Monday, June 4, 2012

Schwager, Hedge Fund Market Wizards

Jack D. Schwager, author of the bestselling Market Wizards and The New Market Wizards as well as Stock Market Wizards, has a new book in his “wizard” series: Hedge Fund Market Wizards (Wiley, 2012). Let me say up front that this is a terrific book, perhaps even better than the classic Market Wizards, which was recently re-released in paperback. Schwager interviews fifteen hedge fund managers, all of whom have “demonstrated an ability to generate superior return/risk performance.” Some are familiar names; others, I must confess, I had never heard of—which may be part of the reason that they are such stellar performers.

The “macro men” are Colm O’Shea, Ray Dalio, Larry Benedict, Scott Ramsey, and Jaffray Woodriff. The “multistrategy players” are Edward Thorp, Jamie Mai, and Michael Platt. There are seven “equity traders”: Steve Clark, Martin Taylor, Tom Claugus, Joe Vidich, Kevin Daly, Jimmy Balodimas, and Joel Greenblatt.

Each interview is tailored to the person being interviewed, so the reader is not subjected to a dull cookie-cutter format. Naturally, some themes reverberate throughout the book and Schwager distills them into forty market wizard lessons in the final chapter. But the richness of this book comes from its portraits of a diverse group of traders with equally diverse trading styles.

There are system traders and discretionary traders. There are grinders who rarely have outsized days and traders who are looking for the home run. There are those who will average down and those who wouldn’t think of doing such a thing. One trader says that stop orders are for fools while another says that stops are necessary and should be placed at a level that says you’re wrong.

Schwager’s questions slowly unveil each hedge fund trader’s approach to the markets, what I suppose you could call his trading personality. Some traders took a while to develop a winning personality, and they share their struggles. Some are enthusiastic about their lives as traders and hedge fund managers, whereas at least one is still “searching to be satisfied by something.”

Although the reader can search for golden nuggets in this book (and there are many), the fact is that the nuggets are only as valuable as the person who implements them as a reflection of his own trading personality. And that’s what is so useful about Schwager’s interviews: they show how top hedge fund managers think, feel, and act. The reader can, over the course of more than 500 pages, judge for himself how his own trading personality measures up. And perhaps, inspired by some of these trading stars, start on a self-improvement program.

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