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My Book Reviews

Category: Trader interviews
Published: 1998
Read: 1994
Reviewed: Jun 2010


Market Wizards quickly became a modern classic after being published in 1988. The book carries interviews Jack Schwager conducted with some of the best traders in the world. Unlike most other books which proclaim to have interviews with the best traders, these traders really are some of the best in the world, and are not just traders that have had a good five-year record.

Each interview talks about the backgrounds and experiences of each trader. There are traders from different markets (commodities, equities, currencies, bonds) and different trading styles (technical, fundamental, macro, quantitative, systems, trend, counter-trend). There are common themes to all of the interviews - mainly discipline and risk management. Although the book serves mainly as an insight into the mind of the trader and is light on material directly relating to trading strategies, there is still enough indirect advice which can help traders strengthen their techniques. The interviews were also conducted shortly after the crash of 1987 and the first-hand accounts of how each trader handled the crash added value to the book.

There were plenty of entertaining and educational stories about individual trades, including: Michael Marcus's Hong Kong gold trade when he heard about the invasion in Afghanistan on TV, Tony Saliba's Teledyne calls, Tom Baldwin's crash of 87 position, Jim Rogers' gold trade and his short crash of 87 trade.

Despite the fact that these really are world-class traders, most of them earned their money in the 1970s and 80s, a relatively more primitive period when simple technical analysis was very successful and the markets were more volatile, trendy, and predictable. This was also a time when the trading products were so new that you could profit simply from the market's general ignorace, especially with options in the 1970s and stock index futures in the 1980s. Because of these factors, the stories may not be as relatable as stories from traders who make a living in today's markets. This is not a criticism of the book, just an observation. Incidentally, the various stories in the book collectively function as a historical account of markets during the 1970 and 80's. Here are some of the valuable quotes and advice from the book:

  • Michael Marcus: If you get in trouble on a trade, just get out of the trade and clear your mind. You can get break back in later if you want to.
  • Michael Marcus: "If we saw surprise price move against us but we didn't understand, we often got out and looked for the reason later."
  • Michael Marcus: "If you can trade one market, you can trade them all."
  • Michael Marcus: "For most great traders, early failure is more the rule than the exception."
  • Bruce Kovner: "Don't get caught it a situation in which you can lose a great deal of money for reasons you don't understand."
  • Bruce Kovner: "The less explanation there is for a price move occurring, the better it looks."
  • Bruce Kovner: Don't personalize losses.
  • Bruce Kovner: "There is probably no class of trades with a higher failure rate than impulsive (not to be confused with intuitive)."
  • Richard Dennis: "If you take something that has a 53% chance of working each time, over the long run there is a 100% chance of it working."
  • Richard Dennis: "The trading experience is so intense that there is a natural tendency to want to avoid thinking about it once the day is over."
  • Richard Dennis: What is the biggest public fallacy about market behavior? "That markets are supposed to make sense."
  • Richard Dennis: When talking about the deficit Dennis says, "We tend to think that since it is not a problem now, that means it won't be. We expect continuity in our lives, but the economy, and certainly the markets, are more discontinuous than continuous."
  • Ed Seykota: "Everybody gets what they want out of the market."
  • Ed Seykota: Being bullish and not being long as illogical.
  • Ed Seykota: Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading days as a function of equity change.
  • Larry Hite: "We let the law of large numbers work for us. In a sense, we are trading actuaries."
  • Larry Hite: About systems trading: "When I get together with other traders and they start exchanging war stories about different trades, I have nothing to say. To me, all of our trades are the same".
  • Larry Hite: "Everyone who has ever told me that the markets are efficient is poor."
  • Larry Hite: "Never bet your lifestyle."
  • Michael Steinhardt: "To make money in the markets, you have to be willing to get in the way of danger."
  • Michael Steinhardt: "It is almost a cliché that the crowd is always wrong - so the guy who stands against the crowd must always be right. Well, life doesn't work that way."
  • Michael Steinhardt: "People's confidence in their ability to predict secular trends has greatly diminished. In 1967, it would be typical to see a report by a brokerage firm estimating McDonald's per-share earnings up to the year 2000. Those people thought they could estimate long-term earnings because companies were growing in a stable and predictable way. They believed in America and steady growth. Today, stocks don't lend themselves to the same type of secular analysis."
  • Michael Steinhardt: "All great traders are seekers of truth."
  • Jim Rogers: "I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up."
  • Jim Rogers: Investing is really just good common sense.
  • Mark Weinstein: "Trade the market, not the money." This is in reference to an episode where Weinstein put on a soybean trade to try to make $350,000 in profits in order to purchase a castle in France.
  • Mark Weinstein: "Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame."
  • Jack Schwager: Avoid losses but do not fear them.
  • David Ryan: Instead of looking at the relative strength, look at the trend of relative strength.
  • William O'Neil: In a bull market, watch the leading stocks for clues. If they break down then the market may be turning soon.

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