Wednesday, April 4, 2012

Schwager, Market Wizards

If you have never read Jack D. Schwager’s classic Market Wizards: Interviews with Top Traders, now available in paperback with a new preface and afterword (Wiley, 2012), you owe it to yourself to do so. It was a national bestseller when it was first issued in 1992, with more than 200,000 copies sold in hardcover and paperback. And it remains as compelling now as it was when I first read it many years ago. As a side note, don’t confuse this book with two others Schwager wrote: The New Market Wizards and Stock Market Wizards.

Schwager interviewed the following sixteen traders for Market Wizards: Michael Marcus, Bruce Kovner, Richard Dennis, Paul Tudor Jones, Gary Bielfeldt, Ed Seykota, Larry Hite, Michael Steinhardt, William O’Neil, David Ryan, Marty Schwartz, Jim Rogers, Mark Weinstein, Brian Gelber, Tom Baldwin, and Tony Saliba. For a chapter on the psychology of trading he talked with Van K. Tharp.

Think of all the money people have spent to have lunch with Warren Buffett, usually with no obvious major material benefit. (Ted Weschler, who spent over $5 million to win two auctions for meals with Buffett and ended up being added to the Berkshire Hathway investing team, may turn out to be the exception.) Well, for about $16 on Amazon, you can meet a host of fascinating, wildly successful traders and not even have to come up with your own questions to keep the conversation flowing. Schwager has done all the work for you.

The reader learns how traders became interested in the markets, the ups and downs of their early trading experience, how they managed trades, some of the rules they followed (and broke), and what it takes to become a true market wizard. Ed Seykota, for instance, said, “I feel my success comes from my love of the markets. I am not a casual trader. It is my life. I have a passion for trading. It is not merely a hobby or even a career choice for me. There is no question that this is what I am supposed to do with my life.” (p. 165) And in answer to the question what a losing trader can do to transform himself into a winning trader, he answered, “A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.” (p. 171)

Or, here’s Paul Tudor Jones on system trading versus discretionary trading. “A good system may be able to trade more markers effectively than a good trader because it has the advantage of unlimited computing power. After all, every trade decision is the product of some problem-solving process--human or otherwise. However, because of the complexity in defining, interacting and changing market patterns, a good trader will usually be able to outperform a good system.” (p. 133)

I could go on and on—and I haven’t even chosen to share the excerpts that spoke most directly to me. The upshot is that this is a book that deserves to be read at least every few years. As you develop as a trader you’ll find new points that resonate with each re-reading.

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