My finance-related classes emphasized what is likely taught in classes through out the world: markets are semi-strong efficient. It made perfect sense to me at the time. Who am I to contradict what is backed by a large body of academic research? There are some recognized anomalies to the Efficient Market Hypothesis, but overall message was clear: investors generally cannot expect to outperform the market through active management.
Looking back, I now think that I was brainwashed into believing the Efficient Market Hypothesis. As part of my personal research, I consulted several recommended readings for people who want to learn more about financial markets. Market Wizards: Interviews with Top Traders (written by Jack D. Schwager) was one book that came up repeatedly and was one of the books that raised a suspicion within me. Can an investor expect to outperform the market through diligent study of financial markets?
I enjoy consuming content, but at the same time I am paranoid that I won’t be able to retain the knowledge that I absorb. This leads me to reading the same books and watching the same shows over and over again. This may seem odd to some people, but you must realize that we’re in a golden age of information. It wasn’t too long ago that books were scarce and people engaged in deliberate reading — reading the same content or books over and over again with the purpose of retaining the knowledge contained within. With this in mind, I have taken extensive notes while reading Market Wizards: Interviews with Top Traders which I hope will finally free myself from having to read the book again.
Market Wizards contains edited interviews conducted by Jack D. Schwager and over the years has generally been considered a must-read for novice traders. It highlights traders who have already achieved a great deal of success and some of the traders have continued to achieve great things. Among them include James Rogers (co-founder of the Quantum Fund with George Soros), William O’Neil (founder of Investor’s Business Daily), and Bruce Kovner (founder of Caxton Associates). The traders span multiple asset classes (futures, currencies, stocks, and bonds) as well as multiple strategies (value investing, scalping, momentum trading, as well as some quantitative-based trading).
I will be posting additional content from my notes in the next few days, but first I’ll present an excerpt from the last chapter of the book which provides an excellent summary of the themes throughout the book:
There is no holy grail to trading success. The methodologies employed by the “market wizards” cover the entire spectrum from purely technical to purely fundamental – and everything in between. The length of time they typically hold a trade ranges from minutes to years. Although the styles of the traders are very different, many common denominators were evident:
- All those interviewed had a driving desire to become successful traders – in many cases, overcoming significant obstacles to reach their goal.
- All reflected confidence that they could continue to win over the long run. Almost invariably, they considered their own trading as the best and safest investment for their money.
- Each trader had found a methodology that worked for him and remained true to that approach. It is significant that discipline was the word most frequently mentioned.
- The top traders take their trading very seriously; most devote a substantial amount of their waking hours to market analysis and trading strategy.
- Rigid risk control is one of the key elements in the trading strategy of virtually all those interviewed.
- In a variety of ways, many of the traders stressed the importance of having the patience to wait for the right trading opportunity to present itself.
- The importance of acting independent of the crowd was a frequently emphasized point.
- All the top traders understand that losing is part of the game.
- They all love what they are doing.
I have also curated certain responses from the following traders featured in the book:
- Michael Marcus
- Bruce Kovner
- Richard Dennis
- Paul Tudor Jones
- Ed Seykota
- Michael Steinhardt
- Marty Schwartz
- Jim Rogers