From bestselling author and investment expert Jack D. Schwager, you can now get a glimpse behind the scenes of the investment world with his book “Market Wizards – Interviews with Top Traders”, where seventeen of the best investment experts reveal how they consistently outperformed the market over an extended period.
Author: Jack D. Schwager
Topics: (1) Finance, (2) Trading, (3) Biography
Year: 1989 (1st edition)
Number of Pages: 512
Language: English
Publisher: Wiley
Summary
“Market Wizards” was published in 1988 and is today one of the great classics in investment books. This is because the book is structured in an interview format, where the author Jack D. Schwager interviews some of the best investment experts in the world at that time. Unlike similar books, this one focuses on the best investment experts with exceptional results over an extended period. We’re talking about individuals such as Ed Seykota, Richard Dennis, Michael Steinhardt, Jim Rogers, and David Ryan. The book contains anecdotes about investment experiences and encounters with the financial markets, including a trader who turned $30,000 into $80 million after losing all his money multiple times. You will also read about an electrical engineer from MIT who achieved a return of 250,000% over 16 years using computer trading.
Each interview covers the background and experiences of the interviewee, touching upon various markets (commodities, stocks, currencies, and bonds) and styles (technical, fundamental, macro, quantitative, systems, and trends). The interviews have common themes, primarily discipline, and risk management. While the book mainly provides insights into the interviewees’ views on the markets and is relatively limited regarding trading strategies, readers can still take away tips and tricks to improve their investment skills. An exciting aspect of the book is that the author interviewed investment experts shortly after the primary market crash 1987 (Black Monday). This means that readers get a firsthand impression from the investment experts regarding that period and how they handled it. It’s a great read that provides insights into navigating investments during particularly turbulent periods.
The main lessons from “Market Wizards” revolve around discipline and risk management due to two reasons. Firstly, these are essential aspects when it comes to achieving success in the investment world. Secondly, the interviewed investment experts achieved their performance during the 1970s and 1980s, a different time than what we experience today. Technical analysis was significantly more effective then, and the markets were more volatile and predictable. Although there can be significant differences in the styles of the investment experts, the fundamental learnings boil down to the same essential formula: robust, systematic approach + substantial mental mindset = investment success.
Preserving capital through risk management is the most crucial aspect if one desires wealth accumulation, aligning with Warren Buffet’s two rules of investing: “Rule No. 1: Don’t lose money. Rule No. 2: Remember rule No. 1.” Capital preservation and risk management are emphasized in the conversations with the investment experts. For example, Paul Tudor Jones mentions, “Don’t focus on making money; focus on protecting what you have […] The most important rule in trading is to play defensive, not offensive.” (p. 136-137). This goes against the common belief that “higher returns can only be achieved by taking greater risks.” Losing all your capital due to high-risk/speculative bets is perhaps the riskiest path an ‘investor’ can embark on, as captured by Larry Hite’s two rules: “1) If you don’t bet, you can’t win. 2) If you lose all your chips, you can’t bet.” (p. 190).
Discipline is another important aspect if one aims to achieve good investment results. The book reveals that many investment experts started their careers by losing everything quickly. It taught them an important lesson, which is still relevant today: set aside your pride. The investment experts often lost their fortunes because they thought they were right, which led them to hold onto losing positions. A good example comes from the interview with Marty Schwartz when asked why most investors lose money, to which he replied, “Because they would rather lose money than admit they’re wrong.” (p. 279). Pride and excessive self-confidence are the average investor’s most significant obstacles to continuous success. In his interview, Michael Steinhardt expressed that one should never romanticize a relationship with their position: “A good trade is a balance between the conviction to follow your ideas and flexibility to recognize when you’ve made a mistake.” (p. 218).
If we mention a common thread among the methodologies used by most interviewed experts, it is momentum. The preferred tool is technical analysis and momentum. Richard Dennis summarizes it nicely in his interview: “Whether the market is trending is the most important thing because that is what eventually gets us into a position.” (p. 102). It sounds simple, and it may be. Still, most of the interviewed investment experts mention something in line with “ride the trend on your position and exit the position as soon as the trend reverses.”
Although some of the rules are valuable, in my opinion, the real value of “Market Wizards” lies in the individual nuggets of helpful information that each expert provides, which one can implement into their approach to the financial markets. Additionally, the conversational format also makes the book engaging throughout. However, the book is over 458 pages long, requiring extra energy. But considering the valuable information, it is well worth it.
Suppose you already have your investment process and way of doing things. In that case, this book is recommendable as a supplement where you can borrow information from the individual chapters. But you are relatively new and searching for information to help build an investment framework. In that case, there are probably other books I would start with. I highly recommend reading this book at some point since it provides valuable insights from some of the world’s best investment experts, which is priceless.
Rating
We have chosen to give “The Market Wizards” the following rating:
Overall rating: ★★★★☆
Overall, it is a highly recommended book where you get the opportunity to learn different aspects of the investment world from some of the most competent investment experts.
Style: ★★★★☆
It is a relatively easy book to understand in terms of language. It is presented in interviews, which definitely aids in comprehension.
Structure: ★★★★★
The structure is perfect. Chapters are divided based on different investment categories, making it relatively easy to understand where the author wants to lead the reader.
Level: ★★★☆☆
It is evident that when you take some of the world’s best investment experts and start discussing their investment approaches, it will involve language and terms that require prior knowledge. This means that if you are a beginner in this world, it will require extra time to get through the book.
Technical: ★★★☆☆
Some of the chapters can become a bit technical, especially when it comes to explaining why the experts acted as they did at a specific time and how they structured their investments.