Investment Opportunities

Lessons From Today’s Market Wizards

Ask the world’s best traders which book inspired them most…

And one stands head and shoulders above the rest.

That book is Jack Schwager’s Market Wizards: Interviews with Top Traders (1989).

Schwager’s book inspired a generation to try their hand at trading for a living.

(In second place, you’d have Reminiscences of a Stock Operator, which I have also written about).

I spent this past weekend reading Schwager’s sixth book, Unknown Market Wizards: The Best Traders You’ve Never Heard Of.

These traders are not Forbes 400 billionaires like original Market Wizards Paul Tudor Jones, Bruce Kovner and Stan Druckenmiller.

Instead, Schwager focused on top traders who work in relative obscurity.

And as a group, these traders learned trading the hard way, earning their trading spurs in small proprietary trading firms.

Among them are…

  • Jason Shapiro, who turned an initial account of $2,500 into $50 million
  • Richard Bargh, who achieved an average annual return of 280% over a 4 1/2-year period
  • Peter Brandt, a former ad executive who used classical chart analysis to achieve a 58% annual average return over a 27-year trading span.

Each of these interviews is both inspirational and educational.

The stories of this new generation of market wizards also highlight the eternal truths of what it takes to be a successful trader.

Lessons From Unknown Market Wizards

The 11 traders interviewed in the book each approached the market in a unique way.

Yet their stories offer similar lessons for all traders.

And the secrets of successful trading overlap with those that Schwager found in his original Market Wizards book from 30 years ago.

At first blush, this may be surprising.

After all, today’s financial markets are far more competitive and are driven mostly by algorithmic and high-frequency trading.

As it turns out, the lessons of today’s top traders reflect eternal truths about trading.

And these lessons are worth revisiting.

1. There is no single path to making money in the markets.

There is no holy grail for succeeding in the markets.

The paths that today’s market wizards took to achieve their exceptional performance varied widely.

Some studied at the world’s best universities. Some were college dropouts.

Their strategies ranged from fundamental to technical to a combination of both.

Their average holding periods ranged from minutes to months.

Their trading success was not about their background or finding the single right approach to trading.

It was about finding the right approach for them.

2. You need to find your own trading approach.

You can have access to the best trading system in the world.

But if that system is inconsistent with your beliefs and comfort zone, it won’t bring you success.

Some traders find a single method that works for them. And they stick with it for a lifetime.

Others continually evolve.

I use about five different approaches at the same time in my own trading. This approach fits my intellectually eclectic personality.

No one can tell you what the best approach for you is. You must develop a methodology that works for you.

3. You need to know your “edge.”

Unsuccessful traders invest on a whim or feeling. There is little method to their madness.

Put another way, they lack an “edge.”

If you don’t know what your edge is, then you don’t have one.

That edge can be a quantitative system that generates trades like the one behind Oxford Swing Trader.

Or it can be one that buys and holds Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) forever.

Knowing your edge is critical to identifying what to focus on among the almost infinite number of possibilities.

4 . Risk management is critical.

Every single successful trader stresses the critical importance of risk management.

Sure, risk management isn’t as sexy as devising a trade entry strategy. But it is essential to becoming a successful trader.

The most critical aspect of risk management is position sizing.

Always calculate how much you’re willing to lose on each bet before you start trading.

You must manage risk in your individual positions.

And you must manage risk in your entire portfolio.

Remember, your primary objective is to live to trade another day.

5. Human emotions are the enemy of successful trading.

Emotions will very often lead traders to do precisely the wrong thing.

Top traders know that they are their own worst enemy.

Your psychology is a never-ending minefield.

You must be on guard against impulsive trades.

Trades motivated by fear or greed usually end badly. Don’t try to make money back in the same market you lost it in. Guard against sloppy trading after big winning streaks.

So there you have it.

Five of the most important lessons from today’s top traders.

Let me add one more thing that all successful traders have in common: Top traders love trading.

They feel they were put on the earth to trade.

And that is perhaps their greatest secret of all.

Good investing,


The Perfect Stock

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An accomplished investment advisor and widely recognized expert on quantitative investing, global investing and exchange-traded funds, Nicholas has been a regular commentator on CNN International and Fox Business Network. He has also been cited in The Wall Street JournalFinancial TimesNewsweek, Fox Business News, CBS, MarketWatch, Yahoo Finance and MSN Money Central. Nicholas holds a bachelor’s and a master’s from Stanford University and a J.D. from Harvard Law School. It’s no wonder his groundbreaking content is published regularly in the free daily e-letter Liberty Through Wealth.

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