Help Me Learn High Finance

July 18, 2006 10:29 PM

Help me learn high finance!

I am an attorney and recently I took a job representing union pension and health and welfare funds. I was chosen for the job because I have a lot of experience with unions and have a lot of knowledge of labor law. The job involves a lot of finance and even though these funds have their own financial advisers, I really can't effectively represent them without a somewhat detailed understanding of finance, which I don't have. These are for the most part $40+ million funds, so they often have pretty sophisticated investments. I've searched the archives for similar questions, but none of what I've found seems appropriate; it's either personal finance or corporate finance, neither of which is exactly what I looking for. These are the types of things that I'd like to know about: hedge funds, selling stock short, growth v. value funds, private equity investments, venture capital, the bond market, and general investment strategies. There are other things I probably need to know that I'm not even knowledgable enough to identify. Also, some ideas about how I can keep abreast of trends in finance once I've learned what I want to know would be helpful. I read the New York Times, the Wall Street Journal, and I'm thinking about the Financial Times. I'm looking for suggestions for books and publications primarily; though websites and other ideas are welcome.

posted by bananafish to work & money (15 answers total)

Ready everything you can about and from Warren Buffet. The annual reports of Berkshire Hathaway, for instance, are available for free from their website, and contain the best investment advice anywhere in the world.
posted by dagny at 10:36 PM on July 18, 2006

Finance isn't terribly difficult to understand. It is, however, full of jargon. To get a basic grounding in terms, you might want to comb through investorwords and investopedia.

Wikipedia has decent entries on a variety of financial subjects, including short selling and even more technical subjects like discounted cash flow analysis. Following links within those articles will lead you to even more.

For more general reading, Liar's Poker is an interesting history of Wall Street in the eighties.

Investment strategies is a bit more difficult, since half-baked investment ideas are a dime a dozen. The newspapers you mentioned all have sections on capital markets as well as personal finance. For insight into long-only investing and investing philosophy, read Warren Buffett's letters to shareholders of Berkshire Hathaway.
posted by nyterrant at 11:24 PM on July 18, 2006 [2 favorites]

Also, be sure to check out the trade rags. New York is full of online newsletters that write about big institutional investors. The aptly named Institutional Investor is one; FundFire is another. These charge heft subsctiption fees.
posted by nyterrant at 11:33 PM on July 18, 2006

Agree on anything by Buffet, and reading the WSJ and related papers is very good as well. The Motley Fool books are refreshing for their honest, direct approach, but their website has been getting more and more annoying as they push their premium content.

I would also recommend the company I work for - Seeking Alpha. Its a financial blog network/community site covering pretty much all sectors of the market. I'm biased, of course, but I wouldn't have joined them if I didn't really believe in what they are doing and in the quality of the content. The best way I've found to learn about the finance world is just to immerse yourself in their analysis and commentary, and soon all the jargon and graphs start to make sense.

You can read complete free conference call ranscripts, more basic guides, and daily summaries from WSJ and Barrons, among other things. Hope you don't mind the self link, but I think you'll see its warranted in this case given the question =).
posted by rsanheim at 11:35 PM on July 18, 2006 [1 favorite]

There are also alot of data available from various blogs - I've found Big Picture's Apprentice Investor particularly informative. My area of interest is in economics, not finance per se but I would also recommend the book Principles of Finance with Microsoft Excel just because it fulfills all the vocabulary issues with real examples that make sense.
Congratulations on your new career, you'll find it very interesting.
posted by ptm at 11:44 PM on July 18, 2006

If you want a good general reference book I recommend Investments by Bodie, Kane and Marcus. If you want to get more into the technicalities, then Hull is probably what everyone reads first.

As an overview of the industry, I enjoyed Doug Henwood's Wall Street (free download). It's quite readable, and Henwood is quite sceptical about the industry as a whole, so you get a perspective that's often missing from more standard books.

Keeping up to date - the FT, and on the web, Finextra.
posted by crocomancer at 2:58 AM on July 19, 2006 [1 favorite]

Here's a great overview written in a very readable style: The Only Investment Guide You'll Ever Need by Andrew Tobias

For specifics on Value Investing, turn to the man who taught Buffett: The Intelligent Investor by Ben Graham.
posted by Fuzzy Monster at 5:16 AM on July 19, 2006

Don't read Buffett. He's great, but he won't help you. The BKM book (cited by crocomancer) is the best reference book you can buy, but it's going to be heavier on how to price a swaption than it will be on hedge fund strategies.

It seems to me you're looking for breadth at this point, rather than depth, so your best bet (you're an attorney, so you can probably expense it) is to find a pension or ERISA consultant or a business school professor and pay him or her for the time. Where are you located?
posted by Kwantsar at 5:17 AM on July 19, 2006

And furthermore, you'll forgive me for my negativity I hope, I don't think that many people answering this question really understand what you need to know. By my reading, you're looking to acquire some professional competence; not to learn to unlever a beta or to calculate a cash tax rate. Instead, you're trying to get a portfolio perspective. Maybe you should buy the CFA Level III Refresher book.
posted by Kwantsar at 5:27 AM on July 19, 2006 [1 favorite]

Understanding finance is one thing, while understanding investment, particularly investment via public financial markets is quite another. Theoretically, investment should be based on the financial viability and potential success of an opportunity, balanced against its risks, and so a knowledge of finance is presumed to be necessary to becoming a knowledgeable investor. This, in a nutshell, is what good ol' Ben Graham advocated.

But investors have long liked creating and playing games which abstract risk for greater flexibility and higher returns. These days, as much money moves in financial derivatives, as in direct investment. Derivatives have their critics and their strong supporters, but whatever you think about them, they are increasingly important channels for money movement and risk arbitrage in the world economy. But knowledge of finance, per se, is less valuable in understanding these instruments and channels, than is an understanding of statistics, psychology, and systemic risk managment strategy.

At the beginning, if you don't already have it, understanding accounting, and the accounting profession is key. Mainly, that's what most people mean when they talk about understanding finance. Once you can distinguish cash basis from accrual method, or delineate standard cost basis from average cost, you have a reasonable chance of being able to read financial statements and accountant's opinion letters without being hornswaggled. There are many sources of training for accounting, including local and on line college level courses for the non-financial manager.

If you advise clients about legal matters involving investment management responsibilities, then carrying on some study of markets, risk, and capital movement would be an additional area of work, presumably once you feel grounded with a functional knowledge of accounting. I'd second the recommendation to read Ben Graham, and urge you to consider an appropriate level of formal financial education commensurate with your responsibilities.
posted by paulsc at 5:57 AM on July 19, 2006 [1 favorite]

A Random Walk Down Wall Street, by Princeton economist Burton Malkiel, contains an excellent introduction to both the theory and the practice of investment. It's aimed at individual investors (so it's very readable), but it covers beta, hedge funds, selling short, and several other basic techniques that you're asking about. It's essentially a distelled presentation of Efficient Market Theory.
posted by gd779 at 7:04 AM on July 19, 2006 [1 favorite]

Besides Institutional Investor, there's also Pensions & Investments for news. Broader trends will pop up in places like Financial Analysts Journal or the Journal of Portfolio Management.

What you'll need to know is, as Kwantsar said, going to be more geared toward ERISA requirements about fiduciary duties. I would get to know bonds before I bothered with sundry hedge fund strategies or private equity investments.
posted by milkrate at 7:53 AM on July 19, 2006

Try searching articles at The Motley Fool.
posted by Sprout the Vulgarian at 10:16 AM on July 19, 2006

Apart from kwantsar's very good advice about the CFA text, most of the above information is adequate only for a layman or a day trader. You'll need something more meaty to understand finance for pension / benefits funds. E.g. how do you match the returns of different asset classes to your expected cash flows? How do you immunize your portfolio to hedge risk? Motley Fool is not going to tell you that kind of stuff.

If you want to learn about it properly and reasonably quickly, the best way is to go through the relevant portions of the curriculum of the Society of Actuaries. Have a glance through pages 48-50 of the SOA Spring 2006 Basic Education Catalog, which lists the topics for Course 6 - Finance and Investments. The standard texts are listed on page 49. These books as exciting as watching paint dry, but they'll give you exactly the knowledge you need and you can plow through them all within a month.
posted by randomstriker at 2:35 PM on July 19, 2006

P.S. when I claim you should be able to digests those texts within a month, I say so only because you've been through law school and know how to study hard. Not for your common-or-garden MeFite.
posted by randomstriker at 2:42 PM on July 19, 2006