Below is my list of what I consider the best books about trading, commodities, economics and psychology. My list covers everything from trading them, to commodity specific books, to insights into key players in the industry and more general reference books. This page will be a live page so I’ll be adding reviews as I go. Got a book you can recommend then send me a tweet @PeterSainsbury7.
Positioning Analysis in Commodity Markets: Bridging Fundamental and Technical Analysis – Mark Keenan (US) (UK): Positioning analysis is a vast area of research that bridges both fundamental and technical analysis and can be used to understand commodity price dynamics, risk and sentiment. Mark’s book is a practical guide to understanding commodity price dynamics from a different viewpoint from most other books on the subject. A great book for both beginners and experts alike and useful for both commodity consumers (manufacturers for example) and speculators to understand commodity risk in more detail.
Technical Analysis and Stock Market Profits – Richard W. Schabacker (US) (UK): If you were going to start anywhere to understand technical analysis this should be the book. It was written just after the crash of 1929 and despite its age is very well written. The example charts are even more interesting given it provides you with the framework for understanding how you might have forecasted that a sharp drop in share prices was forthcoming.
Timing Techniques for Commodity Futures Markets – Colin Alexander (US) (UK): This book has really opened my eyes to technical commodity trading. The author gradually builds up the tools you need to understand how commodity futures prices move. At the very least it will help you analyse what the balance of risks are – potential loss vs potential gain. Central point is to have a short, medium and long term view of charts to gauge support, resistance and trends. Definitely one to re-read.
Market Wizards: Interview with Top Traders – Jack D. Schwartz (US) (UK): The book is exactly what it says on the cover, a series of interviews with traders of commodity futures, stocks and other assets. The book delves into what factors they look for when making trades or investments. A familiar theme that stretches through the interviews is that its more important what you do out of the market than in it, i.e. take your time doing the research and waiting for the right opportunity that fits your strategy and risk profile. As with all of these kind of books they only ever review the sample of successful traders that used these measures and won. No doubt there are plenty that did the same and lost. But of course no one wants to interview the losers.
Oil 101 – Morgan Downey (US) (UK): A very detailed reference book for anyone wanting to understand how crude and product markets work. This is not a light book – either in terms of weight or writing – but very useful nonetheless.
The Sugar Casino – Jonathan Kingsman (US) (UK): Jonathan takes you through the history of the sugar market, over-rated concerns about obesity, the controversial role of speculators, how companies are implementing sustainability, the way governments interfere in the market etc. The author puts each chapter in context with a story from his own experience being involved in sugar trading and an interview with prominent people involved at different points in the sugar supply chain.
Commodity Conversations by Jonathan Kingsman () ( ): This book is a great introduction to the physical and financial trade in agricultural commodities. It includes interviews with physical grain traders, hedge fund managers and futures exchanges that delve beneath the surface of how agricultural commodities end up on your dinner plate. The author does a good job of dispelling the frequent concerns that erupt over the impact that speculators have on the price of food. Often vilified, speculators provide a valuable service in transferring risk away from physical buyers and seller while also helping to anticipate potential deficits or surpluses.
The Elements of Power – David Abraham (US) (UK): Focusing on rare earth metals David delves into what happened in China to drive the price of these metals to stratospheric heights. Lots of good insight in the book about how opaque the markets are, shadowy characters aplenty. A worthwhile read given our dependence on these metals (as well as many other ‘minor’ metals) in things like smartphones and wind turbines.
General books on commodities
Hot Commodities – Jim Rogers (US) (UK): A very well written introduction to commodities and commodity markets. It was published in the early 2000’s so you need to consider that when reading it, but even so it’s full of useful insight. I particularly liked the chapter about lead – a hated commodity because of its health impacts, yet prices can still go up if supply falls faster than demand. Bear in mind that Jim Rogers is a long-term commodity bull – he has is own commodity index – so beware the presumption that prices can only go one way. Note that he also makes no mention of how contract expiries can erode returns.
The Economist Guide to Commodities: Producers, Players and Prices; Markets, Consumers and Trends – Caroline Bain (US) (UK): The book goes through the major commodities in turn, focusing on base and precious metals, energy and agricultural commodities highlighting the main trends in demand, supply and price followed by an outlook for the future. The book includes an introduction to commodity market fundamentals, introducing the basic economics of commodities and commodities as a financial asset. However, the book misses out on any discussion of the longer term impact of high commodity prices and the financial crisis on demand destruction and measures to improve efficiency. Finally the book fails to recognise climate change as an emerging trend affecting both price volatility in agricultural commodities and also potential future supplies of a broad range of other commodities.
Commodity trading houses / people
The King of Oil: The Secret Lives of Marc Rich – Daniel Ammann (US) (UK): A great autobiography about the commodity trader Marc Rich. A fascinating story of how his family emigrated to America and charts Rich’s rise and fall. Some fascinating stories about how Rich saw opportunity wherever he went from inventing the modern day crude spot market to finding a way for Iran to sell its oil while under sanctions.
Crude Forecasts: Predictions, Pundits & Profits in the Commodity Casino by Peter Sainsbury (US) (UK): This book will help you make better investment decisions in commodity markets. Find out which pundits and forecasters really know what they are talking about and track them. Understand the factors you can use to hold the ‘experts’ to account. My second book – click here for more information including some great reviews
Superforecasting: The Art and Science of Prediction – Philip Tetlock and Dan Gardner (US) (UK): Want to be better at forecasting the future? Then this book at least tells you how to think about it in a better way and how you can train yourself to get better. Key insight is the use of Bayesian analysis to estimate a probability based on outside evidence (past occurrences) and then constantly adjust your outlook based on inside intelligence (based on the thing you are trying to forecast).
The Signal and the Noise – Nate Silver (US) (UK): A book I’d been meaning to read for some time. Although some of the chapters were a bit difficult to follow (I don’t know anything about baseball) there are some good insights in this book and overall its a good read. Especially worth noting the Bayesian path to less wrongness.
Future Babble: Why Expert Predictions Fail and Why We Believe them Anyway – Dan Gardner (US) (UK): Builds on previous work of Tetlock and others to explain why we really should know better than to trust the pundits that grace our TV screens. The author outlines why pundits such as Paul Ehrlich and others are so compelling, but at the same time need to be given a wide berth. Although the book feels a bit repetitive towards the second half as examples are dug up and used again, overall this book is a great read. The kind of critical thinking required to guard against being taken in is hard, indeed very hard to do all the time. This book will get you started.
A Guide to Energy Forecasting…part exercise in smoke and mirrors by Graham Duxbury (UK): An enlightening read on the trials, tribulations and trickery that goes into energy industry forecasting. Although data on energy demand and supply have improved over the decades, its remarkable how little data there exists for much of the world. The author succinctly shows how forecasters ultimately have to be able to ‘tell a story’ while using a wealth of power point slides from the limited data there is to impress their clients. This book is an essential read for anyone looking to pursue a career in the sector, but most importantly, for industry executives and policymakers looking to ask the difficult questions from their energy consultant.
The Big Reset – Willem Middlekoop (US) (UK): I have a problem with books like this in that they are really only a one sided view of an investment case – that you should be long gold. There is no discussion over the relative merits of the argument and why it could be wrong or what might delay the outcome that the author thinks that the market is underestimating. That said its a well written book with lots of useful insights about how central banks intervene in gold markets. Although the author uses articles sourced from newspapers and Wikileak releases as evidence to support his argument, sometimes the amount of text can interrupt the flow of the book.
Narconomics: How To Run a Drug Cartel – Tom Wainwright (US) (UK): Not the usual commodity markets that I read about, but this book is certainly one of the most interesting and well written. From why drug cartels are a lot like Walmart managing their supply chain, how cartels operate much like multi-national companies, why efforts to disrupt the supply of drugs is so fruitless and finally to the impact that legalisation (when done correctly) can snuff out the illegal drugs industry this book has everything any self respecting management consultant to the illegal drugs industry needs. The author takes you on a fascinating journey through some of the most dangerous places in the world where drugs are grown and manufactured all the way to the end users. A welcome boost for how and why economists and economics in general have something very useful to say about how the world could be a better place.
This book is a great read for anyone that wants to understand why markets of all kinds do not match the efficient market hypothesis of many economist ideals and models, nor that economics and finance do not match the symmetry of the sciences . The key message is the one on reflexivity; that the price of an asset doesn’t just reflect the market it represents but also influences it as well. According to Soros “When events have thinking participants, the subject matter is no longer confined to facts but also includes the participants perceptions. The chain of causation does not lead directly from fact to fact but from fact to perception and from perception to fact.” Although it is some 30 years old now its still as relevant, if not more so today than ever.
This book is a real eye opener into how apparently wasteful activity researching Roulette wheels and Blackjack tables has had a positive impact on society, from game theory and statistics to chaos theory and artificial intelligence. And conversely how methods used to study things as diverse as ice sheets and epidemics have been used to take on the bookmakers. In short, this book is a great demonstration of how important it is to read outside of your comfort zone, as its here that the real insights are to be found. One of the most interesting chapters was on the rise of bots in the world of sports betting and financial markets – how they learn about their opponents in the markets, how they spoof, and how they learn to compete to survive.
This book is a collection of 38 short chapters on everything from the role of power laws in nature and in markets to the role of imitation and to the power and danger of ‘experts’. Some great insights in this book on how to think differently about financial markets. While most of the insights were not new to me they are presented in a very simple clear way. A valuable resource for resource investors thinking about how they should view trends in technology and their implications for commodity market demand.
In many ways this book distills the work of Tetlock into a much more digestable format. The book talks about how people are unable to properly calibrate evidence, feeling like they have made progress through capturing more and more information, taking the outside view, etc.
The book is so much more than this, and I definitely recommend reading it. Maubousssin highlights the importance of diversity, aggregation and incentives in markets. If one or more of these factors is deficient then markets are unlikely to be efficient. The author also highlights how we fail to understand the context (e.g. in how people behave under different situations) and this leads us into making mental shortcuts.
One off the main recommendations from the book is to start using a decision journal to capture your thoughts when making a decision – whether it is your reasoning for making a certain investment or something more important like where to live, who to marry and so on.
The Most Important Thing: Uncommon Sense for the Thoughtful Investor, by Howard Marks (US) (UK): Marks was one of the first fund managers to produce content for investors way back in the 1990’s and still does to this day. This book is a collection of his best notes, organised into 20 succinct and compelling chapters.
Black Box Thinking: Marginal Gains and the Secrets of High Performance, by Matthew Syed (US) (UK): The main thing I took away from this book is the need to change how we think about failure. As Syed describes the French Larousse dictionary historically defined error as ‘a vagabondage of the imagination, of the mind that is not subject to any rule’. That perception of failure pervades schoolrooms and businesses to this day preventing what many see as something to be hidden from being educational.
Abnormal Returns: Winning Strategies From the Frontiers of the Investment Blogosphere, by Tadas Viskanta (US) (UK): Although an introductory book to finance in many ways, the book picks up on some important factors often missed by other books – in particular how to be a consumer of financial news and analysis.
Stand Firm: Resisting the Self-Improvement Craze, by Svend Brinkmann (US) (UK): Brinkmann’s overriding message is that doubt is a legitimate and necessary virtue in our modern society. Although he targets his doubt at the trend towards self improvement and development (skillfully pulling apart their foundations), the steps he suggests can be applied in other fields (personal or corporate) too.
Talking to My Daughter About the Economy: A Brief History of Capitalism by Yanis Varoufakis (US) (UK): This is one of the best books I have read about macroeconomics for a long time. The author outlines how money and the financial system more broadly has evolved since the start of agrarian societies, how politics is in separable from money and the economy and how we will all have to make a decision on what is important in the future – competition and commodification on the one hand and democratisation on the other. Recommended for anyone looking to understand why the economic system is the way it is now and how it may evolve in the future.
The Fourth Turning: An American Prophecy by William Strauss and Neil Howe (US) (UK): Published in 1998 The Fourth Turning provides a compelling explanation of generational cycles through the ages and importantly what it would mean for the early part of the 21st Century. Reading it now in 2018 there is plenty there regarding their prophecies for the fourth turning that have come true. And yet I’m always reminded of the caution over tarot card readers that there will always be something that you recognise as being true when viewed in hindsight or in the context of your own life experiences. From an investors point of view its always difficult to know what asset classes would benefit under different geopolitical scenarios even if you could see the future with perfect foresight. This book offers few clues in that respect. Nevertheless, the book is recommended reading for anyone wanting to understand different generations. As the cycles turn one prophecy I will make is that I will be coming back to this book may times in years to come – the events may be different, but people don’t change.