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One of The Best Trading Books To Own
on February 15, 2005
Along with its prequel, "The New Market Wizards" is not just a book featuring top traders and their killer strategies that brought about their raging success. The two are no less self-help books giving the much needed pointers to anyone who wants to become a better trader as it repeatedly dissects what constitutes fatal emotional pitfalls and helps readers achieve an acute state of naked realization and, perhaps taken to the extreme, self-actualization. This observation is best captured in Jack Schwager's closing interview with Dr. Van K. Tharp in "Market Wizards": "When people approach the markets, they bring their personal problems with them".
For fundamentalists, "Market Wizards" is the more appropriate book to peruse. My favorite section in the book is "A Little Bit of Everything" where views of long-term investors are discussed at length. The longest write-ups in part one of the series, perhaps purposely so, are also the most useful as interviewees proffered their tricks of their trades with great candor - Michael Marcus (42 pages), James Rogers (38), Bruce Kovner (34), Michael Steinhardt (26). Other concise but equally useful comments were aired by David Ryan (20 - and check out the wealth of investment/trading books mentioned in the interview) and William O'Neill (18).
"The New Market Wizards" is in broad terms a general rehash of ideas propounded in the first book, except that it was more geared toward trading styles than investment techniques, plus the myriad traders highlighted were newer to the game at the penning of the book and in this sense their views less impressive/thought-provoking compared to its prequel where the most legendary / creme de la creme were handpicked to go into the definitive book. Consequently, I find myself picking up appreciably less useful ideas from the second book than I did from the first, albeit Jeff Yass's "The Mathematics Of Strategy" was a refreshing read.
As a summary of Schwager's two extraordinary books on top traders, here's my take on the most important elements that contribute to trading success:
(1) Stringent Risk Control
(2) Hard Work & Tenacity
(3) Know Thyself: Identifying Areas Of Competence & Weakness
(4) Know Thy Investment As Crap Begets Crap
(5) Open-mindedness To New Ideas & Unexplored Angles
(6) Willingness To Acknowledge Defeat & Change Tack When Proven Wrong
(7) Resilience, Courage & Conviction When Markets Go Against You In The Short-Term
(8) Humility To Accept That 'The Market Is Always Right'
(9) Patience To Let Profit Run But Resolution To Run When Proven Wrong
(10) Discipline: Setting Exit & Entry Points/Targets
(11) Defensive/Offensive Behavior: 'Preserving Equity First, Making Money Second'
(12) Fire To Succeed: Total Involvement, Not Haphazard Approach
As a humble contribution, I would like to add two cents as to what defines sound trading mindset:
(a) Investment Is Counter-Intuitive: Obvious Bets Rarely Make Good Investments and vice versa.
(b) On-Going Process Of Analysis & Lateral Thinking: Importance of Leaving No Stones Unturned.
(c) Generosity of Spirit: The More That Is Given To You, The More Is Expected Of You. The common thread that reverberated throughout the books was the interviewees' generosity in sharing their secrets of success and their philanthropic works, along the lines of what George Soros is striving to achieve through his many charitable foundations and for Eastern Europe. While we are very far away from the ideal world where markets are efficient and economic allocations optimal, it is my belief that the more the public is being educated about the proper workings of the markets, the more stable they will be, and this will work for the good of the capital markets and benefit the financial/corporate world in time to come.
All said, these books are a must-read for anyone wishing to hone their skills as traders/investors and derive the positive spill-over of conquering the emotional skeletons in their closets which barred many from leading a more fulfilling life, trading/investing or otherwise. The market is a very sobering place to be where sentimentalism is shunned and those resting on their laurels will be quickly eliminated. Taking the quote from investment maestro, Michael Steinhardt, "...there is no real pattern: anyone who thinks he can formulate success in this racket is deluding himself because it changes too quickly". The resounding cardinal rules and techniques repeated by the top traders ad nauseam in these books are bound to take shape in your investment psyche and stand your future trading and investment processes in good stead.
I only wish I had read the books earlier.