Podcast: Jack Schwager, trader, author of Market Wizard series books and CRO of Fundseeder.

Today’s guest really needs no introduction to the trading and hedge fund community. In fact, if you still believe in efficient markets and normal distributions will you measure your risk with standard deviation then you really have to read “Market Sense and Nonsense”. But, Jack Schwager, is probably best known for his five Market Wizard books. We’re going to try and touch on all of them, but I think Jack, it’s a real pleasure to interview such a legend amongst traders. Can we maybe start with your first book which perhaps isn’t as widely known but it’s ironically also your last book, because you just did a second edition? That’s “The Complete Guide to the Futures Market.”

You’ve done your homework because people normally don’t get the first and last right. So that’s you’re right.

What I’m interested about the book, because, I think it was more than 35, 36 years ago, you started writing it and I understood, you took a sabbatical, to go and dedicate that time…. Did you have a publisher in the wings?

You know, I don’t think I had a publisher – that historically, what would have happened is, and it’s kind of interesting story. Perry Kaufman, I don’t know if the name is familiar, but he’s, he’s written like several encyclopaedic works on Technical Analysis, and he also, in the first book, I forget what it is called, but he got experts in different areas to write chapters, and I kind of knew Perry, and he asked me to do one on Fundamental Analysis and I said, “Yeah sure”, and I started writing it.

And by the time I had 80 pages, it was nowhere near the end yet. And I said, “Hey wait, this is crazy, I can’t do this as a chapter for somebody else’s book.” So, I called Perry, I said, “Well, you know the bad news is, I really can’t do the Fundamental now. It’s just too big of a topic. But the good news is, you know, I’ll give you a chapter out of the book that I will do.” So, that got me started on it. I don’t think, I remember correctly, I didn’t have a publisher lined up initially. I don’t remember at what point, I got one, I basically thought there wasn’t a decent book on Analysis, Market Analysis at least not Futures. So, and I thought, I could do a credible job, and I thought, if I did a credible job, it would be better than anything else. So that was my goal, was to write the best book on, general book on Futures Market Analysis. And so, that’s what I ended up doing, and somewhere along the line, I got a publisher. But I don’t think, I had it, at the start. I got started because of that commitment to Perry Kaufman, and once at 80 pages, I said well, I probably got a third of the book done. It turned out to be closer to about n ninth, than a third, but I didn’t know that at the time.

It is quite a time and really a lot of interesting information especially in the context of when it was first written I believe in 1984, when it was published, that was the same year, that the first Apple Mac was released. So certainly, the way we treat the Futures Market today with technology, things were a bit different at that time.

Yeah. And that had a really, big effect, because that made the book required immensely more work than it would be in current times. There might have been some PC out there you know, but I didn’t, you know, I wasn’t a PC user for a year, until years later. And so, I would have to dictate you know all then send it to a secretary to type-up and I had to hand-generate the charts, which the publisher would then translate, you know to looking better. And I had to do like any statistical work. I literally can remember this, these large calculators, think that you would likely have on your desk, or whatever, and I actually would do multiple regression analysis on a cap, by using a calculator, which was highly inefficient, of course. So, it made the task much, much longer.

What I really love about your writing, especially the Market Wizards books, besides the breadth and the depth of the interviews, are some of the wonderful antidotes and illustrations that really bring colour to the writing and sort of sit with you, after you’ve read the book. I know, I think it might have been “the Little Book of Market Wizards”, where you were speaking to one of the Managers and, and, you know, you used this illustration, it was a garden analogy, of watering our weeds and lobbing off the tops of the flowers. I don’t know if you can recall that, but it was to do with “letting the profits run and cutting the losses short” and that sort of sat with me.

Yeah well that’s a basic… I don’t remember that particular line, but that theme came up in many interviews, and I know it sounds pat and trite because it’s people are, we all know that that basic line. But, clichés are clichés, usually for a reason, because they’re true. It’s one thing to say it. And if you just say it then, it’ll roll-over peoples, it’ll just roll-off of them, because they’ve heard it too often, they don’t pay attention. But, if you can give people real life stories of how people, traders’ who became enormously successful, may have started out having to learn those realities through hard life experiences, those experiences are much more memorable and stick, can stick, much better than them just, just offering the trite phrase.

So, like for example, the matter of discipline…. I use and example, and I use it in the book. I use it, I think it was New Market Wizards, I’ve got a chapter where, I forget what that chapter was called, but it was one a fellow by the name of Andy Mackay, and he traded a fairly large size. He would trade various sizes, depending on how well he was doing, but he could go up to thousands of contracts. Anyway, he was a disciplined trader. There was an instance where, he had one very large position in the Canadian dollar, he had to catch a plane, and he was late.  He just took a quick glance at the screen and saw that he was long in a position and was down 100 points. So, he wrote it off as a bad tick. You know, it was just that the one hundredth tick was in the wrong place. He just rationalized that, you didn’t do anything. He caught his plane and it turned out it was, it was right, and there had been a poll, that yielded a surprise, surprise result in the market, was tanking, and by the next day it was much worse, and so forth.  By the time he got out, it turned into a one enormously large loss. In that story, just before that story, tell people examples or how he was disciplined, and that’s what we just illustrated, it takes like one second lack of discipline, and the market can kill you. So that is, a much more memorable way, and a much better way, for people to absorb lesson, that I just say “Hey you know, cut your losses, shorten, let your profits run.”

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