Hedge Fund Market Wizards: How Winning Traders Win Hardcover – May 29 2012
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"A must-read for all would-be traders...while the book's focus is clearly on trading and investing, there is more than enough human interest on offer for the general reader.... Like Schwager's other works...Hedge Fund Market Wizards looks set to become a classic." (Money Week, June 2012)
"Offers valuable guidance and timeless insights for both investment professionals and market enthusiasts looking to improve their trading abilities by learning from the best." (trade2win.com, July 2012)
"This book is destined to be a classic just like the others by Jack. But the latest goes one step further, these traders aren't just at the top of their game, they have defined it. What can I say? This book was so good it almost made me want to get back into the game again!"
—Paul Wilmott, mathematician and ex-hedge fund manager
"Brilliant! Brilliant! Brilliant! Another book about true traders by a true trader. Jack Schwager has become the official author of traderdom for this and future generations. Not only does Hedge Fund Market Wizards deserve a spot in every respectable trader’s book collection, but the entire series should be read annually by both professional and aspiring traders. Timeless wisdom, priceless concepts!"
—Peter Lewis Brandt, Futures Trader, Stableford Asset Management, and Author of Diary of a Professional Commodity Trader
"I read Jack Schwager's first Market Wizards book when I was just starting out as in investor more than 20 years ago. It put into brilliant focus the importance of trading psychology and knowing thyself. His latest work is yet another masterpiece. It brings to light new concepts in the world of investing that apply to all investors in today's markets. Anyone who reads this work will immeasurably enrich themselves on many levels because trading is life and life is trading."
—Dr. Chris Kacher, Founder of www.SelfishInvesting.com, and Author of Trade Like an O'Neil Disciple
Author Jack Schwager seems to have built his career on the market wizardry of others. Based on this fourth wizard book—interviews with 15 hedge-fund managers who recount their careers and strategies—Schwager's long experience with wizardry has served him well. Readers captivated by the hedge-fund mystique won't be disappointed. Readers looking for insight into exactly how successful hedge-fund managers achieve success will have plenty to chew over. Schwager attempts to boil down the interviews into 40 "Market Wizard Lessons." Examples: Value investing works. Position size can be more important than entry price. Sometimes it's useful to do nothing. But the one that may ring truest is this: There is no Holy Grail in trading. What works for one may not work for another, or for you. Fortunately for us, there's a wide enough variety of portraiture in Hedge Fund Market Wizards that at least a few lessons should resonate.
“Determining how great traders acquire and use their special skills has been an elusive quest. We have no shortage of cookbooks on how to trade, but only a limited number of books describe the decision processes of those who speculate as a profession. Trader confessionals exist often as testimonies to egos, but few focus on the details of decision making. Material that does successfully capture the essence of how speculators think is the Market Wizards series by Jack D. Schwager…. Even in the interviews of well-known traders, Schwager’s probing questions extract many new insights.”
—FAJ Book Review
“Even in the interviews of well-known traders, Schwager’s probing questions extract many new insights. The Ed Thorp interview, which is the longest, is almost worthy of a book in itself.”
—CFA Institute review
From the Inside Flap
What makes a great trader? For years, financial industry expert Jack Schwager has picked the brains of remarkable individuals who have consistently beaten the markets to find out the answer. Now, in Hedge Fund Market Wizards: How Winning Traders Win, he talks with some of the world's greatest hedge fund experts, highlighting the lessons to be learned from each so that you can apply their wisdom to your own trading.
Over the past few decades, hedge funds have become an increasingly popular investment vehicle, but their explosive growth has made trading more competitive than ever. In Hedge Fund Market Wizards, Schwager shares with readers the invaluable lessons he learned from the fifteen traders profiled, which include some of the industry's legendary figures, each of whom has compiled an exemplary return-to-risk record.
From the founder of the world's largest hedge fund to a manager going it alone, the traders interviewed in this book approach their field in radically different ways. But each of them has brought new and unique insights and developed distinct strategies that have allowed them to outperform the markets again and again.
Just as he did in his previous bestsellers, Market Wizards and The New Market Wizards, Schwager asks the questions that get to the core of what makes a successful trader tick. Distilling forty essential lessons to be learned from the market luminaries it profiles, Hedge Fund Market Wizards offers valuable guidance and timeless insights for both investment professionals and market enthusiasts looking to improve their trading abilities by learning from the best.See all Product Description
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"Readers who are looking for some secret formula that will provide them with an easy way to beat the markets are looking in the wrong place. Readers who are seeking to improve their trading abilities, however, should find much that is useful in the following interviews." (from the Preface)
And of course interviews is what the book is all about. There are 15 in this latest variation on the Market Wizards series, each with its own introduction and concluding summary of key takeaways. Again, we have a diverse collection of money managers represented. They are grouped in to "macro", "multistrategy", and "equity" categories. I wouldn't call this as broad a set of discreet categorizations as we saw in the earlier books, but this probably reflects the way trading and money management has evolved in the 20+ years since the first book came out.
I think those who have read one or more of the prior books will find some subtle differences in this new edition. It is clear Schwager is more confident in both his interviewing and his own views on trading and markets. There is more editorializing in this book than I remember from the others. At the same time, the author isn't shy at all about drilling down on subjects and pressing interviewees to get the most out of them. This adds to the quality of the end product.
I was actually somewhat surprised how into the book I got personally. As an experienced traders, I found a kind of affirmation from some of the interviews. There were also a few "I never really thought about it like that" moments to give me new things to ponder, which is a plus.
I think having a significant recent (financial crisis) event central to the interviews helps. It also creates the same kind of contextual linkage the Crash of 1987 had for the interviews in the first book. This common reference point for readers makes it easier to be engaged by the text. It also helps developing readers from an application perspective in terms of allowing readers to have "Oh, yeah. I see what he was doing there" type of realizations.
There are a couple of interviewees in this book who present a challenge to individual investors in that they operate in markets where no individual really can take part (there is plenty of good footnoting to support explanations and definitions of subjects discussed). Most of them, though, operate in ways largely applicable by individuals, and even those who don't still offer insights into how they are thinking about the strategies they are employing and the way they are positioning themselves in the market.
And really that's really the crux of what's on offer in Hedge Fund Market Wizards.
It's about hearing how successful traders think about risk, strategy, research, and everything else that goes into their efforts - getting inside their heads. There are a couple of more systematic traders in the group who don't share much in the way of specifics, but the rest (who I would largely describe as being discretionary types) seem to have no problem at all in talking pretty specifically about the kind of technical and/or fundamental cues they look for to find good trades. If you're after "I buy when the 15-day average crosses the 30-day" type of rules, you're not going to find any. Most of the gentlemen interviewed (it's all men in this one), though, are very open about the way they look for trades, manage positions, etc. For this reason, I believe there is a lot of value to be had here for new and developing traders.
Schwager ends the book with his own takeaways from all the interviews he's done through these books. Those 40 observations alone are worth getting a copy of Hedge Fund Market Wizards, especially knowing from whence they came. There's also a very good epilogue written by his son talking about his own introduction to the Market Wizards concepts and their presentation which is well worth reading.
The bottom line is I think this is a good read no matter where you are on the spectrum of market experience.
* The difference between Schwager's four Market Wizards books
* Markets have changed, but the typology of successful traders not
* The genius of Michael Platt (Bluecrest) and Ed Thorp
* Three of the 40 Market Wizard Lessons - For Traders: 1. Find your own style 2. Be flexible, For Investors: Volatility and risk are not synonymous
* Ray Dalio's Bridgewater: How to consistently achieve outsized, uncorrelated returns
* Jimmy Balodimas: The most unconventional of the successful traders
* Joel Greenblatt: Why value investing still works
Due to the size restrictions I could not upload the full video, see this link on Youtube for the full length feature with Jack: [...]
I had previously discovered "the Investment Biker," by Jim Rogers, and knew I wanted to forego a life in academia and pursue markets. William J. O Neil's "How to Make Money in Stocks" then convinced me to intern at a stock brokerage (Raymond James) my last two college summers. But it was "Market Wizards," and after that "Methods of a Wall St Master" and "Soros On Soros," that really crystallized the vision.
Unquestionably, "Reminiscences of a Stock Operator" stands alone as the far and away greatest trading book of all time. But the Market Wizards series sits, like a leather-bound canon, just a notch or two below.
Until Steven Drobny's relatively recent "Inside the House of Money" and "Invisible Hands" - sort of the grad school version of Market Wizards, both mind-blowing in their own right - no one had challenged Schwager's run of brilliance and consistency when it came to trader interviews.
Like many others I am sure, I can quote passages from the first three - Market Wizards, New Market Wizards, and Stock Market Wizards - chapter and verse, like a constitutional lawyer referencing supreme court briefings. The books have been absorbed by the trading community so fully that, if you put "MW, NMW or SMW" next to a quote, most serious traders will know exactly what it means.
The series has made its mark not because the traders in Schwager's books are infallible, superhuman, or otherwise worthy of hero worship - no one deserves a pedestal - but because the books are so densely packed with wisdom, ideas and insights that the total net value is mind-boggling. Time and again a market situation, an element of theoretical debate, or an aspect of methodology comes up where one of the Wizards had something clear and sharp to say on the matter.
There were a number of such "a-ha!" insights in HFMW (as I shall abbreviate), though the book felt a little bit lighter than its predecessors. (I will write up my impressions and key takeaways for each HFMW interview separately, as such would take up too much room here.)
The surprising thing, for yours truly at least, was that the most intriguing ideas in HFMW centered around value investing.
One wonders how many trading funds the Market Wizards series is intellectually responsible for seeding - Hundreds? Thousands if one counts the failures? - and now I can say HFMW has given rise to another. Here is the gist:
It struck me, in reading about the value investors in HFMW, that the active and versatile trader could actually have a powerful and hard-to-replicate edge... as a value investor on the side. This would come about through the traders' ability to leave the value investing portion of his funds in cash (or cash equivalents) for significant periods of time.
Let me expound a little...
Kevin Daly, one of the value investors interviewed in HFMW, made an 872 percent return over a 12 year period of time, when the S&P returned negative 9 percent. So Daly must have been good at shorting, right? Nope... Daly did it with very little trading (in terms of managing around positions) and virtually no shorting.
How? By going to cash for extended periods, of long duration, when conditions were unattractive.
This concept - delivering far superior returns by going to cash in adverse periods - dovetails with an interesting theory proposed by Marc Faber in his June 2012 Gloom Boom Doom Report: the notion that long-term investors would do better staying out of markets most of the time, and only investing after a crisis.
From an anecdotal perspective it makes sense too. Imagine if a long-only fund manager had had the good sense to sit in cash all through the 2004-2008 madness... then really loaded the boat at the firesale liquidation values of early 2009, when forced portfolio disgorgement put excellent businesses on sale, lock, stock and barrel, for less than cash in the bank!
The concept also aligns with the methodology of Tom Claugus, another HFMW interviewee, who is only maximum long invested in times of extreme market dislocation (as defined by outlier standard deviations in the S&P), and with the observation of Joel Greenblatt, the final interview in the book, who wryly observes that "value investing works because it doesn't work" for extended periods of time, thus causing the impatient to abandon it.
Sitting in cash - for long-term investors, not active traders! - also seems a natural given the environment we are in, where uncertainty is high and valuations are mediocre-attractive at best. No wonder highly respected value practitioners like Jim Tisch of Loews have been sitting on their hands for years (which they can do as stewards of their own capital).
But of course, it would not be logistically feasible for a standard issue value fund to go dormant, sitting in cash, for months or years at a time. Investors would demand their money back, saying they aren't paying the manager to be idle. And the manager himself would have long stretches of nothing to do.
A sufficiently versatile trading shop COULD implement such a process, however, assuming the shop was 1) skilled and knowledgeable enough to demonstrate deep value capabilities (with a research team devoted to such), and 2) patient enough to leave the long-term investment cash untouched in mediocre to poor allocation conditions.
The ability to actively trade in a SEPARATE fund - where the main activities existed anyway - is what creates this opportunity.
In other words: In conjunction with a trading fund, a deep value fund could be treated as a sort of side pocket (with its own standalone track record). During low-to-no activity periods, the cash balance in the fund could be kept at a minimum.
During periods of excellent opportunity from a long-term perspective, cash could be swept into the value fund, and investors in the more active trading fund could be alerted to the situationally conditional value investing opportunities at hand.
For the first stretch of years, such a fund would likely have to be internal capital only, as telling prospective investors "we might only do something once a year, or sit in cash for 20 months" would not be a great sell. Once an excellent track record developed over time, however - with the power of excellent returns during invested periods overcoming the all-cash periods - investors would see the light and show more willingness to support such a wise and logical approach.
I expand on the concept to give example of the thought processes Schwager has so generously brought forth with this most excellent series. We are almost certainly going to do this when the time is right... so I guess I owe Schwager once again. Thanks Jack!
Whenever I buy a trading book I'm out there to get something out of the book to improve my trading/investing. A new method, a new trading rule, a fresh idea, a new look at macro data, backtesting advice, psychological experiences, ... I was not disappointed after reading this book. A lot of the interviews have provided me with new insights and ideas to backtest. The first interviews were with macro traders, really nice to read. In fact I can't remember interviews on macro topics with so much in depth matter as in these interviews. One theme that seemed come back during these interview is diversification/correlation between different markets (stocks, futures, bonds, eur/usd,..).
Next there was a long interview with Thorpe, a pretty amazing investor but most of the material in the interview was not new to me. Afterward I came across an interview with Jamie Mai, also a character in Lewis his book The Big short. This interview was the best interview from the entire book. This interview alone is well worth the price of this book and I strongly advise it to anyone who is into investing.
The book finishes with interviews with diverse equity traders I've never heard of before. Also well worth reading, a lot of practical advise is provided here on screening and analysing the stock market. The mix between fundamental and technical approaches in these chapters is superb. The last interview was the best of the equity part, Joel Greenblatt speaks openly on his experiences in the investment world and his magic formula.
In conclusion: a real recommender for everyone in investing/trading. Thanks Jack for continuing the series.
Each chapter begins with a description of the interview setting and circumstances and ends with a nice summary of that trader's style and methodology. The interviews are verbatim transcriptions from tape. Schwager adeptly weaves his questions to extract maximum information and keep the conversation on course. As a result all touch on the same set of topics: how the trader got started, what challenges or setbacks he experienced, the nature of his trading style and rules, how managing other people's money affects him, what makes him successful, his opinion of why many traders fail and more. The conclusion chapter is a concise summary of 40 market wizards lessons.
Schwager extracts fascinating stories about each trader's evolution from novice to master trader. Their backgrounds are often punctuated with setbacks, eye-opening "aha's" and lessons learned. The author probes for and gets examples of specific trades that galvanized each lesson into a trading rule or working methodology for the trader. He uses footnotes and italicized commentary to explain industry jargon or unusual trading methods described by the wizards as they respond to his questions. In addition to common metrics like compound annual growth rate and maximum drawdown, Schwager uses a unique standard metric, the Gain-to-Pain ratio, to measure the performance of each hedge fund market wizard based on his track record. The term is explained in detail in an appendix.
The theme of this book is risk control. Each of these wizards has a unique trading style that differs substantially from all of the other traders in this book and in Schwager's previous market wizards books. However, every one of them mentions risk management at some point in the interview as a key contributor to their successful long-run performance. Fortunately for the traders among us the author extracts good and useful information about how they accomplish that goal.
Hedge Fund Market Wizards contains timeless information that is useful for any investor and trader, professional or amateur regardless of markets traded or timeframe. It easily deserves a 5-Star rating.