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Finance

Finance is a field that reasons about the allocation of assets and liabilities over time under conditions of certainty and uncertainty.

One of the main principles of finance is the time value of money which states - in the absence of inflation/deflation - that the present value of future cash-flows is discounted (or in other words, there is more value of money at present than in the future). Another very important principle is the risk-return tradeoff which says that "more risky projects should have more return" in the efficient economy. Both of these principles are challenged by reality and practice. The era of quantitative easing[1] brought negative interest rates, for instance, in some European countries, while the time value of money assumes positive interest rates. As for the risk-return tradeoff, the definition of risk has more dimensions to it than just typically assumed volatility.

Finance can be broken into three different sub-categories: public finance, corporate finance and personal finance. For more details, see [2]

Financial economics is the most relevant field for understanding financial markets. In particular, modern portfolio theory and option pricing (Black-Scholes-Merton theory [3] and its developments) are major achievements of financial economics which allow to make decisions under uncertainty.

Collection of papers

Investment Resources Brian Langis Eclectic Musings & Observations

The best thing a human being can do is help another human being know more. – Charlie Munger
Learning from the success and failure of others is the fastest way to get smarter and wiser without a lot of pain.

Links: Michael J. Mauboussin

Investing Books

The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing) by Marks, Howard 2011

The 80/20 Investor: How to Simplify Investing with a Powerful Principle to Achieve Superior Returns by David Schneider

Market Mind Games: A Radical Psychology of Investing, Trading and Risk by Denise Shull

References

  1. QE-wiki
  2. Finance on Wikipedia
  3. BS theory