CFO Bookshelf places The Wisdom of Finance by Mihir A. Desai in its top 25 non-fiction list in the business books genre. The Wisdom of Finance is the pairing of complex subjects in finance with literature, history, poetry, and movies. Not only is the book educational, but I found it entertaining, too. If you are looking for a how-to book, this is not it. But the concepts you will learn will last a lifetime in your mind.
Episode Highlights
Book Title: The Wisdom of Finance
Ratings: Amazon >600/4.4 // Goodreads >2k/4.0
CFO Bookshelf Rating: 4.5 on a 5.0 scale
- We don’t just read this book; we talk about it
- Our first impressions of the book
- Why the author wrote the book and the story behind it
- A book about humanizing finance, the author bridges finance with great literature, history, philosophy, music, movies, and religion
- A tip of the cap to Mortimer Adler and active reading
- Finance is about creating value, not extracting it (alpha vs. beta)
- The greatest poet of the 20th century who loved insurance
- The problem with mergers
- The conflicts between agents and principals
- The author’s clever way of explaining risk and options
- Remembering Robert Morris
- The reason finance gets a bad name (we remember the villains)
Harvard Business School professor Mihir Desai, in his “last lecture” to the graduating Harvard MBA class of 2015, took up the cause of restoring humanity to finance. With incisive wit and irony, his lecture drew upon a rich knowledge of literature, film, history, and philosophy to explain the inner workings of finance in a manner that has never been seen before.
Great Lines in the Book
Finance is completely and ruthlessly forward-looking. The only source of value today is the future. The first step of valuation is to look forward and project what a company or investment will produce in the future.
For finance is, at its core, a way to understand the role of risk and randomness in our lives and a way to use the dominance of patterns to our advantage.
Finance, ultimately, is a set of tools for understanding how to address a risky, uncertain world.
Risk is everywhere, it is undeniable, and it shouldn’t be ignored or surrendered to—it should be managed.
Finding narratives that allow us to stay attached to what is meaningful in finance can insulate us from the feedback loops of attribution error—and perhaps help save us from becoming caricatures like those in the more common and dispiriting depictions of finance.
The Analogs
The author discusses seven finance concepts some business students may view as dull, abstract, or complex.
Below are the author’s eight key financial topics paired with the wisdom of history, books, or poetry. In the analog column, I have not listed every title mentioned in the book.
| Topic | Analog |
|---|---|
| Insurance | Wallace Stevens (history) |
| Risk Management and Options | Jane Austen’s Pride and Prejudice (book) |
| Value | The Parable of the Talents (Bible) |
| Corporate Governance | The Producers (movie/play) |
| Mergers | Working Girl (movie) |
| Leverage | The Merchant of Venice |
| Bankruptcy | Robert Morris (history) |
| Demonization of Finance | O’ Pioneers and The Financier |
Book Club Questions
As I mentioned on the podcast, this is a book to discuss after reading it. Right after I finished my first reading of this book, I wanted to talk about it immediately. Accordingly, this would be a great book club title.
Should you read this book, I have five questions for you:
- As I asked Emily, what were your first impressions? Thumbs up? Didn’t like it? Would you recommend it?
- The book breaks down finance into eight broad buckets. Did the author get the analogs right for each topic?
- What books, movies, or people in history would you have included in the book’s eight chapters?
- What was your favorite chapter or section in the book, and why?
- As a result of reading this book, what titles or movies have you consumed (or will do so)?
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