- ISBN
- 9781118273043
- Author
- Jack Schwager
- Format
- Hardback and e-book
- Edition
- First
- Published
- Jul 1, 2012
- Publisher
- John Wiley & Sons
What differentiates exceptional traders from the multitude of pedestrian market participants? For years, financial industry expert and best-selling author Jack Schwager has picked the brains of remarkable individuals who have consistently beaten the markets to find out the answer. In HEDGE FUND MARKET WIZARDS he talks with some of the world's greatest hedge fund experts, highlighting the lessons to be learned from each so that can be applied by individual traders.
The book features interviews with 15 traders, including Ray Dalio (Bridgewater Associates), Edward Thorp (Edward O. Thorp & Associates), Michael Platt (BlueCrest Capital), Martin Taylor (Nevsky Capital), and Joel Greenblatt (Gotham Capital Partners). While they all approach their field in radically different ways, each of them has brought new and unique insights and developed distinct strategies that have allowed them to repeatedly outperform the markets.
From the founder of the largest hedge fund in the world with $120 billion in assets to a solo operation with only $50 million in assets, all the traders profiled share a superior return/risk track record for significant length periods—usually 10 or more years. “Because so much of what passes for high returns merely reflects a willingness to take more risk rather than being an indication of skill,” Schwager explains “I believe that return/risk is a far more meaningful measure than risk alone.”
Schwager distills 40 essential lessons to be learned from the market luminaries it profiles, including:
• 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, but the solutions that do exist are continually changing.
• 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 process will lose a certain percentage of the time. As long as a trade adheres 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.
• The Road to Success Is Paved with Mistakes: 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. Trading mistakes cannot be avoided, but repeating the same mistakes can be, and doing so is often the difference between success and failure.
• Trading Around a Position Can Be Beneficial: Most traders tend to view trades as a two-step process: a decision when to enter and when to exit. It may be better to view trading as a dynamic rather than static process between entry and exit points. The basic idea is that as a trade moves in the intended direction, the position exposure would be gradually reduced. After reducing exposure in this manner, the position would be reinstated on a market correction.
• Position Size Can Be More Important Than the Entry Price: Too many traders focus on the entry price and pay insufficient attention to the size of the position. Trading too large can result in good trades being liquidated at a loss because of fear. On the other hand, trading larger than normal when the profit potential appears to be much greater than the risk is one of key ways in which many of the Market Wizards achieve superior returns.
• Volatility and Risk Are Not Synonymous: Low volatility does not imply low risk and vice versa. 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.
HEDGE FUND MARKET WIZARDS offers valuable guidance and timeless insights for both investment professionals and market enthusiasts looking to improve their trading abilities by learning from the best.
The book features interviews with 15 traders, including Ray Dalio (Bridgewater Associates), Edward Thorp (Edward O. Thorp & Associates), Michael Platt (BlueCrest Capital), Martin Taylor (Nevsky Capital), and Joel Greenblatt (Gotham Capital Partners). While they all approach their field in radically different ways, each of them has brought new and unique insights and developed distinct strategies that have allowed them to repeatedly outperform the markets.
From the founder of the largest hedge fund in the world with $120 billion in assets to a solo operation with only $50 million in assets, all the traders profiled share a superior return/risk track record for significant length periods—usually 10 or more years. “Because so much of what passes for high returns merely reflects a willingness to take more risk rather than being an indication of skill,” Schwager explains “I believe that return/risk is a far more meaningful measure than risk alone.”
Schwager distills 40 essential lessons to be learned from the market luminaries it profiles, including:
• 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, but the solutions that do exist are continually changing.
• 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 process will lose a certain percentage of the time. As long as a trade adheres 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.
• The Road to Success Is Paved with Mistakes: 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. Trading mistakes cannot be avoided, but repeating the same mistakes can be, and doing so is often the difference between success and failure.
• Trading Around a Position Can Be Beneficial: Most traders tend to view trades as a two-step process: a decision when to enter and when to exit. It may be better to view trading as a dynamic rather than static process between entry and exit points. The basic idea is that as a trade moves in the intended direction, the position exposure would be gradually reduced. After reducing exposure in this manner, the position would be reinstated on a market correction.
• Position Size Can Be More Important Than the Entry Price: Too many traders focus on the entry price and pay insufficient attention to the size of the position. Trading too large can result in good trades being liquidated at a loss because of fear. On the other hand, trading larger than normal when the profit potential appears to be much greater than the risk is one of key ways in which many of the Market Wizards achieve superior returns.
• Volatility and Risk Are Not Synonymous: Low volatility does not imply low risk and vice versa. 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.
HEDGE FUND MARKET WIZARDS offers valuable guidance and timeless insights for both investment professionals and market enthusiasts looking to improve their trading abilities by learning from the best.
