Jack Schwager's Market Wizards is a seminal series of books spanning three decades, with his archive of insightful interviews no doubt familiar to both experienced traders and also those brand new to the markets.
In his latest publication, Unknown Market Wizards, Jack turns his attention to the corners of the markets so far largely undiscovered by mainstream financial media, as he interviews a selection of traders who have achieved exceptional results without becoming widely known, if at all, within the financial community. Detailing their methods and traits and summarising them into easy-to-read chapters, the book provides readers with fascinating stories of traders who come from different backgrounds and skill types to somehow consistently conquer the markets.
Last year we wrote about Jack's hunt for new market wizards (read the article below) and now we’ve had the pleasure to talk to him about the finished book. We probably fired one too many questions at him but as the conversation was flowing, we thought we’d keep on asking, and fortunately Jack was happy to oblige, giving you more insights from the mind of someone who’s interviewed some of the greatest traders in the world.
In our interview Jack gives his thoughts on whether it's easier to become a trader now than it was 30 years ago, divulges his interviewing secrets, and even hints at a potential follow up book. As well as discussing the one thing that all our readers and traders alike want to know... what are the common traits to become a successful trader?
Almost every trader is different from every other trader, and the traders in each book are different from the traders in the other books. There's a wide range of personalities and approaches.Jack Schwager
1) You’ve written five Market Wizards books over the last three decades, and now have Unknown Market Wizards to add to the collection. Can you take us back to when you first wanted to write the original Market Wizards and what your motivation was to explore and tell traders' stories, and whether this motivation has changed?
When I wrote the first one, I never thought there'd be a second one, let alone five. I knew some of the traders in the first book, a couple at least. My motivation was that I thought that by interviewing a number of great traders, it would be helpful to myself. I thought it would be a good idea to pick the brains of really good traders. And I also thought it would be a fun project to do. I had the idea for a number of years before I actually did it.
The catalyst was that I had written an analytical book called ‘A Complete Guide to The Futures Market’ four or five years earlier, taking a sabbatical to write it. And I got approached a few years later by a publisher who wanted me to do more analytical books. I wasn’t interested in doing that, but I said, “Well I have this idea,” and I told him about the Market Wizards concept. And he said, “Great, why don’t you do that.” I didn’t really have time to write the book because I was working as the director of a futures research department, which is a full-time job on its own. But that was the catalyst that got me doing it.
2) Unknown Market Wizards is about just that, traders who aren’t widely (if at all) known in the financial community but have produced exceptional results. Reading the intro, it struck me that every single one of these people came from a different background and different professions but all managed to beat the markets, in a big way. Can you expand on the contents of the book a little and the traders it covers?
Well, basically, like you say, they come from very different backgrounds. There is no commonality there. The personalities are also all quite different. Some are very shy; some are very aggressive and outspoken. Politics could be left or right. Their approaches could be technical, or fundamental, or some combination of the two. They could be long-term traders or very short-term traders. They could be trading equities, or futures, or currencies, or some combination of everything. So there are a lot of differences in those type of aspects. Almost every trader is different from every other trader, and the traders in each book are different from the traders in the other books. There's a wide range of personalities and approaches.
3) Were there any surprises in this book? Was there something you came across that you hadn’t come across before in your other books?
There's a perfect example of a completely different approach in this book. It made me realise that the trading universe was not the way I was defining it. I had taken for granted that every trader I was going to interview would be using some sort of technical based approach or some sort of fundamentally based approach or some combination of the two. In my mind I did not think about there being anything outside of that universe. In this book, I encountered somebody who didn't use any technical analysis and didn't use any fundamental analysis at all.
This trader couldn’t care less about what the fundamental factors were or what the chart looked like or what the prices were. I called that chapter ‘Neither’, because that trader used neither fundamentals nor technicals. So that was the most different approach because it's so contrary to everything I had assumed. It's almost like, I flipped a coin and only considered the possibilities of it landing heads or tails, but never considered the possibility of it landing on its side.
Another surprise was that the performance of a number of these traders was as good if not better than the best traders in the original Market Wizards book. I had thought that was no longer possible, given all the quantification of trading. I thought that those type of records were no longer achievable. But apparently, they were, and presumably still are.
4) Why do you think these traders were willing to take part and be interviewed for your books? Have you ever had traders decline to be part of the series? Jason Shapiro in Chapter 2 almost didn’t do it.
Yes, Jason refused a number of times before he finally agreed to do it. I know this will sound awfully self-serving, but as I do more of these books, it becomes more and more common for the people I interview to have read one or more of the previous Market Wizards books. And, in fact, in Jason's own case, my book was the first real trading book he read and it was a major influence. A number of traders will say that my book got them into trading or was influential. In part, it's kind of repaying that positive influence. In some cases, I knew the traders. So there are different motivations. I'm not always successful in getting everybody I ask to participate.
5) Are you pleasantly surprised when a trader mentions they’ve read one of your books or it was the book that got them into trading?
Yes, it is always nice to hear that., but I don't put in all the references traders I interview make to my books. I only put it in if it's really pertinent to the conversation. I lean over backwards not to do that. But my guiding principle is, if the book they mentioned, were not my book, in that particular context, would I include it? If the answer is yes, then I include mine as well. And if it's a point where they mentioned it, but it's not essential in any way, and if it were any other book, I probably wouldn’t mention it, then I wouldn’t include the reference for sure.
6) How do you go about forming the questions? Is it a case of doing your research first and let the questions come organically? Or is there more of a structure to it?
Here's a big secret of what I do. I don't put together any questions. Although I should qualify that, I may write out some questions, but I don't use them during the interview. At the end of the interview I may glance to see if there's something I wanted to discuss that I didn't discuss. But during the actual interview, I’m not using any questions, I’m basically having a focused conversation where I'm really listening to what they're saying and trying to pick up on things that are surprising or interesting or could lead to other things I want to discuss.
I think that is super critical because often the most interesting stuff only comes out tangentially. If I had a list of questions and just stuck to those questions most of the interesting material in the chapters wouldn't be there because it wouldn't come up.
I would also clarify that if I used transcripts of the interviews verbatim, you would have a lot of trouble reading it. For some of these chapters I might have done as many as a dozen hours of recording. A transcript of these interviews could be as long as 300-400 pages. Plus it would be deadly dull and all convoluted. The tapes give me the raw material. And I would estimate that the interviews account for only 2% of the work. The other 98% is taking the raw material and moulding into a chapter.
7) Can you describe the process of how you go about verifying their trading results? And how much time you spend on digging into their trades?
I'm not an accountant, let alone a forensic accountant. In some cases, if a trader has managed money, there might be an audited track record. However, in this book that generally wasn’t the case because I was looking for solo traders. For the most part, it was a matter of asking for statements.
8) In the book all but one trader is discretionary, Marsten Parker. You mention that his results aren’t as spectacular compared to the high returns of some of the other traders spoken to in this book. But he is the one systematic trader you interviewed. Was this just a coincidence?
No it’s not an accident. Because I'm not just looking for people who've done okay in the market or done well or better than average. I'm looking for the kind of spectacular types of performance like Jeff Neumann who took $2,500 and turned it into $50 million, or like Amrit Sall or who averaged over 300% annually during his 13-year trading career. I'm looking for the truly exceptional types of performance in terms of compounded return or return/risk, which I pay more attention to.
I don’t use the Sharpe ratio. Instead, I use return/risk ratios, such as the Sortino ratio, which don’t penalize upside volatility. I look for return/risk numbers that are completely off the map, in terms of what most people would believe is possible. I think it would be very difficult to develop a system that gives you that type of extraordinary performance. I think it just takes some sort of discretionary skill to be able to do that.
The exceptions are quant firms such as Renaissance, who may have scores or even hundreds of mathematicians and other tremendously skilled quants, trading scores of algorithms seeking inefficiencies in thousands or tens of thousands of securities and their interrelationships. That’s beyond the scope of any ordinary trader. Even then, it's only certain exceptional quant shops that can achieve exceptional performance.
9) From all the traders you’ve interviewed and subsequent books you’ve written, is there one trait, process or mindset that is common amongst them that sticks out? I know you’ve summarised the lessons at the end of the book and you mention that there are many overlapping similarities to your previous books, but if you could pinpoint one trait, what would it be?
At the end of the book I summarise 46 such trading lessons. Not all are common to all traders. But there are a few traits that are common to everybody in the book, no matter how different their methodology is. One thing that's absolutely true about everybody in the book is that they're devoted and put tremendous emphasis and focus on risk management. Another commonality is that all the traders are very disciplined, much more disciplined than most normal people. I think all the traders have a real passion for the game of trading.
10) The majority of traders in the book mention having tight stops and disciplined risk management. If most have mentioned it and implement a tight and disciplined risk management strategy, then is it possible that risk management is their success factor rather than the trading strategy itself?
It's almost impossible to be successful, long term, without effective risk management. If risk management is exceptional, and the strategy has some edge, then in the long term the outcome could still be very good. But if you reversed it and had a very good strategy, but poor risk management, I think the end result would be failure. I think if you asked the traders in this and other Market Wizard books which is more important, your risk management or your methodology, I would bet that 80-90% of them would say that the risk management is more important.
11) A lot of the traders tended to trade in size, especially if there was a high confidence on a set up. These types of trades are put on based on experience, optimum mental state and research, and it obviously works for them. But a high proportion of the traders in this book trade like this, do you think this is unusual and do you think this is why they’ve managed such incredible returns?
In some cases, yes. And I think that's something that has popped up from the very early Market Wizard books. Most prominently I can think of Druckenmiller talking a lot about taking big size when you're very confident about a trade, something that he learned from Soros. In fact, stepping on the accelerator on perceived high-opportunity trades was very important in generating his long-term numbers. In this book, the concept of trading larger size on high-confidence trades comes up possibly even more than any other Market Wizards book. For example, Neumann once put one-third of his money in one trade.. He said this trade was the only time his profits came from holding a stock that was acquired.
Some of the other traders like Amrit Sall, Richard Bargh or Daljit Dhaliwal may also take super large positions. But in all three of these cases, their premise is the trade will immediately go their way, and they are so disciplined that they will get out very, very quickly if the market doesn't react the way they think it should. So while the size of these positions could be account- threatening, they are basically acting with the knowledge that they have such absolute discipline that they will be out extremely quickly if the trade doesn't immediately go in their favour. I would caution that I am talking about exceptional traders and that most ordinary traders should never take very large positions.
12) Given the availability of information and knowledge there is out there at the moment, do you think it’s easier to get into trading and be successful in this industry today than compared to say 30 years ago? With all the availability of books, podcasts, news sites, forums, courses etc.
Well, no, I don't think it's easier. In fact, before I started the book, I thought it would be more difficult because of the tremendous quantification of the industry and also because the growth of hedge funds meant that there were a lot more big fish out there. And for the little fish, the individual trader, to come in and to do very well, got more difficult. I kind of disproved that assumption, at least for some individual traders, through this book. Apparently, it's still possible to get extraordinary returns.
Despite that, you're asking a little bit of a different question, namely whether the availability of so much more information makes trading easier? Well, there are approaches, which weren't possible before that could be tried now, but that's also true for the professional traders that are competition. And, that is an offset. So I don't know if its easier or harder. It's different is all I could say.
13) Do you trade yourself these days?
I always tell people that I don't define myself as a trader. I trade. I've traded on and off for many years. But at no point in my life was trading the main thing I was doing. it was always more of a hobby. For large chunks of my life, I was so busy with other things that I didn’t trade or trade much. Then there are periods where I get inspired to start trading again, and I trade, and then I'll trade till I'm no longer inspired to, or if I start giving back a certain amount of profit. It is always something different that gets me trading and not trading.
At this point, this year, I'm trading again. I started trading, probably late last year, but particularly now that I finished the book, I've got more time. So, at the moment, I'm trading, but that could change. Also, I'm not a trader in the conventional sense of sitting here during the day and trading. When I say trading, I mean at the end of the day or sometimes a couple of time a day, I'll look at the charts and decide if I want place any new trade or change the planned exit on an existing trade.
14) You mentioned that you've actually found one or two of the traders for the book from FundSeeder?
I think it might be more like four out of the eleven traders profiled in the book. The FundSeeder trader platform (fundseeder.com) was motivated by an effort to develop a database of undiscovered trading talent with the intention of ultimately connecting this undiscovered trading talent with interested allocators. So, from the early days of that particular project, I assumed it would be a source of finding trading talent, and indeed it was one of the main sources for finding people for this book.
15) You kind of allude to it in the book, but are you planning on writing any other books in the future?
When I wrote my first book, I didn't expect to do any more books. And when I wrote my second, I didn’t expect to write a third. I didn't expect to do this book after I wrote the last Market Wizards book, which was Hedge Fund Market Wizards. But when I got involved with Fundseeder, my partner and the CEO of Fundseeder, Emanuel Balarie. suggested the idea of a Market Wizards book focused on undiscovered trading talent. His suggestion planted the seed. So I figured sooner or later, I might do the Unknown Market Wizards book.
So that was an exception, where I was expecting to do another book. But after I finished writing Unknown Market Wizards, I really had no intention to do another one. However, one of the traders that I interviewed, Chris Camillo, suggested this has been an amazing year and said it would probably be very interesting to do a follow-up on how the traders in the book managed to navigate the markets this year in regards to the pandemic and everything else. I know from being in touch with most of them that they have done very well.
If I did Unknown Market Wizards 2, I would go back and interview the same traders, about how they navigated this period subsequent to the interviews, which is basically late 2019 forward. If I do that, I'd probably wait till there was a vaccine and COVID faded into a more minor factor so it completed the cycle.
If I do it, it will be a shorter book, sort of like a follow up. I think a lot of people who read Unknown Market Wizards would be curious how the traders in the book fared in this most unusual year. I'll probably go as far as doing some follow-up interviews, and if they seem compelling enough, I'll consider doing this shorter follow-up.