Hedge Fund Market Wizards – How Winning Traders Win

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By Emil

From best-selling author and investment expert Jack D. Schwager, you can now get a behind-the-scenes look at the hedge fund world with “Hedge Fund Market Wizards – How Winning Traders Win”, where fifteen of the best investment experts reveal how they have consistently beaten the market over an extended period.

Author: Jack D. Schwager

Subjects: (1) Finance, (2) Trading, (3) Biography

Year: 2012

Page count: 544

Language: English

Publisher: John Wiley & Sons


“Hedge Fund Market Wizards” is written by Jack D. Schwager and is another book in his well-known and well-written series, where some of the best investment experts in their field are interviewed about how they ended up in the industry, their investment process, trading process, and the market battles they have fought over the years. “Hedge Fund Market Wizards” is not very different but still delves deeply into hedge funds, where 15 various investment experts have been interviewed and divided based on areas such as macro (macro men), multi-strategy (multi-strategy players), and stocks (equity traders). Some of these experts are well-known, such as Joel Greenblatt and Ray Dalio, while others are less well-known to the general person.

Conversations with individual experts take different directions; each chapter has one central theme or lesson. For example, the conversation with Ray Dalio is based on his belief that we learn the most from our mistakes, which is why the chapter is also called “The Man Who Loves Mistakes.” Below we have reproduced the most critical learning and theme for each chapter:

  • Colm O’Shea (Chapter 1): Trading ideas are hypotheses. A market movement that goes against the expected direction proves the hypothesis wrong.
  • Ray Dalio (Chapter 2): Learn to love mistakes as they create learning opportunities that catalyze improvements.
  • Larry Benedict (Chapter 3): Risk management is the most important thing, and one should aim not to lose money.
  • Scott Ramsey (Chapter 4): Use a top-down approach, starting with an entire case and trying to time the market with technical analysis.
  • Jaffray Woodrif (Chapter 5): Evaluate your performance. Try to find investment opportunities where others need to look.
  • Edward Thorpe (Chapter 6): It’s possible to achieve the impossible if you approach a problem or challenge from a different perspective.
  • Jamie Mai (Chapter 7): Mai’s strategy is based on five fundamental principles: (1) find mispricings, (2) choose trades that have a positive outcome, (3) focus on asymmetric trades, (4) be patient and wait for the right opportunities to arise, and (5) use cash to adjust portfolio risk.
  • Michael Platt (Chapter 8): Implement trades to reduce potential losses relative to potential returns. Use intuition and get out of trades if they don’t feel right.
  • Steve Clark (Chapter 9): Stick to what works for you. Don’t move into different time horizons or markets that don’t fit your personality and competencies.
  • Martin Taylor (Chapter 10): Focus on the asymmetry concerning portfolio risk. Instead, catch 70-80% of market upside, but only capture 30-40% of market downside.
  • Tom Claugus (Chapter 11): Be contrarian and be aware that you can be correct even if you lose money.
  • Joe Vidich (Chapter 12): Limit position sizes to match your emotional state. Don’t be concerned about being 100% right.
  • Kevin Daly (Chapter 13): Strict discipline is the most important thing.
  • Jimmy Balodimas (Chapter 14): Go against the flow. Sell into an uptrend and buy into a downtrend.
  • Joel Greenblatt (Chapter 15): Value investing works in the long term but not always in the short term.

Regardless of one’s investment style or market focus, this book contains a lot of learning. Hedge Fund Wizards operate in all markets, including futures, options, stocks, and bonds. They each have their niche within macro thinking, risk arbitrage, fundamentalists, quants, or technicians. The main lesson from Hedge Fund Wizards is that each successful expert builds their area of expertise, which defines how they make investment decisions. A strategy for one person can be a disaster for another.

The investment experts are quick to adapt to changing conditions and have a clear methodology for measuring the return-to-risk ratio for each of their trades. They are good at generating expected payoffs on their investment ideas and developing scenarios for whether things will go up or down. All experts emphasize a disciplined risk management approach to eliminate the emotional part of losing positions. One of the more exciting pieces of information shared is that your stop-loss level should not be set based on what you can maximize to lose but on what makes your investment hypothesis invalid.

It is important to emphasize that the book will not deliver methodical procedures or investment strategies you can copy yourself. Most experts use “naturalistic” or “recognition-based” decision-making, meaning it does not include any formal investment process but an intuitive assessment of individual situations. A well-developed intuition is indeed something that you are left with after reading the book.

To assist the reader, the book also includes 40 different Market Wizards lessons that could almost be made into a rulebook. This includes everything from “there is no holy grail in trading” (1) to “keep an eye on how markets respond to news” (30).

Even though some of the rules are valuable, the real value of “Hedge Fund Wizards” lies in the individual pieces of helpful information that each expert provides, and which can be implemented in one’s own approach to the financial markets. Additionally, the conversational format means that the book is relatively interesting all the way through. However, the book is over 500 pages long, which makes it a book that requires a bit of extra energy to get through, but it is well spent considering the valuable information.

If you already have your own investment process and a way of doing things, this book is recommended as a supplement, where you can steal information from individual chapters. But if you are relatively new and looking for information that can help build an investment framework, there are probably other books I would start with. Under all circumstances, I recommend reading the book at some point, as you are left with nuggets of wisdom from some of the best investment experts in the world, which is valuable.


We have chosen to give “Hedge Fund Market Wizards” the following rating:

Overall rating: 4/5

Overall, it is a highly recommendable book, where you get the opportunity to learn different aspects of the investment world from some of the most competent investment experts.

Style: 4/5

It is a relatively easy book to understand in terms of language. It is conducted as interviews, which certainly helps with understanding.

Structure: 5/5

The structure is perfect. Chapters are divided based on the different investment categories, which makes it relatively easy to understand where the author wants to lead the reader.

Level: 3/5

Clearly, when you take some of the best investment experts in the world and start discussing their investment approach, it means that there will be a language and terms that require you to know what they are in advance. This means that if you are a beginner in this world, it will require extra time to get through the book.

Technical: 3/5

Some of the chapters can become a bit technical. Especially when it comes to why the experts acted as they did at a particular time and how they structured their investments.

You can order the book from Amazon.com by clicking on the image below:

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