Diary of a Financier

Bookshelf Update: Market Wizards

In Bookshelf on Mon 28 Mar 2011 at 08:17
  • My favorite excerpts from Market Wizards.

I just finished Jack D. Schwager’s bestseller from 1989, Market Wizards: Interviews with Top Traders, which I’ve been waiting to read for quite some time. I bought the sequel in a liquidation sale at Borders (30% off!), but in honor of my obsessive-compulsive complex, I had to read the series in chronological order, this (the first installment) first. So, I waited a whole two days for it to arrive from Amazon: total cost $7.50. [No wonder why Borders went bankrupt.]

I’ve never been able to scrounge up a copy of Paul Tudor Jones’ documentary, Trader, so I was especially excited to read his interview herein. Perhaps the most valuable way for me to review Mr. Schwager’s work is to dump a few of my favorite excerpts into this entry, in accompaniment with its addition to my Bookshelf. I’m sure I’ll return to these nuggets at future junctures in my career…

Gary Bielfeldt- High Probability

I learned how to play poker at a very young age. My father taught me the concept of playing the percentage hands. You don’t just play every hand and stay through every card, because if you do, you will have a much higher probability of losing. You should play the good hands and drop out of the poor hands, forfeiting the ante. When more of the cards are on the table and you have a very strong hand–in other words, when you feel the percentages are skewed in your favor–you raise and play the hand to the hilt.

Ed Seykota- Technical Trading

All trading is done on some sort of system, whether or not it seems conscious. Many of the good systems are based on following trends [because] life itself is based on trends. Birds start south for the winter and keep on going. Companies track trends and alter their products accordingly. Tiny protozoa move in trends along chemical and luminescence gradients.

The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are highly successful will lead to their increased popularity. As the number of system users increases, and the markets shift from trending to directionless price action… inexperienced traders will get shaken out. Longevity is the key to success.

Jim Rogers- Patience

One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people… always have to be playing; they always have to be doing something…

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. I do nothing in the meantime.

Jim Rogers- Hysteria

When I see hysteria, I usually take a look to see if I shouldn’t be going the other way…

It is amazing how sometimes something important will happen, and the market will keep going despite that. Now, I am experienced enough to know that just because I see something doesn’t mean that everyone sees it. A lot of people are going to keep buying or selling just because that has been the thing to do…

If the market keeps going the way it shouldn’t go, especially if it is a hysterical blowoff, then you know an opportunity will present itself.

Jim Rogers- Options Trading

I don’t buy options. Buying options is another fast way to the poorhouse. Someone did a study for the SEC and discovered that 90 percent of all options expire as losses. Well, I figured out that if 90 percent of all long options lose money, that meant that 90 percent of all short options make money. If I want to use options to be bearish, I sell calls.

Dr. Van Tharp- Psychology of Trading

The best thing an investor can do, when things go wrong, is to determine how he or she produced those results. Now, I don’t mean that you should blame yourself for your mistakes either. I mean that at some point in time, for any situation, you made a choice that produced those results. Determine what that choice point was and give yourself other options to take when you encounter a similar choice point in the future.

–Romeo

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  1. Great quotes!!!

  2. […] no more bears in the crowd.  My attempted patience derives from the school-of-Jim Rogers, who said: One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, […]

  3. […] crushing Jack Schwager’s first work, I quickly sought delivery of the second installment, The New Market Wizards: Conversations with […]

  4. […] investors she interviewed for this, her first book. This was something Jack Schwager did in each installment of his Market Wizard series, and I find it massively valuable–albeit somewhat cliche advice: […]

  5. […] Mr. Klarman is a value purist whose approach reminds me of Joel Greenblatt’s radically pragmatic and simplistic appeal to common sense (see The Little Book That Still Beats the Market). Baupost’s 30-50% cash positions have become something of folklore, and that conservatism drips off the pages in Mr. Klarman’s ‘if I can’t find value with a margin of safety, I patiently hold cash and keep digging’ attitude–reminiscent of the Jim Rogers philosophy. […]

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