Market Wizards: Interviews with Top Traders Review

Market Wizards: Interviews with Top Traders

Author: Jack D. Schwager
Published in: 1992
Pages: 480

Market Wizards (not to be confused with “The New Market Wizards”) is one the classics that every investor should read. Even if you are not interested in such markets, book serves as a great inspirational source, since it focuses on interviews and has nothing to do with the theory itself.

What have I learned?

The most fascinating interview for me personally, was the one with Michael Marcus.

Here is the first page of it:

How did you first get interested in trading futures?
I was something of a scholar. In 1969, I graduated from Johns Hopkins, Phi Beta Kappa, near the top of my class. I had a Ph.D. fellowship in psychology at Clark University, and fully expected to live the life of a professor. Through a mutual friend, I met this fellow named John, who claimed he could double my money every two weeks, like clockwork. That sounded very appealing [he laughs]. I don’t think I even asked John how he could do it. It was such an attractive idea that I didn’t want to spoil things by finding out too many facts. I was afraid I would get cold feet.

Weren’t you skeptical? Didn’t he sound too much like a used car salesman?
No, I had never invested in anything, and I was very naive. I hired John, who was a junior at my school, to be my commodity trading advisor at $30 a week. Occasionally, I threw in free potato chips and soda. He had a theory that you could subsist on that diet. That’s all you paid him?

Weren’t there any profit incentives—extra potato chips if he did well?
No.

How much money did you allot for trading?
About $1,000 that I had saved up.

Then what happened?
My first trip to a brokerage house was very, very exciting. I got dressed up, putting on my only suit, and we went to the Reynolds Securities office in Baltimore. It was a big, posh office, suggesting a lot of old money. There was mahogany all over the place and a hushed, reverential tone permeated the office. It was all very impressive.

The focal point was a big commodity board at the front of the office, the kind that clicked the old-fashioned way. It was really exciting to hear the click, click, click. They had a gallery from which the traders could watch the board, but it was so far away that we had to use binoculars to see the prices. That was also very exciting, because it was just like watching a horse race.

My first realization that things might become a little scary was when a voice came over the loudspeaker recommending the purchase of soybean meal. I looked at John, expecting to see an expression of confidence and assurance on his face. Instead, he looked at me and asked, “Do you think we should do it?” [he laughs]. It quickly dawned on me that John didn’t know anything at all.

I remember soybean meal was trading quietly: 78.30,78.40,78.30, 78.40. We put the order in, and as soon as we got the confirmation back, almost mystically, the prices started clicking down. As soon as it knew that I was in, the market took that as a signal to start descending. I guess I had good instincts even then, because I immediately said to John, “We’re not doing too well, let’s get out!” We lost about $100 on that trade.

The next trade was in corn, and the same thing happened. John asked me whether we should do the trade. I said, “Well all right, let’s try com.” The outcome was the same.

Did you know anything at all about what you were doing? Had you read anything about commodities or trading?
No, nothing.

Did you even know the contract sizes?
No, we didn’t.

Did you know how much it was costing you per tick?
Yes.

Apparently, that was about the only thing you knew.
Right. Our next trade, in wheat, didn’t work either. After that, we went back to corn and that trade worked out better, it took us three days to lose our money. We were measuring success by the number of days it took us to lose.

Were you always getting out after about a $100 loss?
Yes, although one trade lost almost $200.1 was down to about $500 when John came up with an idea that was “going to save the day.” We would buy August pork bellies and sell February pork bellies because the spread was wider than the carrying charges [the total cost of taking delivery in August, storing, and redelivering in February]. He said we couldn’t lose on that trade.

I vaguely understood the idea and agreed to the trade. That was the first time we decided to go out to lunch. All the other times we had been too busy scrutinizing the board, but we thought this was a “can’t lose” trade, so it was safe to leave. By the time we came back, I was just about wiped out. I remember this feeling of shock, dismay, and incredulity.

I will never forget the image of John—he was a very portly guy with thick, opaque glasses—going up to the quote board, pounding and shaking his fist at it, and shouting, “Doesn’t anyone want to make a guaranteed profit!” Later on, I learned that August pork bellies were not deliverable against the February contract. The logic of the trade was flawed in the first place.

Had John ever traded before?
No.

So where did he come up with this story about doubling your money every two weeks?
I don’t know, but after that trade, I was wiped out. So I told John that, in light of what happened, I thought I knew as much as he did—which was nothing—and that I was going to fire him. No more potato chips; no more diet soda. I’ll never forget his response. He told me, “You are making the greatest mistake of your life!” I asked him what he was going to do. He said, “I am going to Bermuda to wash dishes to make a trading stake. Then I am going to become a millionaire and retire.” The thing that amused me was that he didn’t say, “I’m going to Bermuda and take a job to make a trading stake.” He was very specific; he was going to wash dishes to get his trading stake.

What eventually happened to John?
To this day, I have no idea. For all I know, he might be living in Bermuda as a millionaire because he washed dishes. After that, I managed to rustle up another $500 and placed a few silver trades. I wiped out that stake as well. My first eight trades, five with John and three on my own, were all losers.

—

It does not stop here; Michael continued losing money, a lot of it. However, he believed in himself, he had no thoughts about giving up and just kept going.

He borrowed money from his mother ($20,000), he lost most of it, including his own $30,000, again and again.

Then… over a ten year period, he multiplied his company account by 2,500-fold!

So, what have I learned?

To be fair, there is nothing what you did not know already. It just re-confirms everything and serves more as a great inspirational book. You can achieve anything if you set your mind to. How many people would have given up? A lot! Persistence, not perfection.

Why 9 out of 10? There are a couple of interviews that I felt were included just for the purpose of adding them, offering no real value whatsoever.

Rating

9/10

Purchase

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