative of the house price boom and bust, its main characters and companies)


School text books I’ve kept but you easily can do without

Statistics – Newbold (way too much formulas for most, albeit some important lessons on which statistics to trust and which not to) 

Basic Econometrics – Gujarati (some regression analysis techniques can be useful, but mechanistic investing on this level is useless anyway)

Futures and Options – Hull (skip this one and take market prices for granted. You won’t be doing any option arbitrages anytime soon, or ever)

Principles of Corporate Finance – Brealey & Myers (here’s what you’ll learn: companies take on debt, and issue equity. Some proportions are expensive and/or risky. Sometimes companies acquire each other. Sometimes too dearly)

Valuation – Copeland (not completely useless, but do you seriously think you’ll forecast cash flows 20-50 years out and discount them with some arbitrary factor? And then invest your own money based on what comes out of the model? I don’t think so)

Macroeconomics -Dornbusch and Fischer (among all the laughable [EMH] charts and graphs there are some insights into economics, but you’ll learn so much more in Schiff’s book)


Online resources

Memos from Howard Marks (quarterly write-ups from the master of risk)

Ray Dalio’s principles (a very long list of guiding principles in life as well as on the markets)

Hussman weekly (weekly updates on market risk tolerance/aversion and valuation)

Contrarian edge (Vitaliy Katsenelson’s somewhat philosophical musings on the market, companies and products)

Wall Street Week (interviews with financial moguls)

Financial Orbit (Chris Bailey’s market updates)

HORAN (useful market charts -and thoughts)

Zerohedge (fast, frequent, news comments – unfortunately with a paranoid and bearish bias that seldom has any bearing on current events, even if it might hold true in the long run)

GMO (Legendary investor Jeremy Grantham has researched bubbles, all bubbles, defined them and followed their conclusion (all crash). Register for free and read his quarterly letters, including his past ones). Please note that he doesn’t quite think that we’re in a stock market bubble (yet).

Gloom Boom Doom by Marc Faber (“there is always an opportunity somewhere, perhaps in Vietnam”)

The high tech strategist monthly newsletter by Fred Hickey (originally a letter about high tech companies, sales and earnings developments and investment opportunities, but lately more and more about central bank shenanigans and opportunities in gold)



You probably should read up on marketing and accounting too, even if I think it’s a bit overkill. I suck at marketing, always have, and it didn’t hurt my investing.

I’m not particularly good at accounting either, but you won’t learn the necessary skills in school anyway – just some shallow mechanics.

Actually, accounting is one of few areas where sell side analysts are good to have around. They know a lot about accounting tricks and valuable key ratios.

Anyway, you’ll get pretty far by following, albeit somewhat blindly, my 50-step formula presented in an earlier post (called The magical 2-step formula).

And here is more on how to screen for stocks to invest in.

In a future post, I’ll add a beginner’s guide to stock screening (i.e., how to go from thousands of available stocks to just a few dozen relevant to choose from).



Start investing. If you can’t get a boss (a job) in finance, do it yourself. 

Read, read a lot, re-read. Start with Margin Of Safety, at least two times. Then the other 9 required reads.

Sign up for newsletters and updates from Grantham (GMO), Howard Marks, Contrarian Edge (Katsenelson) and check in on Hussman Weekly every Monday. Read their historical production as well. Just keep reading backwards in time.

Trade/invest with real money. Start with a little. Increase your stakes slowly.

Make a check list of what to consider before pouncing, and what you need to cut a holding. Follow that plan. When in doubt get out. Then restart. That goes for the upside as well; don’t be afraid to take a profit and a pause.

Keep a log of exactly what you do and why – in particular your feelings. You’ll want to get back to those notes when in trouble.

Read more; read Hedgehogging by Biggs… and my book The Retarded Hedge Fund Manager (subscribe to get it for free)

Most important of all: There is no rush whatsoever to invest. Markets will be there tomorrow too. Do not make an investment or hold on to it unless you know what you are doing. Keep a margin of safety.

Study, Wait, Pounce.

Margin of Safety