Tag Archives: Book review

Adaptive Markets – Financial Evolution at the Speed of Thought – by Andrew W. Lo – A Book Review by Bill Dahl

For a scholar who writes of his early life: “In second grade, my mother received a note from my teacher informing her that I might be “retarded”—the term of art in those days—and could use some extra help.” P. 125 — Welcome to a marvelous book by Andrew W. Lo.


 

Andrew W. l.o is the Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. He is the author of Hedge Funds and the coauthor of A Non-Random Walk Down Wall Street and The Econometrics of Financial Markets (all Princeton University Press). He is also the founder of AlphaSimplex Group, a quantitative investment management company based in Cambridge, Massachusetts.

What’s great about this book are several things:

  1. You do NOT have to be a graduate student at MIT to enjoy this book. If you enjoy cutting edge multi-disciplinary insights into human behavior, this book is for you.
  2. This book requires unlearning – for me, authors that do this are rare and invaluable.
  3. This book FINALLY begins the arduous process of integrating the science from a multitude of fields into a coherent thesis: :”A new explanation for the contradictions and paradoxes discovered in the battle between the rationalists and the behavioralists. I call this new explanation the Adaptive Markets Hypothesis.”  P. 185.
  4. The author is a superb story teller with no intellectual ax to grind.  His wonderful heart comes through in the way he writes…it just makes the reading experience vastly more enjoyable. Thank you.The nature of our understanding of economics, finance and human behavior is changing (as it must). As one who enjoys writing and research in this genre, I find, as the author states; “But every time I finished one book, I felt impelled to read another because of gaps or inconsistencies in what I’d just read.” P. 302 Adaptive Markets put an end to this experience for me (although I WILL continue reading!!!).

That’s why Adaptive Markets – Financial Evolution at the Speed of Thought – by Andrew W. Lo  is so darn important. The work is very much an integration of the most compelling scientific findings from a myriad of fields that Lo sutures together in a straightforward and coherent manner. It is also a body of work that will undoubtedly inspire additional research.

Evolutionary biology represents an organizing framework for Lo’s reasoning. I found the framework very illuminating. A few quotes from the book:

“The Adaptive Markets Hypothesis tells us that profit-taking alone isn’t enough to explain market success in organizing human behavior. We’re motivated by fear and greed, but also by a sense of fairness, and perhaps most important, by our imaginations.” P. 417

Just as the human eye is susceptible to optical illusions, the human brain is susceptible to illusions about risk and probability.” P. 62

“Economic rationality isn’t wrong; it’s just incomplete.” P. 200

Financial evolution proceeds at the speed thought, where several generations of ideas can come and go within the time span of a productive working lunch.” P. 231

A financial crisis can be as disruptive to people’s lives as a major war.” P. 320

“This means that culture is also subject to evolution, to the same processes of variation, selection, and replication as a biological species or a mental narrative”. P. 345

There are important interactions between culture and environment, in some cases reinforcing bad behavior.” P. 352.

This is a terribly important work. I hope it will inspire the essential, civil dialog and research endeavors that are currently woefully underfunded to explore the emerging, new frontiers in finance – and our understanding of all the audiences in these environments.

I HIGHLY recommend this superb work.


 

ENJOY!

 

The New Masters of Capital – American Bond Rating Agencies and the Politics of Creditworthiness by Timothy J. Sinclair

A journey into a cavern of capitalism that is rarely explored.


 

The New Masters of Capital – Sinclair

The assessment of financial risk in society evolves. In this volume, one gets a guide to the inner working and evolution of Moody’s, Fitch and Standard & Poors. Yet, it is vastly more than that.

As Associate Professor of International Political Economy at the University of Warwick, Sinclair’s methodology and commentary are simply magnificent. With such a paucity of books authored on this subject, I searched and selected this volume. I am very glad I did.

The honesty that guides the author’s analysis is refreshing:

Rating, as it exists today, is not rocket science. It attempts to meld quantitative and qualitative variables that are not commensurate and therefore cannot be placed into an equation. It is crucial to understand this point for much of the commentary in the financial media passes over the inherent subjectivity of bond rating.  Ratings are not deducible. They reflect the application of rules of thumb. What follows from this observation is that ratings are judgments – the realization that ratings are actually more contestable than they may appear.” (emphasis is mine. p. 176).

In a society where quantitative modeling seems to lead to “leaving it to the experts” – the realization that subjectivity in risk assessment remains an all too often overlooked element within this reality. Sinclair’s chapter on Blown Calls (and the footnotes therein) are tangible evidence of this fact.

The chapter entitled “Unconscious Power” was absolutely fascinating. The ever-increasing global power that these entities exercise over humanity is an awareness that did not go unnoticed by this reader.

This book is a gem, crafted by an incredibly capable and insightful scholar. Timothy J. Sinclair is a superb guide.

I HIGHLY recommend it.


 

 

 

The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis by Jessica M. Lepler

Superb! Period!


 

Far too many financial histories inhabit the shelves and stacks that have one thing in common: an intellectual agenda in search of support. This work is a uniquely refreshing exception. It is a work that distinctly deserves the scholarly recognition it has received – from many, diverse audiences.

Lepler Many Panics

I enjoy reading in this subject area. This particular work was delicious for me for a myriad of reasons. Here are a few:

1. Linguistics – Lepler’s appreciation for the words, terms and phrases people used to describe their life experience was precious to me. It is too often overlooked by other authors.

2. The sheer depth and breadth of Lepler’s research was, to say the least, unique and vividly rewarding for her readers.

3. Lepler’s appreciation for the impact of “culture” was quite apparent – again and again – enlightening.

4. AGAIN – Far too many authors who write financial histories seem to have a thesis that they attempt to validate via the introduction of a supporting narrative – such is the human penchant to “be right” and get at “the truth.” Lepler’s methodology and multi-dimensional approach to the issue of “many” panics was terribly refreshing.

5. It was a pleasure to read a financial history book that was authored by a bonafide historian vs. an economist or a political hack with an agenda. The author’s objective dedication to her scholarly craft was apparent on every page.

6. The author’s critiques of other works were, in my opinion, “spot on.” I was grateful for the courage to say what she wrote.

7. I adored the characters brought to life. It made the book fascinating.

8. Lepler’s appreciation for epistemology was apparent throughout.

9. The author’s contributions from the “phrenology folks” were priceless.

10. Lepler’s focus on the impact of communication (or lack thereof) between persons, media outlets of the day, groups and organizations (and governments) is a fundamentally important dimension of the author’s contribution.

As Lepler states on page 253: “Even when economic events seem beyond the control of any individual, the shaping of their meaning remains within our grasp.” – How marvelously this work remained true to this statement – in every sense of the phrase.

My edition of the “Many Panics” by Jessica M. Lepler is marked up like a child writing with crayon on a kitchen wall. This book is a treasure for me and I have learned to become a better researcher and story teller because of it. It is simply VERY rare to have the privilege to devour and digest such a magnificent work. I sincerely hope that Lepler’s dedication to a tireless methodological approach for source documents will serve to inspire other historians and writers – and students – as this work inspired me. This work will occupy a prominent position in my personal library. I will refer to it quite often.

I HIGHLY RECOMMEND THIS WORK!!!


 

A Nation of Deadbeats by Scott Reynolds Nelson

When you read this book you garner a vastly deeper appreciation for the terms scholar, historian, research and story teller. You also are blessed with a unique narrative regarding the history of America’s financial disasters in the nineteenth century. I’ve done quite a bit of reading in this genre – and this book is a MUST READ.


 

A Nation of Deadbeats
I truly enjoyed this work. Actually, I became immersed in the narrative and learned more than I could have hoped.

This work has encouraged me to continue to “explore the places where maps have failed us…pushing along in the dark.” (p. 254). Yet, the historical evolution of U.S. capitalism that this work recounts, illuminated the absence of pre-existing maps from which to plot the path ahead. However, this work also revealed for me that man, at every juncture, with his seemingly eternal penchant for wealth and power, and organization – emerged, and injected itself at every opportunity.

For me, this book distinctly reinforced the incontrovertible evidence inhabiting the historical record; when you combine man and money, the emergence of mayhem is a matter of fact. Although we currently live in a time where our culture suggests that we know most everything, can control our environments, and predetermine outcomes of socio-economic (and geo-political) policies – I remain a healthy skeptic…particularly as it relates to ALL things economic. Again, this volume is a reminder to me to remain sensitive to the alerts from my “crap detector” (attached to my forehead, swiveling in a 360, 24-7 – and – solar powered). The “smugness” that inhabits our intellectual, social, economic and political discourse today remains, in my opinion, one of our most profound, enduring weaknesses – as a species – particularly as folks continue to espouse rigidly militant “certainty” about issues; past, current and future. I, for one, appreciate those who possess a high regard for questions vs. those who attempt to cram answers down my throat…as the author’s commentary at the end of the book, directed at his colleagues, elicited deeply appreciative smirks from this reader.

Yes, as some of the author’s final remarks in this book indicate, I too have ongoing concerns about the unregulated and mysterious miasma of rogue waves of capital that seemingly slosh between the shores of our globe…outside the cognitive awareness of the ordinary citizen…capital without margin (“margins impose safety”… p. 251), incalculable leverage, incomprehensible risk, and a source of instability whose magnitude and morph I remain acutely concerned with…as inertia continues to thrust us into places where maps are under construction…pushing along in the dark.…to a yet, unknown destination. Yet, the human motivations remain seemingly unchanged.

This particular work is profoundly appreciated by this reader. Thank you so very much Mr. Reynolds.

I highly recommend it.


 

BOOKS Recently Read by Bill Dahl at 3/24/17

Here are the books I have recently completed reading through 3/24/17. Yes, my focus is currently the history of the evolution of capitalism in U.S.  I find the degree of financial illiteracy in the U.S. in the 21st century absolutely shocking. History provides a basis from which to more deeply appreciate where, when, how and who influenced  the emergence and current state of this “Grand Experiment.”

Every book always leads me to interest in another. I am particularly grateful to author/historian Jessica Lepler, Assistant Professor of History at the University of New Hampshire (and author of a fantastic work: The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis. Also – author/historian Stephen Mihm, Associate Professor of History at the University of Georgia and author of a MUST READ: A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States (Harvard University Press, 2007). Both these scholars shared their recommended reading lists with me on 19th century U.S. financial history.

Here’s the list of books I have read in this genre in the past few weeks:


 

The depth and breadth of research contained in this volume is difficult to comprehend. Jessica Lepler invested years in the research and writing of this fascinating treatise – on two continents. My Oh My – this book is a national historical treasure. Period. The characters she brings to life and the various escapades they venture upon – priceless. This volume occupies a distinct place of honor in my personal library

A journey into the untold economic historical mystery that 21st Century Americans are completely unaware of. Thrilling, intriguing, reality of the force of counterfeiting in the history of the U.S. – Gosh, I adored this work. Stephen Mihm is a master researcher, story teller and weaver of the sinew of an oftentimes overlooked subject in the ligaments of U.S. economic history. Honestly, this volume is SIMPLY SPECTACULAR!!!

A sociological and historical classic. The history of risk in the U.S. – insurance companies, the rise of the corporation, the Freedman’s bank, the emergence of employee benefits,  etc.- the

This book explained my never ending discomfort with Timothy Geithner as U.S. Treasury Secretary. I doubt if you will ever see Giethner and Blair breaking bread together after reading this book. The book is insightful for Blair’s inside look at her term as Chairperson of the FDIC during the Great Recession – and her incessant advocacy for the fate of the U.S. consumer and homeowners…a noble effort, throughout years of public service, too often obstructed by others. Without Blair at the helm of the FDIC during the great Recession – trust me – things would have been much worse. Yet, there remains much financial re-engineering yet to be done…as she urges her readers to passionately advocate for TODAY.

No treatment of the history of U.S. economy can overlook the emergence and establishment of railroads. A phenomenal treatise.

A CLASSIC – although focused on the evolution of international banking, the treatment of the U.S. institutions, policy and practice development are a CANNOT MISS THIS BOOK!!!


 

ENJOY!!!

Recently Read: By Bill Dahl

Okay…okay…I get emails every week asking me what I am reading. So here’s a list of what I have recently read (MOST are for research regarding a book I am currently writing…(Nope – won’t tell so don’t ask – it’s a two year project – look for it in LATE 2018):


 

  1. The House of Morgan – An American Banking Dynasty and the Rise of Modern Finance – Honestly, a historical treasure. Winner of the National Book Award.

2. America’s Bank: The Epic Struggle to Create the Federal Reserve – by Roger Lowenstein – I adore anything Roger writes.

3. Origins of the CrashThe Great Bubble and Its Undoing – by Roger Lowenstein – An uncharacteristically harsh critique from the pen of Lowenstein. However, for its historical relevance for me, another treasure from Roger.

4. The Empire Express – Building the First Transcontinental Railroad – by  David Haward Bain – LOVE LOVE LOVE this author and writer. WOW! What a story by a splendid story teller. This book will absolutely captivate you via the author’s research and his uncanny ability to share the personalities of the principal players and their interactions.

5. Jay Cooke’s Gamble – The Northern Pacific Railroad, The Sioux and the Panic of 1873 – by M. John Lubetkin – A Tremendous Story that will fill in details of American History that you had been completely unaware of. Superb writer and researcher.

 

6. The Panic of 1819 – Reactions and Policies by Murray N. Rothbard – A Political science and economic policy classic. I truly enjoyed it.

7. New ERA – Reflections on The Human and Natural History of Central Oregon by Jarold Ramsey – A priceless contribution to the cultural landscape of Central Oregon. ADORED IT!!!

8. East of the Cascades – Philip Brogan – A historical and sociological (geological) classic as it relates to Central Oregon.

More to come in my next post…some of my reading is currently 6-700 page volumes with microscopic print so it takes more time to complete them.

ENJOY!