How to Teach Yourself Finance & Economics

0:01 How do you give yourself a self-education in finance and economics? This is a question I get asked a lot by you guys. How do I build a fundamental understanding of finance and economics and learn about how the markets work? There's so much misleading information and people trying to sell me stuff. I don't know where to start. Welcome to Analyzing Finance of Nick. In this video, I got inspired by a live stream that I did about resources and books that I've read and YouTube channels and other content that I've followed or used to help my research over the years and kind of put together a guide really about how to basically be self-taught

0:49 market practitioner. I still recommend a formal education in this kind of thing if you're young enough to do it and still you want to pursue as a career. I mean you'll have a heavy advantage if you're a accounting, finance, business and or mathematics major or economics major going into this kind of research. Also a lot of things have to be learned by doing. The best way to learn this experience is to work in finance. But if that's not an option and you just want to get started for your own personal knowledge, this is a little curriculum I've put together to help you with that. Realistically, it'll probably take you

1:34 at least 6 months to complete all this. I did a smaller version of this kind of guide to people who requested to be interns of mine long ago. I would say, "Hey, look, I would consider it if you would complete the entire reading list." And no one really came back and completed all the reading list. So, you really can get ahead and knowledge to learn this stuff correctly is out there in many different sources. Just a matter of really applying oneself. And no, I do not take interns, so don't ask. Without further ado, let's get started. First thing you need to learn about is mindset. I always think that

2:19 when you go to a new topic, learning about mindset and psychology around that topic is actually really helpful. If you have a passion for this, you'll develop it by learning about the mindset behind the people who are great at it and how they do it. If it's something you can relate to, it's a good sign you're going in the right direction. And if you are completely disconnected and they don't understand why this is appealing to people after learning about how people approach their craft, maybe it's time to kind of move on to something else that does suit your interests. So that's if you don't have the right mindset, it hinders you in a lot of other ways. The first thing is mindset foundations.

3:06 There's two books. Well, one's a series. You can read as many in the series as you want, but read at least the first one. The other one is another mindset. They're both related to trading. Even if you're not a trader, the trading mindset seeps into all corners of finance. Anything you're doing at finance is a trade. Some longer term trades are considered investments. Illquid trades of how to allocate money in a company are called capital allocations or capital expenditures. you are making a bet on a certain outcome which is the most rooted manary definition of a trade. And so the two books that I recommend starting with are the market wizard series. I mean all of them are good but I preferably like the first two in the series by Jack Schwaker. And since these were written in the 80s and

3:52 the 90s you're not going to really get any actionable trading advice. But you're going to learn about how some of the greatest people in the profession were able to tackle the markets, how they look to solve inefficiencies. If you want a more modern version a few years ago, the most recent market wizards book and then another 10 years before that in 2012, there's hedge fund market wizards. So, you got a lot of options. The other one I recommend is Come into My Trading Room by Dr. Alexander Elder. And this book is about trading, but it's more about psychology and really the sense that a lot of trading and investing is a psychological battle against yourself and your biases. You need to build an investment system that counteracts your worst impulses

4:39 that will work against you in the world of investing. What makes Dr. Alexander Elder a good person to read is that he has a background of a clinical psychologist quit his clinical psychology practice and became a full-time trader. So he has the perspective of both worlds. Those are the two that I would start with. Next it would be like surface level understanding of economics and finance. And if you kind of want to just learn like all the some of the most interesting terms and basic concepts I recommend two videos of mine that you should watch. One is the complete iceberg of finance which I released last Thanksgiving and it's the compilation of all the iceberg of finance videos I did when I first started this channel. The second one is the complete iceberg of

5:24 economics which is a compilation of all the iceberg economics videos I did in 2023 and released it over Christmas last year. Those two will give you the foundations of the basic terminology, some of the key concepts. And if you want to go in a deeper dive on any of them, you can search that term of the iceberg on either Wikipedia or Google, that will also be kind of a a good way to get down the rabbit hole into the corners that might be the most interesting to you. So that's step two, getting that iceberg level understanding and a surface level of what's going on in finance and economics. Now that you've got the mindset books down and the 101 icebergs, the next step is understanding risk.

6:11 Risk is really kind of a key element of finance. Like every investment, everything in economics is really involving uncertainty. You're either trying to figure out how to profit from uncertainty, hedge it away, or plan around it. Those are kind of the three things that a financial professional is doing one way or the other. And there are three books that I recommend about this. One is the success equation by Michael Mobosen, which is about figuring out what games or contests or challenges in life are driven by randomness and luck or driven by skill and how to differentiate that depending on what kind of game you're playing, what

6:56 approach you're going to do. I think I did a one minute book review about the success equation. If not, I will add it. But it's one of the most important books I've read in finance business and how to manage risk. Another book I would read is fooled by randomness by Nasim Taleb about the differences between random variance and real signal in the markets. He's very useful. Another kind of like paper that's a good followup from this is volatility and the prisoners dilemma by Chris Cole which talks about kind of the main there's like page eight and page nine in there which really kind of talk about how every decision is essentially a VA decision. I think I posted a link to it in the description of the interview I did with Chris Adel Missay, which I also recommend you watch

7:42 because we deal a lot with risk and uncertainty and how it relates to options trading. And even if you're never going to touch an option in your life to understand kind of the payout structure and how the derivative market operates will just make you more informed and better understand the rest of finance. And then phase three is just kind of like basic level education. All the fundamentals like the stuff that you would learn if you were a finance major or a business major with an emphasis of accounting or finance in undergrad. And that's the CFA level one curriculum. I don't recommend just registering for the CFA and taking it necessarily unless if you want to do byside finance for a living. But I do recommend buying like or downloading some notes you could find like as a summary of the curriculum.

8:27 either I'm buying like the Kaplan Schweezer notes which is the ones that I used while I was preparing for this or there might be alternative companies offering it now and basically summarize all the key concepts of undergrad level finance in the CFA cooking that's tested on and faster way versus going through the thousand plus page book of this and there's these seven of these giant books that each one I don't recommen It's probably better to read the Kaplan and tweezer summaries. Ones you need to read are the quantitative methods, economics, financial statement analysis basically accounting, corporate issuers which is about corporate finance, equity investments which is like basics of like

9:14 how to evaluate stocks, fixed income which is basically bond math, derivatives which is like options 101 and futures and other derivatives. alternative investments like a basically alternatives and portfolio management like when you're trying to put all these things together in a single portfolio. The ethics one you can read to learn about the ethical dilemmas that advisors and meth professionals have. But if you're not getting in the industry, I think you could probably skip that if you're just trying to get a general understanding of finance. I would recommend reading the other sections, especially the ones economics going down. And this is step one. It could take you 3 to six months to do all of this. Step two, if you want to keep going, is learning about strategic thinking within the world of finance.

9:59 Um, another book I'd add to this section, Hot Commodities by Jim Rogers, even though it's a little outdated in terms of trading advice. It is helpful for understanding the fundamentals and historical drivers of major commodities. But the first thing we got to think about is long-term mindset for investing and how like value investors approach their craft. And there's four books that I recommend when it comes to this. First one is poor Charlie's Almanac by Charlie Mer who's famous for being the partner of Warren Buffett at Berkshire Hathaway. Poor Charlie's Almanac is really a guide to Charlie Mer's mindset in value investing, how to find value in the markets and his apherisms about life. I highly recommend reading it. The other one is the most important thing by

10:45 Howard Marx which is about his approach to risk management and how it extends to how he selects securities in the credit markets. He's the founder of Oak Tree, a major bond shop in Southern California. One up on Wall Street by Peter Lynch is about how to use your common knowledge of things in your own industry or consumer products you buy and how to turn that into good actionable investment ideas. This is one of the books I read when I started out in finance when I was in college and I'd recommend it. And the other one is this part is You Can Be a Stock Market Genius by Joel Greenbat. It sounds like a very cheesy title, but it's actually a very advanced book about how to analyze special situations in the market, whether it's spin-offs or M&A or other

11:31 like unique corporate actions that don't really follow the fundamental rules of other types of investing. And then the other thing is that's level one. And if you want to do a deeper dive, there's phase two. And several books you can read. Three that kind of stand out are quality of earnings by Thorn O' Glove, which is about how to figure out whether profits from a company are actually high quality and sustainable or just kind of accounting tricks. Second one is Financial Shenanigans by Howard Schill, which is kind of written to help short sellers. Dead Company's Walking by Scott Fior's another book that's good on this, but it's the idea of like trying to find like the inconsistencies in the like in financial statements and where people are trying to misrepresent like the

12:16 books and their fundamentals of their company and how they go about doing it. And then the little book of valuation which is a deep dive on the fundamentals of valuation by NYU Stern professor Asworth deeron. He has a good YouTube channel too which I could recommend you watch if you want to learn more just about how to value things from a fundamental perspective. He's probably one of the better academics at doing that kind of thing and he goes really deep if you want to go really deep on this. So that's phase two and then phase three is global macro and geopolitical analysis. We now have the theoretical framework of how in a cater how a theoretical framework in how in a caterous world like all things equal how to make investment decisions but that's not really how the world works. The

13:02 macro conditions are always changing and we always have to factor in global macroeconomic factors into our investments. We need to have an understanding of how to do this. And then we got to step three here and there's kind of three phases within this. One is macro foundations. One is a book called Lords of Finance of the history of the Fed and other central banks during the inter war period between World War I and World War II and navigating like how the gold standard was on its way out 40 years even though fort actually died formally and seeing some of the actions that central banks do times in stress can help us learn about what are the options that they can

13:49 do in the future. The ascent of money which is another really good book by Neil Ferguson. There's also a good documentary series that's for free on YouTube of based on the book also done by Neil Ferguson and it's about the history of every financial product like why did people invent stocks when and how did people invent bonds or insurance or derivatives or anything the set of money goes down in the history of why these financial products came into existence and how they shaped global capitalism and global finance and I highly recommend it because you kind of understand the why helps you figure out what to to as a forward another book two book three books I like is one is the rise of carry by Tim Lee which is about carry trades and how that influences the world in finance I also recommend

14:36 reading tomorrow's gold by Mark Fabber which is a little bit old and it's kind of outdated in the sense of like specific investment advice but it kind of gives an approach of like what fundamental things he makes his case for Asia back in 2000 that you were looking for when you're comes to investing in emerging markets. And I did a good interview with my former trading mentor Ramen Miri several years ago on this channel about emerging markets. The sound quality was pretty bad on it because I was really bad at producing videos at the time, but I still highly recommend it if you want to get a good survey about how to invest in emerging markets. And then another book, if you want to learn about frontier markets, which are the markets that are considered too thinly traded and obscure

15:21 to be even emerging markets, there's a book the CFA Institute I think sponsors it, but it's the guide to frontier markets by Larry Speedle, who I don't know if he's still in the business, but back when I read the book and met him, he ran a mutual fund, I think, that focused solely on investing in frontier markets and based in San Diego. And I think that if you want to learn about frontier markets, he's one of the top experts at that. Next, we have to talk about geopolitics because geopolitics drives a lot of markets. I think it's generally overstated impact especially in the shorter term. But I think it's important to understand these political drivers nonetheless. There's three books that I recommend here. One is Geopolitical Alpha by Marco Poppage. is

16:08 an analyst for BCA research and his specialty is not just analyzing the probability of geopolitical events happening but analyzing what they mean for financial markets. So he'll go into basically looking at a political dilemma. Say for example the trade war and he look at every side and be like what are the realistic choices like the news will say oh the people can do anything. It's unpredictable. But there are usually hard geopolitical geoeconomic constraints that make what seems to be a wide set of choices that world leaders can make into a much more narrow one in reality. And through the geobield alpha, you can understand how to figure out what these constraints are. And based on that, you could figure out what are the asset classes that are

16:55 most affected and figure out how to trade accordingly or influence your investments accordingly. Another one is the sovereign individual, which is kind of a survey of basically how technology is going to shape the world. It was written in 1998 and it's been surprisingly prophetic. I think I've talked about it in either the iceberg series or one minute book review. So I'm not going to elaborate, but it's a good book. Signals by Pipa Malgrren is another one about how to find the turning points in geopolitical analysis and cultural sentiment before other people do. The last level of this global macro analysis is tactical application. And there's three books I think are

17:41 helpful for this. One is dynamic hedging by Nim Nicholas Taleb. If you want to learn more about options, there's also Sheldon Nathanberg's book Nathanberg on Options to understand the fundamentals. You want to go deeper down in the CFA level K1 curriculum does. Dynamic hedging is about how professionals do V trading trade delta neutral and try to make money just on the change in volatility and other Greeks and not direction. And that's really how professional options traders make their money. So if it's one of the hardest books I've ever read in finance, but if you want to learn about this stuff, that's where to go. Another one about tactical application is a book called Distress Debt Analysis, which is the same thing except instead of options, it's about distressed credits and how to

18:27 analyze investing in bonds and companies that are probably going to restructure or have a high risk of restructuring. It's also kind of a very dense and difficult book, but if you want to learn more about that corner of the market, probably a good thing to read. And then there's also Anatomy of the Bear by Russell Napier, which is about the history of bare markets and what happens in bare markets and the phases of bare markets and based off that what kind of investing you should be doing and how to time it. you show the headlines and the news of the four major bare markets as a road map of where we're at because a lot of times you think you're at the end of the bare market, but it's really not. Looking at headlines today or whatever the next bare market

19:13 happens and comparing it to the past, you can learn a lot of interesting coralaries and see if there's any insights to gleam on that. And then if you want to learn about Austrian economics and like more like praxiologist or a priority type analysis, you could develop intuition as a start deeper research. I recommend reading a book called economics in one lesson by Henry Hlett which kind of goes into like basically Austrian economics 101. And those are kind of really the the books that I would start with. And I if you want more of this kind of thing, I have a commentary real list of my top

19:58 100 books when it comes to investing, entrepreneurship, finance, social class, history, psychology, and other topics. You can get it for free by joining our complimentary Substack list. And there's a link in the pin comment in the description. And then there's another one about real estate if you want to learn about real estate cycles. There's two books I have on that. One is The Secret Life of the Real Estate Banking by Philip J. Anderson, which kind of explains the real estate cycle and the timing of when real estate bubbles boom and bust and why they do. There's another book which is more practical called How to Create Lifetime Cash Flow Through Multifamily Properties by Rob Clee. If you actually want to get into like real estate investing from like an actual like professional approach and

20:43 turning into a business, not just buying some house and renting it out. this is the book to read. You'll learn a lot about kind of what it really takes to be success at scale in real estate. And there's also now two other books now that I think before I end. One is the global macro edge maximizing returns for unit of risk by John Neto. If you really want to go deep into macro trading and how to build asymmetric bets, it's a little bit deep and a little bit of a pricey book, but it was a good read. And then the other one that I'm going to be talking about here that I think is relevant is a little bit dense. I mean this is

21:29 like if you want to go deeper than the CFA level one because let's see how one content covers most this best practices for equity research analyst essential for buy side and sell side like you're trying to get a job in this industry maybe this is one you should read after you finish all the other ones but for those who aren't going that deep you might be able to skip it and so okay so I completed all this homework Nick what now what do I do well there's only so far you can go by reading and learning. The only way you're actually going to gain the skill once you've done all the homework is through application and learning by doing. You can do this a few ways. One, you can either try experimenting like with a paper trading account or put in a small amount of

22:15 money and testing some of your ideas about how markets work that you've gained from reading these books with some real cash on the line. Like the paper trading is fun and maybe get your feet wet, but since it's not your real money, you're not going to have the same emotional ties and psychological hang-ups that you're warned about in the beginning of this course. There's a limit to paper trading. You're eventually going to need to put some real skin in the game. And probably after reading all this, you're going to probably realize why a lot of people who are successful in other domains are just intellectually curious about this don't do it themselves full-time. because this is a lot of work and it's a lot of and it takes there's a reason why people do this professionally and study it for

23:01 years like I did and why people hire me to do it. It's a whole college level education worth of content that I'm having you go through and I think you probably noticed this. Another thing you did do is you can write your own equity research case study if you're looking it like basically just kind of select a few stocks or macro trades like a futures contract or a currency and write a full report with like a thesis evaluation risk factor analysis the bull case the bare case and so you get an idea of how to do research by doing research. Then build a personal macro dashboard and track it. Have a list of all the major bonds or interest rate you're following,

23:46 all the FX pairs like the maybe the top stocks and ETFs that you're following, key credit spreads, commodity prices, country ETFs, indexes, etc., and just watch them every day for a year. See how they move on the daily, weekly, monthly time frames. You'll learn what technical indicators seem to work, what technical analysis doesn't seem to work, how certain headlines move certain companies and how do other headlines don't. Like when when in the market cycle earnings reports matter more, when do they matter less? You just need to spend time following the markets like you're following your favorite baseball or basketball team. Instead of looking at box scores, you're looking at the price action of the market and financial releases and SEC filings. Those are the

24:33 applied practice. basically following the markets on a daily basis for at least several months, probably at least a year ideally, testing it out with a trading of a small amount of money, and writing your own equity research case studies. And once you've done all of that and done all this reading, I can confidently say you have a better understanding than 95 to 99% of people in finance. And that's kind of my summary of this. If you like these kind of like guides to how to educate yourself, let me know and I might do them for other fields of my expertise. And if you realize I'm just overwhelmed with this and I don't want to handle it, you should contact me to see how I can

25:19 help with your investments. That kind of wraps it up. Once you do all of this stuff that I've showed you, you're going to realize there's a lot more going on in finance than simply dollar cost averaging. Thank you for watching.