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Essential Investing and Finance for developers

April 20, 2020 • 8 min read
#investing#finance#ETF#financial instruments#options#futures#stocks#portfolio#wealth#fintech

Intro

Whether you are working on a fin tech startup or you want to start investing or you simply are curious about the world of investing and finance this post will be for you. We will lay out a roadmap to learn the basics and beyond that resembles the path I’ve taken myself.

This roadmap will be structured as a series of books you can read to become financially literate and start taking control of your investing decisions.

Disclaimer

Of course this post does not constitute financial advice and you should seek professional help before doing any serious investing.

Unless the world ends tomorrow and most of the concepts behind money, wealth, jobs and socio-economics are completely changed then you will probably need to take control of these aspects of your life eventually, so let this serve as an introductory step towards a better life!

Prerequisites

Since this post is targeted towards developers I assume you have some basic understanding of math. I will cover which parts of the suggested roadmap require explicit knowledge of somewhat advance calculus and statistics but I can already tell you that that content will be mostly optional, but I do believe that at least understanding the complexity behind all these financial instruments is important.

As always when learning something new, you should have patience, an open mind and thirst for knowledge.

Lets being!

Step 1: The Millionaire Next Door

Suggested formats: Digital, Paper and great as audiobook

Although this book is not strictly about finance nor investing, it does cover an aspect of how most of the rich people in USA build their wealth, maintain it and live with it.

I assume that you are interested at least partially in building and maintaining wealth for you and your family and that is why you want to learn to invest, if you don’t then you can probably skip this step.

What I really like about this book is that it grounds down the expectation of how it actually is being wealthy. We have a very weird and incorrect understanding of what being wealthy means thanks to TV, Movies and now Social Media and, spoiler alert, most of the Millionaires in United States are hard working men and women that live frugally, are great savers and live well below their means and with the extra cash they can commit to long term conservative investments, generating long term wealth.

So yes, being wealthy usually does not mean having tons of super expensive cars, good looking human partners, sail boats in the Mediterranean, mansions and careless expending. These in fact are roads towards being poor actually in most cases and are only part of the Collective unconscious.

I recommend reading this book because it talks a lot about building wealth and saving, activities that are super important as a foundational steps towards investing.

Step 2: A Random Walk Down Wall Street

Suggested formats: Digital, Paper and great as audiobook

This is a good and short book that covers a wide variety of financial instruments and investment techniques and concludes that most of the time the typical retail investor (i.e. you and me) is better off following a simple technique called: buy and hold of conservative instruments such as equities, bonds and ETFs.

It gives a good and quick rundown of important concepts such as Value Investing, Fundamental Analysis, Technical Analysis, ETFs, Equities (stocks), government bonds, corporate bonds, Modern Portfolio Theory, Behavioral economics etc.

So after reading this books you will have a proper holistic knowledge of the investment world and perhaps it will serve you to identify your own path down this rabbit hole. Perhaps you become interested in Technical Analysis or perhaps you want to know more about Value Investing like the legend Warren Buffet.

Step 3: The intelligent investor

Suggested formats: Digital, Paper and great as audiobook

I got to this book because it is well recommended by a lot of blogs and forums and it is actually recommended by Warren Buffet himself.

It is a rather long book that talks about in details about the “Buy and Hold” investing strategy and the benefits of it and how it fits perfectly the retail investor. This book also introduces the concept of Dollar Cost Average, a technique that will help you invest consistently while averaging the prices that you pay for instruments, easing any low and high peaks you might encounter in the road (the main benefit is easing the high peaks of course).

Step 4: MIT’s Finance Theory I and Principles of Corporate Finance

Suggested formats: Paper and, as a second option, Digital

This is the step where you become a pro.

The good old MIT has the generosity of making publicly available a lot of top notch courses, along with their syllabus, exercises and any other associated material. These constitute one of the best learning resources that I’ve encounter in several areas of knowledge like computer science, math and, what we are here today, finance.

In particular this course has three key aspects that make it an invaluable learning resource in the path of financial literacy:

  • The content covers a wide variety of topics that together constitute the fundamental of the modern financial world.
  • The instructor Andrew Lo does an amazing job covering the material and relating it to real world scenarios.
  • The course is from the Fall of 2008, right in the middle of one of the worst US and world financial crisis in the last 100 years: the 2008 Great Financial Crisis. And a lot of the material covered is directly related to what was happening then. In fact, there is a particularly good session where Andre Lo teaches about how a pool of investments can be structured and resold via the “Trench” technique. And the abuse and misuse of this techniques is one of the main culprits of the financial crisis.

We conclude then that this course is well timed, complete and overall amazing for all levels.

You might get lost here or there when they go to calculating the price of futures and options when they start using second derivatives and infinite series expansions but with the proper patience you can come to either understand it or simply mark it as “TODO” (developer slang for that which remains to be done).

Additionally this course follows very closely the material covered in the book “Principles of Corporate Finance” from “Richard Brealey, Stewart Myers, Franklin Allen” which I believe is a great book overall.

You can easily opt for just one of these resources or work them together since they complement each other so much.

These last two resources actually cover probably more than you want to know but they are a very good resource if you really want to know some of the nitty-gritty details behind all this complex instruments.

A specially useful section is the one where they cover the Modern Portfolio theory, after you learn this you will understand one of the most important aspects of being a successfully investor: Diversification.

A note on crypto

Some of the material here does translate to the crypto world. In fact, at the time of writing this article there are tons of innovative projects trying to build a lot of the traditional financial instruments into crypto. In fact we already have futures, options and some other instruments being either available or in development.

If you are working on a Fin Tech that works on top of the Ethereum network you will probably already know most of these things but otherwise you will probably want to at least understand the basics.

On the topic of Crypto I cannot recommend enough The Bitcoin Standard. It runs down on the essence of money and how bitcoin fits in as a potentially revolutionary store of value.

Suggested Formats: Digital, Paper and great as Audiobook

Closing

I wrote this post because this is a question I actually get quite often and I decided to sit down and write it so that I can reference to it later.

All these books have affected me profoundly and I cannot recommend them enough. All the books linked have affiliate links that help support this blog.


Written by franleplant: Tech Lead and Software developer with a degree in Engineering. Woodworker, all things Javascript, Rust and Software Architecture. Github

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