My most recent read comes from Sebastian Mallaby (2010) and provides a history of the hedge fund industry, starting with Alfred Winslow Jones and working towards some of the prominent players from today.
The book highlights how the success of the hedgies, in their ability to generate alpha, undermines the theory of an efficient market, in that many investors only gradually adapt to new information, allowing for a small subset to really profit. At the same time, emotion and sentiment are powerful forces and can drive a trend much further than the fundamentals warrant. Therefore, the "art of speculation is to develop one insight that others have overlooked and then trade big on that small advantage", with the other key being an ability to identify the trigger point that will cause the pricing anomaly to correct and to move towards some fundamental equilibrium. Because, after all, to be right but early can often have the same feeling as being wrong.
Some of the big examples that capture that theme in the book are the Soros/Druckenmiller short of the British Pound (with lots of interesting detail on the genesis of the idea and its execution), the Paulson short of subprime, and the Paul Tudor Jones short of the market in 1987. As you may have picked up, it is often from the short side that the biggest wins are realized.
