Non-fiction 10 Jan 2005 09:35 am
The New Market Wizards
The New Market Wizards
Jack D. Schwager
After reading A Random Walk Down Wall Street, I picked up The New Market Wizards at the library and looked at the introduction. One of the first things the author writes is “let’s be clear: the market is not random” (or something to that effect). Well, I just had to read it.
This book is a series of interviews with experienced and successful traders (the wizards of the title) on their strategies, life story, successes and failures, with short comments by the author before and after each piece. In this context, a trader is someone who makes money solely (or mostly) by buying and selling financial instruments (stocks, options, futures, commodities contracts etc.); that is, not a regular investor.
Most (maybe all) of the traders interviewed are basically “technical”; that is, they look at price movements and trading volumes and, armed with mathematical models and methods known only to them, make trading decisions. They do not look at “fundamentals”, most of the time, although almost all of them are, in some way, “hybrids”. They make short-term trades, holding securities for a few days, weeks at most. And they all get very good results (by definition, of course; otherwise they wouldn’t be in this book).
The author closes the book with a list of 42 (yes!) things a successful trader must keep in mind, gathered from the opinions expressed in the interviews. The most interesting one, to me, is the idea that the most fundamental thing a trader needs is a trading plan; almost any plan will do, as long as it is properly though of and correctly implemented (ignoring emotions in trading).
Throughout the book, you see a large range of trading styles and ideas, and most of them believe, to some extent, in the “random walk” theory of the other book (this one seems to be intended as a direct response to the first one; it even mentions it and its author by name a few times). By virtue of trading quite frequently, they explore temporary inefficiencies in the market and make money off this niche.
I fail to see how this invalidates the “random walk” theory, and it seems to me that Schwager missed the point of the other book. It is very clear that a very small percentage of active traders makes any money in the long term (if many did, there would be no book about them), and those who do act in incredibly different ways towards the market (some of them have methods that directly contradict each other). To me, it is clear that the reason this guys make money is because the market (and different markets) have temporary inefficiencies in them which can be explored if you act quickly; but this is not something a regular investor will be able to do with any success, and that is the point of the first book (and, in the end, of this one as well).
In short, this is not a book for the regular investor who doesn’t want to (or can’t) watch the market at all times; but it’s a book that tells something of how the market operates “deep down”.
