Hedge Fund Market Wizards [Kindle Edition]

Jack D. Schwager (Author), Ed Seykota (Foreword)

Book Description

Fascinating insights into the hedge fund traders who consistently outperform the markets, in their own words

From bestselling author, investment expert, and Wall Street theoretician Jack Schwager comes a behind-the-scenes look at the world of hedge funds, from fifteen traders who've consistently beaten the markets. Exploring what makes a great trader a great trader, Hedge Fund Market Wizards breaks new ground, giving readers rare insight into the trading philosophy and successful methods employed by some of the most profitable individuals in the hedge fund business.

• Presents exclusive interviews with fifteen of the most successful hedge fund traders and what they've learned over the course of their careers
• Includes interviews with Jamie Mai, Joel Greenblatt, Michael Platt, Ray Dalio, Colm O’Shea, Ed Thorp, and many more
• Explains forty key lessons for traders
• Joins Stock Market Wizards,New Market Wizards, and Market Wizards as the fourth installment of investment guru Jack Schwager's acclaimed bestselling series of interviews with stock market experts

A candid assessment of each trader's successes and failures, in their own words, the book shows readers what they can learn from each, and also outlines forty essential lessons—from finding a trading method that fits an investor's personality to learning to appreciate the value of diversification—that investment professionals everywhere can apply in their own careers.

Bringing together the wisdom of the true masters of the markets, Hedge Fund Market Wizards is a collection of timeless insights into what it takes to trade in the hedge fund world.

Editorial Reviews

Amazon.com Review

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Guest review of Hedge Fund Market Wizards, by Stanley Druckenmiller

Jack Schwager's newest book, Hedge Fund Market Wizards, like his previous works, is yet another solid contribution toward how to effectively manage capital. The book will have strong appeal to three main audiences; those managing capital professionally, those evaluating professional money managers, and those readers who want to manage their own money more effectively.

The fact that markets and the money management industry have gone through tumultuous change makes the central message of the book all the more powerful...that the key ingredients to successful performance are timeless and true in radically different environments. Those ingredients, an appreciation for the balance of risk versus reward in a trade, discipline, adaptability, an open mind, and intellectual honesty that enables one to learn from mistakes, come to life in Schwager's riveting interviews with a number of managers.

The characters' stories highlight their very different personalities and lifestyles and are interesting in and of themselves. But it is Schwager's unique ability to illustrate their winning strategies and interweave their personal backgrounds and emotional highs and lows that makes Hedge Fund Market Wizards both a highly entertaining read and learning experience. What most jumps out at the reader is how radically different styles and approaches all share the common traits mentioned above. By exemplifying these traits in a number of managers with seemingly different investment philosophies, whether it be short term vs. long term trading, large capital or small, or technical vs. fundamental analysis, Schwager is able to better highlight their essential importance to successful investing. By highlighting their differences, the common thread of their similarities is much more evident. Schwager reinforces the message with succinct summaries of what these commonalities are throughout the book.

Whether a reader is a professional money manager or simply managing their own capital, I have no doubt they will find Hedge Fund Market Wizards both entertains and enhances their ability to grow their capital.


Stanley Druckenmiller founded Duquesne Capital Management, which compounded at 30% per annum without a single losing year from its inception in 1981 to its closing in 2010. From 1988 to 2000, he also served as Lead Portfolio Manager of the Quantum Fund and Chief Investment Officer of Soros Fund Management (1989-2000) where he had overall responsibility for funds with a peak asset value of $22 billion.

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Jack Schwager's Five Market Wizard Lessons

Jack Schwager

Hedge Fund Market Wizards is ultimately a search for insights to be drawn from the most successful market practitioners. The last chapter distills the wisdom of the 15 skilled traders interviewed into 40 key market lessons. A sampling is provided below:

1. There Is No Holy Grail in Trading
Many traders mistakenly believe that there is some single solution to defining market behavior. Not only is there no single solution to the markets, but those solutions that do exist are continually changing. The range of the methods used by the traders interviewed in Hedge Fund Market Wizards, some of which are even polar opposites, is a testament to the diversity of possible approaches. There are a multitude of ways to be successful in the markets, albeit they are all hard to find and achieve.

2. Don't Confuse the Concepts of Winning and Losing Trades with Good and Bad Trades
A good trade can lose money, and a bad trade can make money. Even the best trading processes will lose a certain percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adhered to a process with a positive edge, it is a good trade, regardless of whether it wins or loses because if similar trades are repeated multiple times, they will come out ahead. Conversely, a trade that is taken as a gamble is a bad trade regardless of whether it wins or loses because over time such trades will lose money.

3. The Road to Success Is Paved with Mistakes
Ray Dalio, the founder of Bridgewater, the world's largest hedge fund, strongly believes that learning from mistakes is essential to improvement and ultimate success. Each mistake, if recognized and acted upon, provides an opportunity for improving a trading approach. Most traders would benefit by writing down each mistake, the implied lesson, and the intended change in the trading process. Such a trading log can be periodically reviewed for reinforcement. Trading mistakes cannot be avoided, but repeating the same mistakes can be, and doing so is often the difference between success and failure.

4. The Importance of Doing Nothing
For some traders, the discipline and patience to do nothing when the environment is unfavorable or opportunities are lacking is a crucial element in their success. For example, despite making minimal use of short positions, Kevin Daly, the manager of the Five Corners fund, achieved cumulative gross returns in excess of 800% during a 12-year period when the broad equity markets were essentially flat. In part, he accomplished this feat by having the discipline to remain largely in cash during negative environments, which allowed him to sidestep large drawdowns during two major bear markets. The lesson is that if conditions are not right, or the return/risk is not sufficiently favorable, don't do anything. Beware of taking dubious trades out of impatience.

5. Volatility and Risk Are Not Synonymous
Low volatility does not imply low risk and high volatility does not imply high risk. Investments subject to sporadic large risks may exhibit low volatility if a risk event is not present in the existing track record. For example, the strategy of selling out-of-the-money options can exhibit low volatility if there are no large, abrupt price moves, but is at risk of asymptotically increasing losses in the event of a sudden, steep selloff. On the other hand, traders such as Jamie Mai, the portfolio manager for Cornwall Capital, will exhibit high volatility because of occasional very large gains-not a factor that most investors would associate with risk or even consider undesirable-but will have strictly curtailed risk because of the asymmetric structure of their trades. So some strategies, such as option selling, can have both low volatility and large, open-ended risk, and some strategies, such as Mai's, can have both high volatility and constrained risk.

As a related point, investors often make the mistake of equating manager performance in a given year with manager skill. Sometimes, more skilled managers will underperform because they refuse to participate in market bubbles. The best performers during such periods are often the most imprudent rather than the most skilled managers. Martin Taylor, the portfolio manager of the Nevsky Fund, underperformed in 1999 because he thought it was ridiculous to buy tech stocks at their inflated price levels. This same investment decision, however, was instrumental to his large outperformance in subsequent years when these stocks witnessed a prolonged, massive decline. In this sense, past performance can sometimes even be an inverse indicator.

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Review

"A must-read for all would-be traders...while the book's focus is clearly on trading and investing, there is more than enough human interest on offer for the general reader.... Like Schwager's other works...Hedge Fund Market Wizards looks set to become a classic." (Money Week, June 2012)

"Offers valuable guidance and timeless insights for both investment professionals and market enthusiasts looking to improve their trading abilities by learning from the best." (trade2win.com, July 2012)

"This book is destined to be a classic just like the others by Jack. But the latest goes one step further, these traders aren't just at the top of their game, they have defined it. What can I say? This book was so good it almost made me want to get back into the game again!"
—Paul Wilmott, mathematician and ex-hedge fund manager

"Brilliant! Brilliant! Brilliant! Another book about true traders by a true trader. Jack Schwager has become the official author of traderdom for this and future generations. Not only does Hedge Fund Market Wizards deserve a spot in every respectable trader’s book collection, but the entire series should be read annually by both professional and aspiring traders. Timeless wisdom, priceless concepts!"
—Peter Lewis Brandt, Futures Trader, Stableford Asset Management, and Author of Diary of a Professional Commodity Trader

"I read Jack Schwager's first Market Wizards book when I was just starting out as in investor more than 20 years ago. It put into brilliant focus the importance of trading psychology and knowing thyself. His latest work is yet another masterpiece. It brings to light new concepts in the world of investing that apply to all investors in today's markets. Anyone who reads this work will immeasurably enrich themselves on many levels because trading is life and life is trading."
—Dr. Chris Kacher, Founder of www.SelfishInvesting.com, and Author of Trade Like an O'Neil Disciple

Author Jack Schwager seems to have built his career on the market wizardry of others. Based on this fourth wizard book—interviews with 15 hedge-fund managers who recount their careers and strategies—Schwager's long experience with wizardry has served him well. Readers captivated by the hedge-fund mystique won't be disappointed.  Readers looking for insight into exactly how successful hedge-fund managers achieve success will have plenty to chew over. Schwager attempts to boil down the interviews into 40 "Market Wizard Lessons." Examples: Value investing works. Position size can be more important than entry price. Sometimes it's useful to do nothing.  But the one that may ring truest is this: There is no Holy Grail in trading. What works for one may not work for another, or for you. Fortunately for us, there's a wide enough variety of portraiture in Hedge Fund Market Wizards that at least a few lessons should resonate.
—Barrons.com

“Determining how great traders acquire and use their special skills has been an elusive quest. We have no shortage of cookbooks on how to trade, but only a limited number of books describe the decision processes of those who speculate as a profession. Trader confessionals exist often as testimonies to egos, but few focus on the details of decision making. Material that does successfully capture the essence of how speculators think is the Market Wizards series by Jack D. Schwager…. Even in the interviews of well-known traders, Schwager’s probing questions extract many new insights.”
—FAJ Book Review

See all Editorial Reviews

Product Details

• File Size: 833 KB
• Print Length: 544 pages
• Publisher: Wiley; 1 edition (April 25, 2012)
• Sold by: Amazon Digital Services, Inc.
• Language: English
• ASIN: B007YGGOVM
• Text-to-Speech: Enabled
• X-Ray: Not Enabled
• Lending: Enabled
• Amazon Best Sellers Rank: #17,846 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
  • #10 in Kindle Store > Kindle eBooks > Nonfiction > Professional & Technical > Accounting & Finance > Finance
  • #10 in Kindle Store > Kindle eBooks > Business & Investing > Finance > Finance & Investing
  • #29 in Kindle Store > Kindle eBooks > Business & Investing > Investing

Most Helpful Customer Reviews

35 of 38 people found the following review helpful

5.0 out of 5 stars More great insights continuing the series' excellence June 11, 2012

By John Forman

Format:Hardcover|Amazon Verified Purchase

Before I get into my thoughts on Hedge Fund Market Wizards, I think sharing the author's own words will go a long way toward establishing expectations for the book as I've found that those few folks who have panned the series have only really done so because they went into reading the books with a mistaken view of what they would get.

"Readers who are looking for some secret formula that will provide them with an easy way to beat the markets are looking in the wrong place. Readers who are seeking to improve their trading abilities, however, should find much that is useful in the following interviews." (from the Preface)

And of course interviews is what the book is all about. There are 15 in this latest variation on the Market Wizards series, each with its own introduction and concluding summary of key takeaways. Again, we have a diverse collection of money managers represented. They are grouped in to "macro", "multistrategy", and "equity" categories. I wouldn't call this as broad a set of discreet categorizations as we saw in the earlier books, but this probably reflects the way trading and money management has evolved in the 20+ years since the first book came out.

I think those who have read one or more of the prior books will find some subtle differences in this new edition. It is clear Schwager is more confident in both his interviewing and his own views on trading and markets. There is more editorializing in this book than I remember from the others. At the same time, the author isn't shy at all about drilling down on subjects and pressing interviewees to get the most out of them. This adds to the quality of the end product.

I was actually somewhat surprised how into the book I got personally. As an experienced traders, I found a kind of affirmation from some of the interviews. There were also a few "I never really thought about it like that" moments to give me new things to ponder, which is a plus.

I think having a significant recent (financial crisis) event central to the interviews helps. It also creates the same kind of contextual linkage the Crash of 1987 had for the interviews in the first book. This common reference point for readers makes it easier to be engaged by the text. It also helps developing readers from an application perspective in terms of allowing readers to have "Oh, yeah. I see what he was doing there" type of realizations.

There are a couple of interviewees in this book who present a challenge to individual investors in that they operate in markets where no individual really can take part (there is plenty of good footnoting to support explanations and definitions of subjects discussed). Most of them, though, operate in ways largely applicable by individuals, and even those who don't still offer insights into how they are thinking about the strategies they are employing and the way they are positioning themselves in the market.

And really that's really the crux of what's on offer in Hedge Fund Market Wizards.

It's about hearing how successful traders think about risk, strategy, research, and everything else that goes into their efforts - getting inside their heads. There are a couple of more systematic traders in the group who don't share much in the way of specifics, but the rest (who I would largely describe as being discretionary types) seem to have no problem at all in talking pretty specifically about the kind of technical and/or fundamental cues they look for to find good trades. If you're after "I buy when the 15-day average crosses the 30-day" type of rules, you're not going to find any. Most of the gentlemen interviewed (it's all men in this one), though, are very open about the way they look for trades, manage positions, etc. For this reason, I believe there is a lot of value to be had here for new and developing traders.

Schwager ends the book with his own takeaways from all the interviews he's done through these books. Those 40 observations alone are worth getting a copy of Hedge Fund Market Wizards, especially knowing from whence they came. There's also a very good epilogue written by his son talking about his own introduction to the Market Wizards concepts and their presentation which is well worth reading.

The bottom line is I think this is a good read no matter where you are on the spectrum of market experience.

30 of 32 people found the following review helpful

5.0 out of 5 stars 15 Hedge Fund Market Wizards trading secrets & insights IN THEIR OWN WORDS June 6, 2012

By Matthias Knab

Format:Hardcover

Length: 6:47 Mins

I met Jack in NY recently where we talked about:

* The difference between Schwager's four Market Wizards books
* Markets have changed, but the typology of successful traders not
* The genius of Michael Platt (Bluecrest) and Ed Thorp
* Three of the 40 Market Wizard Lessons - For Traders: 1. Find your own style 2. Be flexible, For Investors: Volatility and risk are not synonymous
* Ray Dalio's Bridgewater: How to consistently achieve outsized, uncorrelated returns
* Jimmy Balodimas: The most unconventional of the successful traders
* Joel Greenblatt: Why value investing still works

Due to the size restrictions I could not upload the full video, see this link on Youtube for the full length feature with Jack: [...]

25 of 29 people found the following review helpful

3.0 out of 5 stars Market Wizards books a contrarian indicator? November 11, 2012

By jvdi

Format:Hardcover|Amazon Verified Purchase

So the first Market Wizards book had a lot of discussion about commodities. The commodity bear still had another 11 years or so before it bottomed.

The third MW book definitely had a tech vibe to it. I remember reading it in 2000 thinking to myself what the author was doing loading up the book with tech gurus when we were obviously at a major peak. At least two of the so called Wizards ended up in jail (Lauer and Raj R.) and more had their funds closed when the bubble burst (Okumus et. al).

So what does this book's theme? Well after the hi volatility of the last 13 years, the authro is now preaching the virtues of low volatility. You know, maximum drawdown of 1.26%, that sort of thing.

Since this is what institutions want, you have all the hedge funds trying to fit into this politically correct lo volatility space. I suspect the low vol strategy is very much overplayed and the rest of the decade will be ruled by hi vol traders who rack up 30% annualized returns.

I thought the interviews were very bland. I had to force myself to get through it as they all seem liked clones "Drawdowns are bad."

They were maybe two or three hi vol. guys but Schwager quickly seemed to hasten to add that such activities are not recommended. Whatever.

In summary, Schwager, as usual, picked the fund managers who were riding whatever wave which was in fashion at the time of publishing the book. For those interested in the lo vol. strategy which is beloved by all the institutions nowadays, perhaps you would find it interesting.

Personally, I would bet that embracing such strategies will result in chronic underperformance.

Next up will probably Bond Market Wizards.

More About the Author

Jack Schwager is a recognized industry expert in futures and hedge funds and the author of a number of widely acclaimed financial books. He is currently the co-portfolio manager for the ADM Investor Services Diversified Strategies Fund, a portfolio of futures and FX managed accounts. Previously, Mr. Schwager was a partner in the Fortune Group, a London-based hedge fund advisory firm, which specialized in creating customized hedge fund portfolios for institutional clients. His prior experience includes 22 years as Director of Futures research for some of Wall Street's leading firms and 10 years as the co-principal of a CTA.

Mr. Schwager has written extensively on the futures industry and great traders in all financial markets. He is perhaps best known for his best-selling series of interviews with the greatest hedge fund managers of the last two decades: Market Wizards (1989), The New Market Wizards (1992), and Stock Market Wizards (2001). The latest book in the series, Hedge Fund Market Wizards is due to be released in May 2012. Mr Schwager's first book, A Complete Guide to the Futures Markets (1984) is considered to be one of the classic reference works in the field. He later revised and expanded this original work into the three-volume series, Schwager on Futures, consisting of Fundamental Analysis (1995), Technical Analysis (1996), and Managed Trading (1996). He is also the author of Getting Started in Technical Analysis (1999), part of John Wiley's popular Getting Started series.

Mr. Schwager is a frequent seminar speaker and has lectured on a range of analytical topics including the characteristics of great traders, investment fallacies, hedge fund portfolios, managed accounts, technical analysis, and trading system evaluation. He holds a BA in Economics from Brooklyn College (1970) and an MA in Economics from Brown University (1971).