Elite Trader Insights: Jack Schwager

Episode 5: The making of Market Wizards, and wisdom from elite traders w/ Jack Schwager

Each week we try to unlock the collective wisdom of the Trading Elite. Strategies and unique insights from hours of interviews with top traders, sliced into bite-sized pieces and delivered to your inbox for your pleasure.

Jack Schwager

Jack D. Schwager is a renowned financial author, trader, and industry expert specializing in futures markets and hedge funds.

Born in Antwerp, Belgium, in 1948, Schwager holds a Bachelor of Arts in Economics from Brooklyn College and a Master of Arts in Economics from Brown University. He has spent over four decades immersed in the world of trading, managing his own funds, and consulting for various financial institutions.

Schwager's acclaimed book series, "Market Wizards," delves into the minds and methods of some of the most successful traders in history, providing valuable insights into their trading philosophies and techniques. His expertise extends beyond trading, as he has also authored books on hedge funds and risk management. Schwager's contributions to the field of finance have earned him widespread recognition, establishing him as a thought leader and a trusted source of knowledge for traders and investors worldwide

During the talk with CWT’s, they go behind the scenes of the Market Wizards and Jack shares his experiences from conducting interviews with trading royalty and some of his most memorable moments.

Here are 10 key learnings from Jack Schwager's interview:

1. Failure is Not Predictive of Future Outcome

Early trading failures don't necessarily mean you can't succeed in the future. As Schwager says, "Early failure or even terrible failure is not necessarily predictive of future outcome." Michael Marcus went from losing his small starting capital to building an $80 million account over a dozen years.

2. Persistence is Key

Successful traders don't give up in the face of failures or setbacks. As Schwager emphasizes, traders like Michael Marcus ultimately succeeded "because they didn't give up." Persistence and "the self-confidence that just doesn't give up" are critical.

3. Markets are Not Random

"The markets are not random," Schwager asserts. Skilled traders can consistently beat the markets over long time periods in a way that can't be explained by luck or randomness. Market prices also frequently diverge from rational valuations.

4. Find an Approach That Suits Your Personality

"Don't look for the trading secret," Schwager advises. "Look for the trading method that's right for you." Methods that work for some may be unsuitable for others. As an extreme example, Gary Bielfeldt contrarian shorting succeeded because it fit his nature, not because it's broadly applicable.

5. Simple Approaches Can Work, But Sometimes Complexity is Necessary

While some exceptional traders use simple chart reading approaches, others like Ed Thorp apply complex statistical and quantitative analyses across thousands of instruments. There is no definitively "proper one." Both simple and complex methodologies can work.

6. Having an Edge is Essential

Money management alone can't compensate for lacking an edge, despite common misconceptions. "If the house has the edge you have a negative edge," Schwager analogizes about markets, so no money management scheme works. Equity growth can help confirm you likely have an edge.

7. Flexibility is Critical

Great traders adapt rather than rigidly stick to failing approaches. For example, Thorp continuously evolved his statistical arbitrage strategies to keep their edge as markets changed. The ability to flip positions when wrong is also key flexibility.

8. Past Performance Examples Can Be Misleading

Schwager warns against relying on "well-chosen examples" of systems or patterns working. They're often curve-fitted and unrepresentative. For robustness, approaches must be demonstrated across diverse markets over long time frames, not just one cherry-picked case.

9. Talent Alone Isn't Enough

While asserting some traders have natural talent, Schwager emphasizes that consistent success requires skill development through hard work and learning. Raw talent provides no assurance of excellence without proper nurturing.

10. Risk Management Comes First

Getting out is more important than getting in. As Bruce Kovner concisely states in an oft-cited Schwager quote: "Know where you are getting out before you get in." Setting stop loss levels beforehand establishes risk control and objectivity.

Cheers

Marto