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Market Wizards: Interviews with Top Traders by Jack D. Schwager

March 24th, 2009

Buy From Amazon:

Market Wizards Jack Schwager

Market Wizards Jack Schwager

Market Wizards: Interviews with Top Traders

by Jack D. Schwager

Originally Published in 1989

Key Takeaways

Market Wizards is an investing classic.  One of a handful of books considered a ‘must read’ by top traders.  The book is divided into four parts.  Each part includes interviews with traders from different niches of the market, including: Futures and Currencies, Mostly Stocks, A Little Bit of Everything, Floor Trading, and the Psychology of Trading.

Schwager interviews legends such as Paul Tudor Jones, Ed Seykota, William O’Neil, Jim Rogers, and many more. Reading this book gives you a glimpse into their mindset and psychology.  It also helps you to learn more about yourself as you relate to their successes and failures.  The biggest takeaway I had from the book is that nearly every single trader went bust several times before making it big.  Going bust numerous times at the start of a trading career was the rule.  However, each man stuck with his craft after numerous failures and adapted his style before eventually achieving great success.  The other takeaway is that each man was obsessive about risk management.  This risk management took many different forms, but was a constant throughout most of the trader’s styles.

What follows are the best ideas and takeaways that I noted in the book.

Michael Marcus – Blighting Never Strikes Twice

Michael Marcus got wiped out several times before achieving success.  He provides several lessons on how to win by not losing.

Never bet all your equity on one trade, no matter how sure you are.  Always diversify yourself into several uncorrelated and/or hedged trades.  He learned this lesson after being wiped out once, and then being nearly wiped out a second time.  During the second time, he would come into the office shaking, on the verge of a nervous breakdown.

Marcus, like several of the other traders in this book, reference Ed Seykota who advises traders to let profits run and to stay with a trade if it is part of a long term trend.  He mentions that Ed Seykota would never get out of a trade unless the trend had changed.

Marcus advises that the best way to make money is to cut down on the number of trades that you make and only trade when you have all three things going for you: fundamentals, technicals, and market tone.  The fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move.  The chart must show the market is moving in the direction that the fundamentals suggest.  And, third, when news comes out, the market should act in a way that reflects the right psychological tone.  For example, a bull market should shrug off bearish news and respond vigorously to bullish news, and a bear market should shrug off good news and continue to sell off.  He says, “if you can restrict your activity to those types of trades, you have to make money, in any market, under any circumstances.”

Marcus also suggests bailing immediately if he sees a surprise price move against him that he doesn’t understand.  This usually means somebody knows something and is tipping their hand.  Don’t wait around and take the risk.  Just get out immediately.

When asked what basic advice he would give to a beginning trader, Marcus says:

(1) Always bet less than 5 percent of your money on any one idea.  That way it will take you a long time to lose your money.  (Being long two different stocks from the same sector does not constitute two different ideas.)  (2) Always use stops.  Actually put them in, immediately after entering a position. (3) Hold on to your winners and cut your losers.  (4) Follow your own light.  Just because another trader trades successfully in one way or makes a particular trade, that does not mean you should do the same. When you try to adopt someone else’s style, you often wind up with the worst of both styles. Also, don’t listen to brokers.  Good brokers are good salesmen, not necessarily good traders.  You have to trade your own way.

Marcus also suggests traders get out of the market for a few days or weeks when the hit a losing streak.  Losing begets losing and it touches off negative elements in your psychology.  Eventually you lose your perspective on the market and it becomes  a downward spiral.  He says, if you are losing, “you just can’t trade anymore.”

(be sure to scroll through additional pages below)


Pages: 1 2 3 4 5 6 7 8 9 10

Finance and Investing Quotations

January 7th, 2009

Buy From Amazon:
Trend Following: How Great Traders Make Millions in Up or Down Markets
by Michael W. Covel
Published in 2005

Michael Covel’s Trend Following book was atrocious.  Probably the worst investing / trading book I’ve ever read.  The one place he excelled was in the collection of finance quotations (he included them presumably to make up for lack of original material and to boost his page count).  Luckily one can’t copyright quotations, so I’ve included the best below.

Famous Finance, Business, Trading, and Investing Quotations

No good decision was ever made in a swivel chair.
General George S. Patton, Jr.

A prudent investor’s best safeguard against risk is not retreat, but diversification. True diversification is difficult to achieve by spreading an investment among different stocks, or different equity managers, or even by mixing stocks and bonds, because the two are not complementary.
David Harding

Men wanted for hazardous Journey. Small wages. Bitter cold. Long months of complete darkness. Constant danger. Safe return doubtful. Honor and recognition in case of success.
The Time, London, 1913
Recruitment ad for Shackleton’s Antarctic Expedition

When it is a question of money, everyone is the same religion.

Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement, but conservatories of tradition and unvarying modes of thought.
Ludvig von Mises

The important thing in science is not so much to obtain new facts as to discover new ways of thinking about them.
Sir William Bragg

Fish see the bait, but not the hook; men see the profit, but not the peril.
Chinese Proverb

If you think education is expensive, try ignorance.
Derek Bok

The perfect speculator must know when to get in; more important he must know when to stay out; and most important he must know when to get out once he’s in.

It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change.
Charles Darwin

The trend is your friend except at the end when it bends.
Ed Seykota

The four most expensive words in the English language are “this time its different.”
Sir John Templeton

Price makes news, not the other way around. A market is going to go where a market is going to go.
Peter Borish

Be less curious about people and more curious about ideas.
Marie Curie

I began to realize that the big money must necessarily be in the big swing.
Jesse Livermore

Most of us don’t have the discipline to stay focused on a single goal for five, ten, or twenty years, giving up everything to bring it off, but that’s what’s necessary to become an Olympic champion, a world class surgeon, or a Kirov ballerina. Even then, of course, it may be all in vain. You may make a single mistake that wipes out all the work. It may ruin the sweet, lovable self you were at seventeen. That old adage is true: You can do anything in life, you just can’t do everything. That’s what Bacon meant when he said a wife and children were hostages to fortune. If you put them first, you probably won’t run the three-and-a-half-minute-mile, make your first $10 million, write the great American novel, or go around the world on a motorcycle. Such goals take complete dedication.”
Jim Rogers

Whenever you can, count.
Sir Francis Galton

The beginning is the most important part of the work.

Life is a school of probability.
Walter Bagehot

Everything flows.

I always know what’s happening on the court. I see a situation occur, and I respond.
Larry Bird

The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will.
Vince Lombardi

Measure what is measurable and make measurable what is not so.
Galileo Galilei

I think the only cardinal evil on earth is that of placing your prime concern within other men. I’ve always demanded a certain quality in the people I liked. I’ve always recognized it at once – and its the only quality I respect in men. I chose my friends by that. Now I know what it is. A self-sufficient ego. Nothing else matters.
Ayn Rand

Losing an illusion makes you wiser than finding a truth.
Ludwig Borne

A trader’s job description is stunningly simple: don’t lose money.
Richard Donchian

Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.
Jesse Livermore

The criterion of truth is that it works even if nobody is prepared to acknowledge it.
Ludwig von Mises

Success demands singleness of purpose.
Vince Lombardi

When the mind is in a state of uncertainty the smallest impulse directs it to either side.
Publius Terentius After

Lenny (Dykstra) was so perfectly designed, emotionally, to play the game of baseball. He was able to instantly forget any failure and draw strength from every success. He had no concept of failure. I was the opposite.
Billy Beane, Moneyball

Life is too dynamic to remain static.
John W. Henry

History does not repeat itself, people just keep forgetting.
Jason Russell

Knowing others is wisdom. Knowing self is enlightenment. Mastering other requires force. Mastering self requires strength.
Lao Tsu

If there is one trait that virtually all effective leaders have, it is motiviation. They are driven to achieve beyond expectations – their own and everyone else’s. The key word here is achieve. Plenty of people are motivated by external factors such as such as a big salary or the status that comes from having an impressive title or being part of a prestigious company. By contrast, those with leadership potential are motivated by a deeply embedded desire to achieve for the sake of achievement.
Daniel Goleman

Fat, drunk, and stupid is no way to go through life, son.
Animal House

Reason is the main resource of man in his struggle for survival.
Ludwig Von Mises

What feels good is often the wrong thing to do.
William Eckhardt

Human being never think for themselves, they find it too uncomfortable. For the most part, members of our species simply repeat waht they are told – and become upset if they are exposed to any different view. The characteristic human trait is not awareness but conformity… Other animals fight for territory or food; but, uniquely in the animal kingdom, human beings fight for their ‘beliefs’… The reason is that beliefs guide behavior, which has evolutionary importance among human beings. But at a time when our behavior may well lead us to extinction, I see no reason to assume we have any awareness at all.  We are stubborn, self-destructive conformists. Any other view of our species is just a self congratulatory delusion.
Michael Crichton

Having an education is one thing, being educated is another.
Lee Kuan Yew
Former Prime Minister of Singapore

Never call your intuition. It calls you.
Jason Russell

To be uncertain is to be uncomfortable, but to be certain is to be ridiculous.
Chinese Proverb

From error to error, one discovers the entire truth.
Sigmund Freud

I have no special talents, I am only passionately curious.
Albert Einstein

We want to buy stocks to hold forever.
Warren Buffett

If you want a guarantee, buy a toaster.
Clint Eastwood

We are what we repeatedly do. Excellence, then, is not an act, but a habit.

No human investigation can be called real science if it cannot be demonstrated mathematically.
Leonardo da Vinci

Never let fear of striking out get in your way.
Babe Ruth

If you don’t risk anything, then your risk even more.
Erica Jong

Life shrinks or expands in proportion to one’s courage.
Anais Nin

Most battles are won before they are ever fought.
General George S. Patton

Luck is a dividend of sweat. The more you sweat, the luckier you get.
Ray Kroc
Founder of McDonalds

The search for truth is more precious than its possession.
Albert Einstein

When the facts change, I change my mind.  What do you do sir?
John Maynard Keynes

I looked at myself as an athlete or a boxer in training who had to sacrifice many other things for the sake of success.
George Soros

Managing a hedge fund requires single-minded devotion.
George Soros

A man’s reach should exceed his grasp.
Robert Browning