Market Wizards - Survivorship Bias ?

[GladiatorX]

Variables effect traders decisions which affect supply and demand.

A cause and affect relationship isn't random.

If it is random to you, that is only to your lack of understanding of the environment. Although you may have the belief that humans are incapable in there avaliable senses to have an understanding of such a environment.

For example; where a coin flip is heads or tails isn't random if you understand all the various variables that affect it... Similar to how a scientist will know how a plant will grow based on the environmental variables.

Whether or not an apple will fall back to earth when someone throws it is random unless you understand that there is a force that will pull it to the ground.

Another thing is; being lucky while using a stop loss i cannot see as happening very long ... However i can see how luck would play a big role in someone who was just going to hold a position until they win... Because in certain market conditions you could make a fortune; a good example is someone on the forum yesterday saying they made £185k last year just buying stocks and they admitted they were total noobs ... however i think that a day trader or swing trader that uses stops will only win through judgement, i think the reason most lose however, rather than 50/50 is that they don't understand volatility in assessing when to exit ...

Overall stop losses probably as a whole on average reduce $ win ... The problem however is as individuals, it is neccesary to have this payed for insurance to protect against even the small odds of catastophe ...

Stop losses require you to be right about a good place to Exit ... Which, as your entry clearly wasn't very good, is unlikely to be accurate Hence personally i like to give my trades lots of room to move (in swingin') to find out if the position was correct or not, rather than being thrown out by volatility and bear traps, to achieve this with low use, i use options or hedge positions or have long-short stock market at all times... I can say for a fact this has significantly improved results.

Another prevention against risk is diversification, diversifying amount of capital per particular stock and having strategies in place for what to do in most situations.

Cheers, as usual i went on too long/

 

[donaldduke]

Indeed - it's the 2003 Paperback Edition.

Note that I should have said "Stock Market Wizards" which is a different tome to "Market Wizards", still a book in the series though.

Most of the original interviews took place from mid 1999 to early 2000. The follow up interviews in this version of the book took place in 2003.

http://www.infibeam.com/Books/info/...rds-Interviews-with-America-s/0066620597.html

lol, of course the Stock Market Wizards were going to have a hard time during 2001,2002, and the first half of 2003.

The S^P fell 50% and the Nasdaq almost 90%.

The Third book in the series is sh*te compared to the other two. Seemed like he gave in to demands from his publisher to do a third book when the masses were mad about the stock market and there must of been massive demand for books on Stock Trading. $$$$$$$

Schwager was very careful about the people he interviewed in his first two books, the third book was written near the height of the biggest ever stock market bubble.

 

[Rossini]

Quite true, very valid points.

 

[DionysusToast]

''I find it interesting that some people can't digest the fact that sheer mass of people in the industry combined with the laws of probability means that traders like this will exist through luck alone - even for 20 years.''

Look at it from another angle. If you owned a system that constantly won 50% of the time and had losers half the size of your winners then you would make a lot of money. Would you attribute your success to? The fact that you where lucky in designing such a system? No. You would know the reason for your success is because your system had an edge, simple as that. The fact that 20 years later the system no longer works is inconsequential. It did work and this was not down to luck it was simply a trading edge being exploited in the form of systematic trading.

Look at CNBC every day. Regardless of whether it was an up or down day, there is an expert on with a perfectly plausible explanation as to why it was an up or down day. Of course, it's all pure entertainment.

Let's say a million people owned different systems that were random but they didn't know they were random. Let's say these systems relied on various combinations of P/E, PEG, Price/Book, Trendlines and Stochastics. Each of the million people is given different combinations and different values. The system makes 10 trades per month, 10% of capital allocated to each trade but each of the million traders has a slightly version.

Now - with a million people and a million different combinations - let's say that just one person makes great returns for 10 years. Not knowing he had a random system, would he attribute his success to the specific things he looks for in a stock ? Would he not be patting himself on the back for his great performance ? Would ego not get in the way of him even considering randomness ?

For instance if low P/E, High Price Book and low stochastics, wouldn't he reasonably think that this combination was the reason for his success in the absence of the knowledge he was just part of a big randomness experiment ?

Would anyone seriously be interested in interviewing any of the 999,999 people that lost their shirts (unless it was the delectable early 80's Samantha Fox losing her shirt).

I don't see how you can be so confident to be honest. How can you truly determine that of the 13 people you don't know, in a book written by someone you don't know, didn't get there through pure luck and came up with a CNBC-esque 20/20 hindsight reason for their success ?

I don't see how you can disprove that luck played a major or minor part in their success. Especially when it ran out after the book was written.

 

[donaldduke]

I don't see how you can be so confident to be honest. How can you truly determine that of the 13 people you don't know, in a book written by someone you don't know, didn't get there through pure luck and came up with a CNBC-esque 20/20 hindsight reason for their success ?

The first two books were written after the Crash of '87. This provided a great 'black swan' filter to eliminate the lucky ones.

The third book, ideally should be been written after the internet bubble. That way the bubble collapse would have eliminated many of the lucky ones in that book.

 

[Mr. Charts]

"unless it was the delectable early 80's Samantha Fox losing her shirt"

Did you know she is gay?
What a waste !

 

[montmorencyt2w]

I have not yet read these books, but have seen bits quoted often enough.

Everybody needs heroes and nobody wants to learn that their heroes might have feet of clay. Traders especially need to believe that their hero or heroes have or had something special, and that one day they will find their own special thing.


I think that trading is possibly a bit like show business (the whole gamut). You need to have talent, but you also need a bit of luck - being in the right place at the right time...making choice X instead of choice Y....meeting the right person, etc.

Examples abound in show business of people being successful professionally, and then blowing up because of drink, drugs, and/or just generally not being able to handle it all.
I'm sure that can happen to successful traders too.

 

[montmorencyt2w]

"unless it was the delectable early 80's Samantha Fox losing her shirt"

Did you know she is gay?
What a waste !

Hardly....think of all that girl on girl action ...

 

[Mr. Charts]

Hardly....think of all that girl on girl action ...

........you wouldn't say that if you'd seen her partner

 

[temporarilylight]

i've often struggled emotionally with the possible 'luck' element. I would definitely say that quite a few 'successful' traders are nothing more than lucky (not necessarily any of the 'stock wizards')
Think of people who decided they wanted to try their hands at stocks, glanced over a trading book, and began buying shares during the huge tech-boom. They would have made a fortune and thought they were a genuis. Whats that saying about not 'mistaking brains for a bull market'?!

I guess another example would be people with a very large account, trading very large positions very infrequently with very big stops. The trades wouldn't have any statistical significance and just getting a little lucky on 5 or 6 trades would make that person very wealhty. Another one for teh book.

However, when most of us think of traders, we're talking about intraday traders making a good few trades per day. I refuse to believe that the people who I know who make 20 or so trades per day, who have been successfully trading for years are lucky. Their stops are tight and they make lots of trades per day. It just wouldn't make sense to me.

Of course there is the theory that the market is always changing and a system that has worked very well for a period of time may stop working. I guess it is up to the trader to monitor their results and look at changes they can make to adapt. That being said, i dont like that theory. If the market really did keep changing, rendering peoples previoulsy successful systems uselss, then there would be barely any profitable traders in my opinion. Everyone would give up. You'd spend 2 years learning to trade and developing a system. Trade it and make money for 6 months and then have to start all over again developing a whole new system for a year and a half, not earning any money.

I think if someone can get 3 months of profitable trading, winning most days, with a decent amount of trades, then they have a great shot at becoming consistently successful.

I dont think luck comes into it with the types of traders most of us can relate to.

 

[DionysusToast]

"unless it was the delectable early 80's Samantha Fox losing her shirt"

Did you know she is gay?
What a waste !

Well - as a 14 year old whose father read the Sun, this fact certainly did not prevent me from 'enjoying' Sam Fox in the way that teen boys do.

At one point my dad called the fire brigade because he'd become convinced I was trapped in my bedroom,

 

[Traduk]

DionysusToast,

I guess you must be a very unhappy person within the business of trading as you have so far aimed to knock just about every element within it.

For a few years the markets beat me up psychologically and financially but 18 years ago I stopped the rot by sitting down for months with the sole intent of finding out what worked, what I should do within what worked and over years striving to get somewhere near the ideal. Mission impossible but the satisfaction of getting close to always doing what has to be done at the right time is a satisfaction greater than the monetary reward.

I read the market wizards and although a good read at the time it is just a stage in the evolution of a trader and what others can or have done is inconsequential once you are well past the point of needing hope or some sort of inspiration. If a second book was written I never read it because I was past that stage.

If anybody truly believes that trading is down to luck they might as well pack it in immediately. Trade vehicles that give you the same chance of success as any other players (mass traded markets), find something that works, hone what works and acquire the skill to use it within reasonable money management criteria and then do what a broker said to me 20 years ago "take the lumps and bumps like a man and accept rewards graciously or trading ain't for you".

 

[DionysusToast]

DionysusToast,

I guess you must be a very unhappy person within the business of trading as you have so far aimed to knock just about every element within it.

I must thank you for your concern about my psychological well being but I can assure you it is totally misplaced.

What you have done is made a emotive cognitive leap.

In fact, a number of people here have done the same. This is not by accident because I intentionally made it happen. I am not saying I don't jump to conclusions too but in this case, I am guiding the discussion somewhat, so I'm sort of responsible for the jumping.

I started off discussing randomness. Then moved onto luck and Market Wizards. Some people assumed therefore that I was stating that the Wizards strategy was effectively random. This need not be the case for luck to be involved with their exceptional success.

In 1992, I was working at TNT, earning about 13,000 pounds a year. A guy called Ged got assigned to work there on contract. He put me in touch with a guy called Tony who gave me a job earning 45,000 a year. Working for Tony, I made lots of contacts and in 1995, I was earning $900 per day - and that was when $900 a day was a lot of money for a 25 year old.

Now - was I skilled ? Yes. Was I lucky ? Of course. Had I not met these people, then I probably wouldn't have learnt how to get the high paid roles. I had zero involvement in the decisions that caused me to meet them. Still - I had to have skills to perform my tasks.

Now - if I'd initially said. "What if the stock market wizards had good risk management, very average strategies and a good dose of luck in a bullish market ?". I would figure to most people that this would be more palatable, yet it would elicit a very different response.

The argument though, is the same argument. By sheer probability such people will exist. Sure - they may have good strategies, they may have good risk management but still some of them will show exceptional returns just by the fact that they were lucky.The market wizards were not churning out 6% a year but there is no reason to presume they got lucky with a 6%/year strategy.

Now - some people are dogmatic in their view of the markets. In this case, people think the Wizrds cannot have been lucky because that means you can only make money through luck and that means no trader can make money without luck. This logic is faulty anyway - it's a huge leap to assume that if 13 guys got lucky, then only luck can work.

For those that can't take on board this proposal and say that it is possible, then it is also possible that when trading, you find it equally hard to change your mind. Once in a trade, the situation can change and if you have a hard time changing your mind in light of new information - well, we know what happens.

I like luck. I like it when a stock gaps up based on some news I'd never expected, I like it when someone announces they want to buy the company, I like it when Goldman upgrades them. I make money when this happens and it sure ain't good judgement.

 

[Rossini]

''I don't see how you can be so confident to be honest. How can you truly determine that of the 13 people you don't know, in a book written by someone you don't know, didn't get there through pure luck and came up with a CNBC-esque 20/20 hindsight reason for their success ?

I don't see how you can disprove that luck played a major or minor part in their success. Especially when it ran out after the book was written.''

Its not for me to disprove anything, its for you to prove it. Just because you feel that no one has disproved your argument does not prove it to be correct.

edit: although I do agree with your last post #33.

 

[Traduk]

Having seen your meandering through just about every facet of the trading industry with negative connotations it was a fairly natural assumption that your apparent disillusionment with all and sundry was a result of your experience. Although I could possibly agree with some of your complaints I do tend to have a view of they have been there in one guise or another for longer than the 25 years I have traded so my decision to accept it or reject it was made decades ago. Trading is an area where any and all of the elements can be stopped with one decision.

I do not agree with you on the luck issue. If one is regularly positioned correctly and mostly just grinds out a regular profit and by chance the market gifts a larger than usual reward then it falls in the category of you have to be in it to win it. By the same token I do not adjudge a surprise adverse move as bad luck. Its all part of trading.

I knew a trader who possibly could have qualified as a market wizard but gave up when he had acquired a nine digit wealth. He said it was pointless to carry on as his objective had been achieved. There was no luck in his methodology which was simplicity in concept but applied with skill and courage that had to be seen to be believed. He had mastered the art of pressing home an advantage by building massive positions quickly which in essence fuelled the move from which he profited.

In the latter part of your post you appear to be correlating beliefs with lack of flexibility in markets. There is some mileage in that argument but not for me because trader evolution gives flexibility without which accounts vanish.

 

[barjon]

...............I do not agree with you on the luck issue. If one is regularly positioned correctly and mostly just grinds out a regular profit and by chance the market gifts a larger than usual reward then it falls in the category of you have to be in it to win it. By the same token I do not adjudge a surprise adverse move as bad luck. Its all part of trading..............

.

traduk

I'd go along with that, but I'd also say that a good few reputations have been built on the "by chance" element you mention.

Nicolas Darvas ("How I made $2m........) is a case in point. A respectably sound method which happened to light on Charles Kent ("inventors" of filter tip cigarettes) and Polaroid ("inventors" of instant photos) as they left the launch pad and rocketed to dizzy heights. The bulk of his $2m came from those two and there would have been no book to write without them.

good trading

jon

 

[DionysusToast]

Having seen your meandering through just about every facet of the trading industry with negative connotations it was a fairly natural assumption that your apparent disillusionment with all and sundry was a result of your experience.

Quite the opposite. My enlightenment/profit came when I started to ignore the industry, and all the crapola on offer by it.

 

[glyder]

I knew a trader who possibly could have qualified as a market wizard but gave up when he had acquired a nine digit wealth...

Nine digit wealth...I assume you mean all nine to the left of the decimal point? ... so how much does it take to actually be considerd a real market wizard?

 

[GammaJammer]

........you wouldn't say that if you'd seen her partner

Worse than Pat Butcher / Moira Stewart?

 

[GammaJammer]

I read the first two books (in the wrong order incedentally - didn't read the first one until years later and thought it was sh*te). Didn't even bother with the third one.

One thing that did strike me is that there wasn't that much diversity in the type of people he interviewed. VERY US-centric for a start. Entirely understandable of course, and it's his prerogative to write about whoever the hell he wants, but I think if we're talking about randomness still, that fact shouldn't be overlooked. There were many parallels between many of the stories in the books (not long on details as I haven't picked them up and read either of them for years now).

But anyway, if we really are trying to subject the book to any sort of statistical rigour (which personally I think is a tad facile but what the hell), I don't think the sample is 'clean'.

My $0.02

GJ