Market Wizards (Jack Schwager) 0 comments

This is a relatively old book; it was written in 1989, nearly 20 years ago. I actually picked it up because I enjoyed reading the sequel "The New Market Wizards" (will review that another time); Jack Schwager has written several books on such interviews with market traders/investors which followed up on the success of his first book "Market Wizards".

For those who want to read all about stocks this may not be the most suitable book, because only one section is devoted to stock traders; the rest are devoted to futures/options traders, global macro traders (a bit of everything), floor traders, bond traders. Indeed, this is more a book on traders than investors, with regard to the focus on capital gains and short/medium-term payback periods employed by most of those interviewed.

As such, a majority of those interviewed might be alien to most of us, due to the long period between the current and the time of writing, as well as the fact that Asians tend to be equities-centric. For me, I could only recognise Michael Steinhardt, William O'Neill, Jim Rogers, Paul Tudor Jones --- mostly stock traders (with the exception of the last). However, that is not the point. Although it is reassuring to read about people and subjects that we have already had a preconception about, we also tend to learn few new things.

The value of the book lies in its illustration, via the various interviews, of the contrast in trading attitudes, philosophies and subsequently trading strategies employed between the traders in the other markets and those in the stock markets. There is no "one-size-fits-all" philosophy or strategy that can be transplanted from equities trading to futures trading, for example. Equities traders tend to refer to fundamentals more strongly, using technicals as a reference (eg. William O'Neal) and some, none at all (Jim Rogers); futures/options traders rely on technicals such as price trends, volumes much more, and focus intensely on risk and money management compared to the former. That is the general impression I get. Which is logical, of course, since futures employ a high degree of leverage and are essentially zero-sum games which imply a constant tussle not just with the general random vagaries of the market but also with the contract counterparties. It may be fair to say that the futures market is akin to the technology sector, which is exciting and attracts the brightest brains but who then cancel each other out such that eventually all participants suffer margin crimp. Floor traders tend to be similar in their approach as futures traders, focusing on technicals and tape-reading, although horizons can be even shorter, in a matter of minutes (easy since they are "live" in action). Hence, really, the gist of it is that one has to customise his approach depending on the market he is in.

At the same time, also remember that this book was written nearly two decades ago. Given the technological advances in computer processing power, it is highly likely that what used to work then eg. the methods of analysing price-volume data and trend-following, might not work today. That is another example of strategy evolution, with time. At the time when this book was written, behavioural finance was a relatively new subject (the book features an interview with a trading psychologist); today it is one of the hottest frontier areas of research for trading firms keen to get an edge on the market.

Nevertheless, the various interviews in the book dish out useful advice that are probably timeless. Pervasive common threads on "cut-loss", "emotions management" and "hard work" cutting through most, if not all, of the interviews means the aspiring trader would do well to take note of these likely ingredients for trading success. A mild obsession with the market won't hurt either.