I prefer to learn economic theories from economists who made lots of money from the financial markets and were aided by their economic ideas. Who were they? What are the notable economic theories did they formulate?
At university classes, I always learned that the only economist who ever became rich was Ricardo. However, Ricardo was already rich before becoming an economist.
This article seems support this claim. It also gives an explanation for the lack of rich economist:
If becoming wealthy is your goal in studying economics, you may be disappointed. Although most economists make a good living, few have become rich from their knowledge of economics. In fact, if economists had some secret for making money in, for example, the stock market, they would likely be using those secrets to their own financial advantage [...] In short, economics won’t necessarily make you richer, but it may keep you from making some decisions that would make you poorer.
I will post the obligatory Efficient Market Hypothesis answer. This does not directly answer the question, but addresses the aparent misconception that there is some secret economist knowledge that can be used to earn money in financial markets.
Suppose there were some method that would help you to earn more money on financial markets. Suppose that the method in question tells you that you should buy stocks in General Motors because the price of GM stocks will be higher next week. How will the people who trade on financial markets react to this? They will go out and buy GM shares before the price increases. But this increase in demand for GM stocks will cause the price of GM stocks to increase (via the usual laws of supply and demand) today—one week earlier than the method predicted! So the method is self-defeating.
More generally, as soon as any information about the value of a financial instrument becomes public, people will buy or sell causing the price to change to reflect that information. This happens very quickly because the sums of money at stake are huge. (How quickly? Some New York trading firms have laid dedicated fibre-optic cables under the Hudson river to shave a couple of microseconds off of the time it takes to make a transaction).
This simple example illustrate why it is almost impossible to use any publicly available information or method to earn above-normal returns in financial markets. In order to earn such returns, you would have to either
- have information or a method that is not publicly observable (but acting on such information is known as insider dealing, and is illegal);
- be able to act faster than everyone else. But that is almost impossible for an individual because professional trading firms invest millions in shaving fractions of a second off of their transaction times.
This, by the way, is why monkeys can outperform professional traders in picking stocks.
Myron Scholes and Robert C. Merton were 2 economists who co-founded Long-Term Capital Management fund. They made a lot of money initially both for themselves and investors by using trading strategies they had devised from their academic work. However, the success was quite shortly lived and 2 unlikely (according to their models) events - 1997 Asian financial crisis and 1998 Russian financial crisis put a stop to their windfalls.
There's a captivating BBC documentary about it here.