Hedge Fund Market Wizards

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.

I owe Jack Schwager. It was the original "Market Wizards," stumbled across in the mid-1990s, that really opened my eyes to trading. I had previously discovered "the Investment Biker," by Jim Rogers, and knew I wanted to forego a life in academia and pursue markets. William J. O Neil's "How to Make Money in Stocks" then convinced me to intern at a stock brokerage (Raymond James) my last two college summers. But it was "Market Wizards," and after that "Methods of a Wall St Master" and "Soros On Soros," that really crystallized the vision. Unquestionably, "Reminiscences of a Stock Operator" stands alone as the far and away greatest trading book of all time. But the Market Wizards series sits, like a leather-bound canon, just a notch or two below. Until Steven Drobny's relatively recent "Inside the House of Money" and "Invisible Hands" - sort of the grad school version of Market Wizards, both mind-blowing in their own right - no one had challenged Schwager's run of brilliance and consistency when it came to trader interviews. Like many others I am sure, I can quote passages from the first three - Market Wizards, New Market Wizards, and Stock Market Wizards - chapter and verse, like a constitutional lawyer referencing supreme court briefings. The books have been absorbed by the trading community so fully that, if you put "MW, NMW or SMW" next to a quote, most serious traders will know exactly what it means. The series has made its mark not because the traders in Schwager's books are infallible, superhuman, or otherwise worthy of hero worship - no one deserves a pedestal - but because the books are so densely packed with wisdom, ideas and insights that the total net value is mind-boggling. Time and again a market situation, an element of theoretical debate, or an aspect of methodology comes up where one of the Wizards had something clear and sharp to say on the matter. There were a number of such "a-ha!" insights in HFMW (as I shall abbreviate), though the book felt a little bit lighter than its predecessors. (I will write up my impressions and key takeaways for each HFMW interview separately, as such would take up too much room here.) The surprising thing, for yours truly at least, was that the most intriguing ideas in HFMW centered around value investing. One wonders how many trading funds the Market Wizards series is intellectually responsible for seeding - Hundreds? Thousands if one counts the failures? - and now I can say HFMW has given rise to another. Here is the gist: It struck me, in reading about the value investors in HFMW, that the active and versatile trader could actually have a powerful and hard-to-replicate edge... as a value investor on the side. This would come about through the traders' ability to leave the value investing portion of his funds in cash (or cash equivalents) for significant periods of time. Let me expound a little... Kevin Daly, one of the value investors interviewed in HFMW, made an 872 percent return over a 12 year period of time, when the S&P returned negative 9 percent. So Daly must have been good at shorting, right? Nope... Daly did it with very little trading (in terms of managing around positions) and virtually no shorting. How? By going to cash for extended periods, of long duration, when conditions were unattractive. This concept - delivering far superior returns by going to cash in adverse periods - dovetails with an interesting theory proposed by Marc Faber in his June 2012 Gloom Boom Doom Report: the notion that long-term investors would do better staying out of markets most of the time, and only investing after a crisis. From an anecdotal perspective it makes sense too. Imagine if a long-only fund manager had had the good sense to sit in cash all through the 2004-2008 madness... then really loaded the boat at the firesale liquidation values of early 2009, when forced portfolio disgorgement put excellent businesses on sale, lock, stock and barrel, for less than cash in the bank! The concept also aligns with the methodology of Tom Claugus, another HFMW interviewee, who is only maximum long invested in times of extreme market dislocation (as defined by outlier standard deviations in the S&P), and with the observation of Joel Greenblatt, the final interview in the book, who wryly observes that "value investing works because it doesn't work" for extended periods of time, thus causing the impatient to abandon it. Sitting in cash - for long-term investors, not active traders! - also seems a natural given the environment we are in, where uncertainty is high and valuations are mediocre-attractive at best. No wonder highly respected value practitioners like Jim Tisch of Loews have been sitting on their hands for years (which they can do as stewards of their own capital). But of course, it would not be logistically feasible for a standard issue value fund to go dormant, sitting in cash, for months or years at a time. Investors would demand their money back, saying they aren't paying the manager to be idle. And the manager himself would have long stretches of nothing to do. A sufficiently versatile trading shop COULD implement such a process, however, assuming the shop was 1) skilled and knowledgeable enough to demonstrate deep value capabilities (with a research team devoted to such), and 2) patient enough to leave the long-term investment cash untouched in mediocre to poor allocation conditions. The ability to actively trade in a SEPARATE fund - where the main activities existed anyway - is what creates this opportunity. In other words: In conjunction with a trading fund, a deep value fund could be treated as a sort of side pocket (with its own standalone track record). During low-to-no activity periods, the cash balance in the fund could be kept at a minimum. During periods of excellent opportunity from a long-term perspective, cash could be swept into the value fund, and investors in the more active trading fund could be alerted to the situationally conditional value investing opportunities at hand. For the first stretch of years, such a fund would likely have to be internal capital only, as telling prospective investors "we might only do something once a year, or sit in cash for 20 months" would not be a great sell. Once an excellent track record developed over time, however - with the power of excellent returns during invested periods overcoming the all-cash periods - investors would see the light and show more willingness to support such a wise and logical approach. I expand on the concept to give example of the thought processes Schwager has so generously brought forth with this most excellent series. We are almost certainly going to do this when the time is right... so I guess I owe Schwager once again. Thanks Jack!

If you are in the derivatives trading side of finance you should read all of them

Eines der besten Bücher seiner Art.

Being already a fan of Jack's books, I might be a bit biaised but I found this one was a real masterpiece. The approaches of the interviewed traders are very different from each other, but the link between them - with the notable exception of Jimmy Balodimas - is the way they control their risk. Two things led me to consider this book as Schwager's best work: the extreme interactivity throughout the interviews, and the 'actionability' of the traders' advice. The pages dedicated to Ed Thorpe are the most fascinating i.m.h.o.

I started years ago reading the original Market Wizards and then ended up working for one of the wizards in his firm for a decade. I have read the other market wizards books but then there was a period of silence. Now Jack Schwagner has created another fantastic book. This book feels fresh and has new content with a new generation of fund managers. As with the original book I think this one will be remembered for a long time. It is easy to dismiss the interviews but every time I read one of Jack Schwagner's interviews I learn something new. I find it useful to read every word and make notes in the margin. Sometimes I find a particular issue and refer to the books to think through how others would solve the problem. Whenever I interview any would be employee one of the first questions I ask is have they read the Market Wizards series and then ask them to discuss their favourite wizard. In my humble opinion anyone looking to work in a hedge fund or in a bank serving hedge funds is not credible if they have not read the entire Market Wizards series.

Excelente