Speaker 1: Mh. This is Masters in Business with very Renaults on
Speaker 1: Bluebird Radio. This week on the podcast, I get to
Speaker 1: welcome back the person who was really part of the
Speaker 1: inspiration for Masters in Business in the first place. Jack
Speaker 1: Schweger is the author of a new book, unknown Market Wizards,
Speaker 1: the best Traders You've Never heard of. But this is
Speaker 1: the fifth or maybe even if I include the little book,
Speaker 1: the sixth book of market Wizards he's put out. And
Speaker 1: when I was a young stud on a trading desk
Speaker 1: back in the eighteen nineties, Um Schweger's book Market Wizards
Speaker 1: was was one of the first books I picked up
Speaker 1: uh to learn a little bit about the idea of
Speaker 1: of markets. And I found the book to be tremendously
Speaker 1: a formative to me. Not so much because it said
Speaker 1: by this cell that, but it was very revealing about
Speaker 1: discipline and risk management and mental models and containing your emotions.
Speaker 1: And that book really was one of the early books
Speaker 1: that sent me scampering off to learn more about behavioral
Speaker 1: economics and and behavioral finance. Not so much because he
Speaker 1: was channeling Um Traversky and Conoman or Sailor or any
Speaker 1: of those folks, but it was pretty clear from the
Speaker 1: successful traders he was interviewing, that consensus was problematic, that
Speaker 1: examining your motivations was really important, that being aware of
Speaker 1: of not only your own emotions, but your own biases
Speaker 1: and some of your own cognitive deficits and blind spots
Speaker 1: was really really important to individual traders. And you know,
Speaker 1: I wouldn't call Market Wizards uh behavioral finance book, but
Speaker 1: it certainly touches on so many of the same issues.
Speaker 1: I find these books to be absolutely fascinating as he's
Speaker 1: put them out over the years. The first book really
Speaker 1: was just a pure interview book, and and it's evolved
Speaker 1: over all these decades. I think the first book was
Speaker 1: eighty six or eighty nine and the most recent book
Speaker 1: was twenty. He not only gives you a summation at
Speaker 1: the end of each chapter, each trading wizard of of
Speaker 1: their rules and and what guidelines you can pick up
Speaker 1: from them, but at the end he summarizes it with
Speaker 1: something like forty six trading rules that you can learn
Speaker 1: from these people. And really he's made it easier and
Speaker 1: easier to consume um the information. I know what he's
Speaker 1: trying to do. He wants to educate people. For me,
Speaker 1: as a young guy on a trading desk. I found
Speaker 1: it really helpful to sort of that journey of of
Speaker 1: learning what I was doing wrong and why in order
Speaker 1: to get better. Was was really helpful. Um, but I
Speaker 1: don't think people have the patients for that these days.
Speaker 1: I found the book to be really intriguing and I
Speaker 1: think you will also, And if you haven't read the
Speaker 1: first one, or the second, or third or fourth, but
Speaker 1: go back and read that first Trading Wizards book. It's
Speaker 1: really quite astonishing and has held up over time. You
Speaker 1: could read it today and it looks like it came
Speaker 1: out last month. So, with no further ado, my conversation
Speaker 1: with Jack Schweger. This is Masters in Business with very
Speaker 1: Renaults on Bloomberg Radio. My special guest this week is
Speaker 1: Jack Schweger. He has written five books on market wizards,
Speaker 1: and in fact I found his first book, I think
Speaker 1: it was the Market Wizards Book, to be enormously useful
Speaker 1: in my first job as a trader on Wall Street.
Speaker 1: He is also the founder of fund Seater, a platform
Speaker 1: designed two matched undiscovered trading talent with capital worldwide. His
Speaker 1: most recent book is Unknown Market Wizards, The Best Traders
Speaker 1: You've Never Heard Of Jack Schweger, Welcome back to Bloomberg. Hey,
Speaker 1: good to speak with again. Barry, same same, It's it's
Speaker 1: been too long. Let's let's let's start out talking about
Speaker 1: your first Market Wizards book, which I've told you before.
Speaker 1: Not only was it enormously influential to me when I
Speaker 1: was a trader, but it was part of the motivation
Speaker 1: for this Masters in Business format of talking to people
Speaker 1: who have achieved a level of accomplishment and excellence, which
Speaker 1: leads me just to my first question, what what made
Speaker 1: you decide to write that first Market Wizard's book. Yeah,
Speaker 1: so I had the idea actually for several years. At
Speaker 1: the time, I was a future prorector of the Futures
Speaker 1: Research Department, which is kind of a full time job
Speaker 1: on its own. To do a book, you really have
Speaker 1: to do, like commit tonight's weekends. I had. I had
Speaker 1: done a a book before, the Complete Count Futures Market,
Speaker 1: which was like a seven and fifty page home and
Speaker 1: I didn't want to do that at anything like that again,
Speaker 1: but I want to. I had this idea that, gee,
Speaker 1: wouldn't it be fun to go right? And I knew
Speaker 1: some great traders. I said it wouldn't be fun to
Speaker 1: just kind of do that as the theme of the book,
Speaker 1: but it was just amount of time. And then I
Speaker 1: got invited by to a lunch by some other publisher
Speaker 1: who wholi the analytical book I wrote. They want to
Speaker 1: do a bunch of analytical books, and I said, no,
Speaker 1: no interest, but I've been thinking of this, and they said, okay,
Speaker 1: why don't you do that? And so that was the catalyst,
Speaker 1: and I guess I just needed a little bush to
Speaker 1: get going because I thought it was a good idea.
Speaker 1: So so this is now over three decades that you've
Speaker 1: been sitting down with traders talking to them about their process,
Speaker 1: their methodology, and where they've gone wrong and where they've
Speaker 1: achieved success. I can't help but notice that the world
Speaker 1: of the twenties, at least the trading world, is so
Speaker 1: very different than the trading world of the How does
Speaker 1: that impact the sort of conversations you have and how
Speaker 1: does that affect the methodologies of these different types of traders. Yeah, so,
Speaker 1: you know, that's a good point. You're absolutely right. I mean,
Speaker 1: it's been enormous, you know, really enormous changes, as as
Speaker 1: you all know, you've been business a while as well.
Speaker 1: But you know, from the time I did the original
Speaker 1: Market Wizards book, which was the late eighties, and talking
Speaker 1: to people at that point about that career is really
Speaker 1: going back to late sixties, seventies and into the eighties,
Speaker 1: but to that period of their you know, their their
Speaker 1: trading history. You know, it's pre pre prepcs, you know. Uh,
Speaker 1: of course we had in futures and basically dealing with fits,
Speaker 1: not electronic trading. But the big changes is this computerization element.
Speaker 1: And uh, we went from a world where where we
Speaker 1: didn't even have PCs. Too, we're not only everybody has
Speaker 1: a PC, which is quite a full and in this
Speaker 1: tremendous amount of data, but you're also dealing now actually
Speaker 1: for decades where you have firms who have taken quantification
Speaker 1: to the extreme, might have PhDs and maths and physics
Speaker 1: and so forth. Uh, you know, trying to work on
Speaker 1: the markets give from from from that angle. So so
Speaker 1: that that's been I think that the really big change
Speaker 1: plus the electronic trading, to switch from from jets to
Speaker 1: electronic trading. So, um, how does that change you know?
Speaker 1: Of the enough for since I end up interviewing mostly
Speaker 1: discretionary traders, we can talk why that's true he has
Speaker 1: a separate tension if you want, but that tends to
Speaker 1: be the reality. I mean, there are some systematic but
Speaker 1: then mostly discretionary. Um. It turns out that for the
Speaker 1: most part, a lot of approaches really go fall into
Speaker 1: the same categories, and there's still a place for the
Speaker 1: individual discretionary later and and I would say, the biggest
Speaker 1: surprise I had doing this this last book, I know,
Speaker 1: MARKT Wizards, was I didn't expect to find people of
Speaker 1: track records like those in the first book, somebody you know,
Speaker 1: people like the Govenors and the Jones and so forth.
Speaker 1: And to my amazement, I found people, you know because
Speaker 1: and I say that because of this great quantification in
Speaker 1: all this competition, you know that now exists, into my surprise,
Speaker 1: I found people whose records were every bit as good,
Speaker 1: if not maybe as good, as any others found. So
Speaker 1: that was my surprise, and it basically speaks as evidence
Speaker 1: that somehow, despite these enormous changes, it's still possible for
Speaker 1: the individual trader too, who has talent and has a
Speaker 1: specific methodology that really works, to do enormously Well. Yeah,
Speaker 1: we're going to talk about some of the specific traders
Speaker 1: and some of the eye popping um track records that
Speaker 1: they have a mass later. But you mentioned Um Jones,
Speaker 1: Paulled Tutor Jones. Of all the people I recall from
Speaker 1: the first book or one of the early books, he
Speaker 1: seems to be the loan standout who continues to be active,
Speaker 1: who continues to trade and continues to make money. I mean,
Speaker 1: he was very early to bitcoin, and I believe he's
Speaker 1: still a holder, you know, twenty percent later. Um. What
Speaker 1: makes Jones stand out and be so different from his peers,
Speaker 1: He's he's much more open minded than I don't know,
Speaker 1: you can you can compare him to Druck a Mill
Speaker 1: or a Dahlia or he seems to be a thirty
Speaker 1: something not a sixties something. Well, the thing that that
Speaker 1: struck me about Jones that was different, I guess is yeah,
Speaker 1: I wouldn't say. I'm about to say less rebroke, but
Speaker 1: that's not really fair. I mean, I'm sure he's quite so,
Speaker 1: but he is he was much more um sort of
Speaker 1: act and and and um, you know, somebody like a
Speaker 1: like a Drucker Miller. I didn't see him trade. I
Speaker 1: spent the day with him, but you know, I kind
Speaker 1: of picture him, you know, more thoughtfully going through and
Speaker 1: designing on trades and pretty traded. But but you know, Paul,
Speaker 1: I remember sitting in his office that he you know, screamed,
Speaker 1: you know, while we're doing the interview, screaming orders less
Speaker 1: than rightness in the day where they were you know,
Speaker 1: phones down to the pits and you know, so he's
Speaker 1: he's he's doing these orders, he's looking at the screens.
Speaker 1: He's just very almost mannic in the way he trades. So, um,
Speaker 1: I had that that's almost physical image of you know,
Speaker 1: trading more so than anybody I guess that I ever interviewed. Uh,
Speaker 1: that's one difference. And there are certain things I still
Speaker 1: remember about that interview is it's kind of insistence that
Speaker 1: you know, every days he started from flying slate, So
Speaker 1: just because he has a position doesn't mean that that
Speaker 1: position is still something to be held. So yeah, he
Speaker 1: talked about wanting to evaluate every position while I have this,
Speaker 1: would I would I still want to I still wanted today,
Speaker 1: you know that type of thing. So this this is
Speaker 1: constant renewing of his analysis and assessment of the market.
Speaker 1: And I think particularly very much a tune I think
Speaker 1: to to market action in a very addresceral way. Just
Speaker 1: those are some of the ways I, at least from
Speaker 1: my memory of that interview that I that he struck
Speaker 1: me as being a bit different. So so let's stick
Speaker 1: with that first book. I mean, the list of people
Speaker 1: you got to sit down with you for a day
Speaker 1: is pretty impressive. You mentioned Bruce Governor. We're just talking
Speaker 1: about Paul Tutor, Jones, Richard Dennis eds Skoida, Marty Schwartz,
Speaker 1: Tom Baldwin, Michael Steinhardt, um Druct Miller. I mean that's
Speaker 1: some murderers, row of of fund managers and traders. Yeah,
Speaker 1: it was, And I was lucky to I guess I
Speaker 1: didn't even realize how lucky it was because just about
Speaker 1: everybody I as agree. I had some edge there because
Speaker 1: I knew some traders, uh personally Michael Michael Marcus, who's
Speaker 1: who's actually a chapter one in that book, is not
Speaker 1: somebody who would have been known word not for the book,
Speaker 1: but he he is one of the greats, and uh
Speaker 1: he you know, so I knew him personally, you know,
Speaker 1: we were friends. Uh. I actually took his My first
Speaker 1: job on Wall Street was vacated by Michael. He was
Speaker 1: cleaning out his desk when I came in my first day.
Speaker 1: We talked a little bit. He was going, in quotes
Speaker 1: off to become a trader and uh, you know, leaving
Speaker 1: his analyst job, and I took his analyst up. But
Speaker 1: he was in New York for a few years before
Speaker 1: he went out to Malibu and and you know, and
Speaker 1: you know I moved from the ly there. But um,
Speaker 1: while he was in New York, he used to get
Speaker 1: together from lunch was every couple of weeks, so we
Speaker 1: had a relationship. Uh so he agreed to do it.
Speaker 1: We have not easily. He's a very shry guy, so
Speaker 1: it took a bit of convincing and I had a
Speaker 1: mutual friend kind of pushed a little bit. But you know,
Speaker 1: then he felt satisfied with with our interview after I
Speaker 1: had spent a day too there. That is how that
Speaker 1: was when that I did Actually when he was out
Speaker 1: out in California and um, he said, you know you
Speaker 1: should Rick, and hey, you know, he said you should
Speaker 1: interview Sakota And I never heard Sakota, but apparently Dakota
Speaker 1: was his mentor and somebody who he considered the best
Speaker 1: trader that he knew, and so he set that up
Speaker 1: and then I flew out into Sakota. Governor. I knew
Speaker 1: because Michael had a hired covernor and so I met
Speaker 1: him through Michael, and I had actually worked because of Michael.
Speaker 1: He hired me to be analysient, you know, remotely why
Speaker 1: the commodities called making all that money and and so
Speaker 1: you know, so there were these I had a bit
Speaker 1: of a jump because I knew some traders and then
Speaker 1: some of them recommended other traders. You know, interesting, really interesting.
Speaker 1: So so last question on on the early book. Some
Speaker 1: of some of these guys have been trading for decades,
Speaker 1: and the risk that you run into relates to what
Speaker 1: one of my colleagues described as the paradox of experts.
Speaker 1: People who are experts have their expertise in the way
Speaker 1: the world used to be in an earlier version of
Speaker 1: the world that doesn't exist. When you look around at
Speaker 1: at these traders who've been at it for a long time,
Speaker 1: do they have a difficulty and adapting to the new world.
Speaker 1: I noticed most of the guys you interviewed for the
Speaker 1: newest book are fairly young. Yeah, um, so well, of course,
Speaker 1: you know you go back to the original book. Uh,
Speaker 1: you know, a lot most of them, Yeah, one at
Speaker 1: least ones I know continued continuing on for decades, uh,
Speaker 1: you know, like the companies and the drug of Millers
Speaker 1: and so forth, and it you know, did quite well.
Speaker 1: And John Owens et cetera. Um, in the case of
Speaker 1: you know, but I can think of it except for
Speaker 1: somebody like like Richard Dennis, who was who had one
Speaker 1: of the most incredible stories ever turning literally a sub
Speaker 1: one dollar steak when he was trading to mid Am
Speaker 1: ex change these mini contracts and at some point amassing
Speaker 1: a couple of hundred million dollars that got to be
Speaker 1: one of the great multiplication deeds of all time. But
Speaker 1: but in subsequently, uh, the years after our coninued, Uh
Speaker 1: had I had had some some had problems and and
Speaker 1: never conte But besides not continuing, I think had that
Speaker 1: loss is probably so um not everybody you know, none
Speaker 1: everybody uh necessarily continued forever um. But but I think
Speaker 1: the majority you know continued to continue to adapt the markets.
Speaker 1: And and in Dennisis case, I think it may be
Speaker 1: an issue of of the markets I think did change
Speaker 1: um trend following back you know in Dennis's hey, they
Speaker 1: which I would say re late sixties through ladies. Those
Speaker 1: were kind of glory days for for trend following. You
Speaker 1: had had a couple of things working together at first,
Speaker 1: because there was before more technical analysis that came so popular.
Speaker 1: He was before most of that. Drey was before a
Speaker 1: lot of the computerization, so people who who were early
Speaker 1: on on trend following kind of didn't have a lot
Speaker 1: of competition. And also you had the inflationary seventies and
Speaker 1: us some giant trends and futures and currencies and so forth.
Speaker 1: So the times were very good when the times came
Speaker 1: more difficult, uh Or and many more more people. Yeah,
Speaker 1: it's just to turn this amount of trying to increase
Speaker 1: in a number of people using these those type of approaches,
Speaker 1: the approach naturally degraded. So I think that was the
Speaker 1: issue there. And uh and could explain why somebody like
Speaker 1: Dennis didn't continue the way he did while some of
Speaker 1: these more discretionary traders like Covenor and Jones did. Uh.
Speaker 1: My big takeaway from the early Dennis chapter was all
Speaker 1: about training traders. The way they raised turtles on farms
Speaker 1: in Singapore. That that concept that hey, you could teach
Speaker 1: anybody how to trade if they're disciplined and will follow
Speaker 1: these sets of rules. I was. I was really impressed
Speaker 1: with that, and that was I don't know, twenty five
Speaker 1: years ago, do you think someone like a modern version
Speaker 1: of Richard Dennis could still train traders the way he did.
Speaker 1: I have some skepticism there, uh, and that's developed over
Speaker 1: the years. I kind of troubly is you, if you
Speaker 1: train somebody, the person you're training has to be kind
Speaker 1: of adaptable and amenable and be a good fit for
Speaker 1: whatever the methodology you're training. And what my perspective is
Speaker 1: that to be successful the method you use, if it's
Speaker 1: not amount of being trained by somebody, you have to
Speaker 1: it has to be a method that's compatible with who
Speaker 1: you are and how you're thinking. What's comfortable. So if
Speaker 1: you're you know, you're somebody who say doesn't feel comfortable
Speaker 1: delegating decisions to a systematic approach, somebody can teach you
Speaker 1: a system, but it's gonna be a very difficult feed
Speaker 1: of follow because you're always gonna want to be second
Speaker 1: guessing it or jumping a gun or not taking signals.
Speaker 1: So it has to be compatible with with with what's
Speaker 1: what works for you. And and I think that's the problem.
Speaker 1: I don't think you necessarily can train everybody. Now at
Speaker 1: the time of Dentist, did it? You have turned following
Speaker 1: being a very effective methodology. So if people follow the rules,
Speaker 1: they could be successful. But I think that's more the
Speaker 1: exception than the rule. So you can you certainly can
Speaker 1: learn from a mentor if the mentor is compatible with
Speaker 1: with the methodology that fits who you are. Makes a
Speaker 1: lot of sense, Jack, I was kind of struck by
Speaker 1: this book, and I'm curious how did you go about it?
Speaker 1: Was it was it different versus your prior wizard books?
Speaker 1: Did did your methodology change? Sure? Did you interview process
Speaker 1: change or was it you know you have a process
Speaker 1: and you stuck to it. Yeah, No, I've had um
Speaker 1: I've had the same methodology from the from the first
Speaker 1: market Wizard's book, so um uh and it works. So
Speaker 1: there's no if somebody works, you don't know who he's
Speaker 1: gonna change it. So my process first of all, and
Speaker 1: the actual as far as the actual uh interviews and
Speaker 1: turning into a text when I do the interview, and
Speaker 1: this is kind of important is and I'm sure you
Speaker 1: could relate to this very well, Barry, Um, I try
Speaker 1: I do what you do really, which I which I
Speaker 1: send you do is have a conversation. Uh So I
Speaker 1: don't go in with a list of questions. And you
Speaker 1: know I've been interviewed by people and that you can
Speaker 1: tell they have a list of questions you no matter
Speaker 1: what your answer put you know, there's no follow through
Speaker 1: and it goes to the next question right And it
Speaker 1: sounds very stiff and bored, and it is so. Um
Speaker 1: what I try to do an these things is really
Speaker 1: just literally have a conversation. And there are times there
Speaker 1: have been interviews where I literally could be it could
Speaker 1: be two hours before I get the first thing that's
Speaker 1: any value. Now you don't have that luxury that I
Speaker 1: do because there's a book, not a live interview. Um.
Speaker 1: But but that's that's so that's very important. And I
Speaker 1: do have like a list of questions that I know
Speaker 1: I want to make sure I hit those topics. And
Speaker 1: after I spend any number of hours which could be
Speaker 1: which could be as little as a few hours and
Speaker 1: in a short and to the YouTube as much as
Speaker 1: a day or more. Um, then I'll just check the
Speaker 1: list and see if I missed anything. But so that's
Speaker 1: one important thing and the other part of the process
Speaker 1: that doesn't change is just the way the interviews are
Speaker 1: transformed into texts. And uh, there you know, obviously I'm
Speaker 1: doing so much, so many hours. You know, you couldn't
Speaker 1: any a lot of these interviews could be a book
Speaker 1: along by themselves. But besides that, if I used every thing,
Speaker 1: it would be deadly boring. So you're really what I'm
Speaker 1: really trying to do is basically extract out everything that
Speaker 1: is one of two things. One it has something meaningful
Speaker 1: to say about trading, or two it's interesting, you know,
Speaker 1: So it's one of those things. So and that's the
Speaker 1: material that that forms the chapter. And then the thing
Speaker 1: you do fixing up of you know, people, the way
Speaker 1: people speak doesn't translate well int into written text as
Speaker 1: you as you will know, I'm sure, uh, and you
Speaker 1: may talk about the same topic in eight different places,
Speaker 1: and that's fine if you're talking, but it's not fine
Speaker 1: if you're reading. So you know, But that's that's the
Speaker 1: basic process. Uh. The difference in this book though, was
Speaker 1: the focus, and in prior books, I guess they have
Speaker 1: been more more heavy in well known professional traders, although
Speaker 1: not necessary all the time, there's always been individual traders
Speaker 1: as well. And the most recent wizard book before this one,
Speaker 1: back I guess two thousand twelves or so, was Hedge
Speaker 1: Fund Market Wizards, which you can tell by the name
Speaker 1: is you know, obviously not individual traders right there, their
Speaker 1: traders and organizations. So this this one was the exactly
Speaker 1: tended to be the exact opposite. It was literally to
Speaker 1: try to find those people who were trading in a
Speaker 1: home office doing extraordinarily well, and nobody knows they exist,
Speaker 1: nobody knows who they are, and and so that was
Speaker 1: a difference in this book. So one of the differences
Speaker 1: I suspected when I went into reading this book is
Speaker 1: all of the subjects of your prior books, all of
Speaker 1: the various traders, you know, you could do a search
Speaker 1: on them. You could you could read about them. There's
Speaker 1: newspaper articles in the days before Google, and certainly since
Speaker 1: search engines have been around, you can find a ton
Speaker 1: of stuff on each of the people um that you interview.
Speaker 1: I got the sense from each of the chapters in
Speaker 1: this book that you had a bunch of arrows in
Speaker 1: your quiver, but you didn't know which ones you're gonna use,
Speaker 1: because you're kind of going in a little a little
Speaker 1: in the dark. Is that a fair assessment or am I?
Speaker 1: Am I projecting too much? You're projecting too much because
Speaker 1: especially since I was doing these individual traders and uh,
Speaker 1: you know, it's unlike there's a public fund out there
Speaker 1: or something like that. Uh, so I had to really
Speaker 1: really be careful this time about well I always but
Speaker 1: I had to get the track records and um, and
Speaker 1: so I knew, you know, I knew what their track
Speaker 1: records were before I went in, and uh, you know,
Speaker 1: like I'll give you one example. One of these traders,
Speaker 1: I got an email and this is about a year
Speaker 1: before I did the book, and you know, saying something
Speaker 1: like you know, hey, I'm you know, my name is
Speaker 1: you know, and I turned a few thousand dollars ins
Speaker 1: but a million of whatever, you know. So yeah, your
Speaker 1: initial reaction would be sure, right, Um, but uh yeah,
Speaker 1: I'm always I think if people, you know, people may claims,
Speaker 1: they know they're gonna have to prove it. So anyway, said, look,
Speaker 1: I'm not planning another book at the time, I wasn't
Speaker 1: to playing view this book. And I said, but your
Speaker 1: story sounds very interesting and if you can confirm it,
Speaker 1: you know, um, you know, it would be sounds like
Speaker 1: it would be really good fit. And uh, if I
Speaker 1: do another book, I'll get back in touch. Turns out
Speaker 1: that nine months later I do decide to do do
Speaker 1: do another book, and I get back to them, and
Speaker 1: and so you know, I got he started trading back
Speaker 1: I think around two thousand and six, and literally got
Speaker 1: that'd be monthly state from two thousand and six forwards.
Speaker 1: So so I knew while the story sounds unbelievable, I
Speaker 1: knew it was real, you know, I you know, actually
Speaker 1: they were in this particular case that they were there
Speaker 1: Merritrade accounts, and I have an a Merritrade accounts, even
Speaker 1: though it would accounting you know, fathoms look like so
Speaker 1: the was no there was no surprise there. I kind
Speaker 1: of knew what. I knew what his track record was like.
Speaker 1: I didn't know what you'd be like, or what did
Speaker 1: you have to say or anything like that. That's always
Speaker 1: the case. But I knew that the track records reel.
Speaker 1: So so let's jump into some of the details of
Speaker 1: various traders, starting with the first chapter. And pretty much
Speaker 1: the only um person you interviewed who has a has
Speaker 1: been trading for for decades and that would be someone
Speaker 1: I follow on Twitter who I've always been intrigued by
Speaker 1: named Peter Brant. What what drew you to him as
Speaker 1: a trader and what makes him so unique? Yeah, So,
Speaker 1: as you said, Peters is a long career. He actually has.
Speaker 1: His career is broken into two segments. Um he uh,
Speaker 1: and each one is like, I think it's the exact
Speaker 1: number of years, but let's eleven years apart. Yeah, eleven
Speaker 1: years apart. But each one, each of the segments is
Speaker 1: let's say, sixteen seventeen years, so it's got over thirty
Speaker 1: years of the gift trading experience. He went cold. He
Speaker 1: stopped trading totally for eleven years in between, because at
Speaker 1: the end of the first period is fun and going
Speaker 1: out of it, and he just he just decided I
Speaker 1: didn't want to do it anymore, and then out of blue,
Speaker 1: eleven years later, decided to do it and had had
Speaker 1: a second phase graded very well. So so he had
Speaker 1: sover three decades of you know, of experience and so forth. Okay,
Speaker 1: that's that's that's part. That's that's the beginning the thing
Speaker 1: that Peter and I shouldn't I shouldn't meant I should
Speaker 1: say that Peter actually is a grightened so I knew
Speaker 1: him personally. One thing that I was talking about Peter
Speaker 1: was he just had a lot of what I thought
Speaker 1: valuable things to say about the markets and trading. And
Speaker 1: I remember him being on on a on another podcast
Speaker 1: and listening to it, and the questions would be asked
Speaker 1: and I would mentally answer him, and you know, it
Speaker 1: was striking how similar his answers were. So it's not
Speaker 1: just that, it's just I just really related to the
Speaker 1: way he he looked at at markets and risk and
Speaker 1: had so many so much good advice and just just
Speaker 1: wisdom that that that I felt I wanted to capture
Speaker 1: that Peter is uh, you know, it's giving his early seventies,
Speaker 1: and I literally and he was kind of a catalyst
Speaker 1: to do the book. Uh at the time, he was
Speaker 1: in Colorado as I am, and I thought, well, I'll
Speaker 1: say myself, you know, I knew, I knew if I
Speaker 1: didn't know a market. With his book, I wanted that
Speaker 1: Peter in it. He was going he was gonna be moving.
Speaker 1: I think, well, I might as well stay my trip
Speaker 1: because I might as well do his chapter. Now, it
Speaker 1: turns out, by time I got around to doing it.
Speaker 1: He had moved, and uh so I ended up playing out,
Speaker 1: you know, to Arizona anyway. But the thing about Peter
Speaker 1: just just to capture I wanted to capture his his
Speaker 1: market wisdom, posterity. It's probably the most straightforward way I
Speaker 1: can put it. And it's notable that several other wizards
Speaker 1: in the new book reference Brand's approach to risk management.
Speaker 1: For forget stock selection. They are just completely impressed with
Speaker 1: how disciplined he is and how he manages risk. First
Speaker 1: and foremost, the stocks, the trades that are working out,
Speaker 1: we'll take care of themselves, he says. It's ones that
Speaker 1: don't work out that that require all your tension. Somebody
Speaker 1: else said something that really intrigued me the chapter on
Speaker 1: Jason Shapiro, the Contrarian. I love this quote. There aren't
Speaker 1: good traders you can make money on by doing what
Speaker 1: they're doing, but there are terrible traders you can make
Speaker 1: money on by doing the exact opposite of what they do.
Speaker 1: Tell us a little bit about Jason Shapiro. Yeah, so, yeah,
Speaker 1: Jason is the contrarian in the book, and that's the
Speaker 1: nature I mean, he if you beat him, um, he's
Speaker 1: just to be I would think he has to be argumented,
Speaker 1: but he always has to be on the other side.
Speaker 1: And he admits really like he he goes to a
Speaker 1: party and and it's mostly liberals, He'll all give the
Speaker 1: conservative side. It was mostly conservative, He'll all give the
Speaker 1: liberal side. And he's fine doing that. And as his
Speaker 1: premises that there's no absolute black and white, there is
Speaker 1: truth from some truth from both sides, and and people
Speaker 1: who insist everything is, you know, one side or the
Speaker 1: other just wrong the themes always arguing it, but that
Speaker 1: his nature is always to be arguing and to be
Speaker 1: counter so it be natural that he evolves into trading methodology.
Speaker 1: That that's that's contrarian and uh, and that's what he
Speaker 1: literally does. He he uses the commitment of traders as
Speaker 1: his primary source of trying to establish market sentiment. But also,
Speaker 1: you know, it's also watch you know, CNBC and shows
Speaker 1: like that, the four contrarian ideas, and in his career
Speaker 1: has come across p well um that are just invariably wrong.
Speaker 1: And in fact, he kind of picked the exact bottom
Speaker 1: of the you know, the the the pandemic bottom in
Speaker 1: March because he was on a sort of this call
Speaker 1: between some ex colleagues, and and this one guy who
Speaker 1: was always bullish on the market was bearish, and and
Speaker 1: he was looking for the bottom anyway, because the sentiment
Speaker 1: that was they were seeing in the uh in the numbers,
Speaker 1: and that was a trigger from the almost drump begun
Speaker 1: just the mat just thought the establishing a position. So
Speaker 1: h and he to be fair here, I don't want
Speaker 1: to make it sound like he's just you know, kind
Speaker 1: of you know, ragging on people, he says, basically. And
Speaker 1: when he first of this part, and we did this
Speaker 1: chapter in student on this this chapter was done the
Speaker 1: only chapter I remember that I did in pseudonyms at
Speaker 1: his weekend, was at his request. Bit and people who
Speaker 1: read the chapter, it is quite obvious why student hims
Speaker 1: were used, because it's not all very complimentary. So he
Speaker 1: but he says, it looks it's it's not that this,
Speaker 1: you know, when I see you know, let's call it
Speaker 1: Mr X, I see myself, you know, for those years
Speaker 1: while I was losing, I see him making all the
Speaker 1: same mistakes. And so it's because he recognizes something that
Speaker 1: he himself had done. He recognizes the mistakes that he
Speaker 1: had done, that these people are falling prey to which
Speaker 1: are which are emotional and and and not having the
Speaker 1: risk management and so forth. Um, he can see himself
Speaker 1: and he knows that that turned out, and he knows
Speaker 1: therefore that the opposite side is the way you should
Speaker 1: be right. That that's a very fair way to describe it.
Speaker 1: When when he is ragging on financial television or market consensus,
Speaker 1: he very specifically said, I see the errors I made
Speaker 1: early in my career. I recognize that consensus. And and
Speaker 1: for people who are not familiar with a Commitment of
Speaker 1: Traders report, it shows the commercial hedgers positions relative to
Speaker 1: the speculators. And historically, the commercial hedgers have a whole
Speaker 1: lot more insight than than the jobbers and the and
Speaker 1: the speculators who are just taking a flyer. Um. And
Speaker 1: that's why he likes the Commitment of Traders report. Is
Speaker 1: that a fair way to assist that? Yeah, that that's
Speaker 1: that's a good way to summarize. Let's talk a little
Speaker 1: bit about mindset. I was impressed with the discussion with
Speaker 1: Richard Bark talking about things that most people don't think
Speaker 1: have anything to do with trading, state of flow, optimism, confidence,
Speaker 1: managing your emotions. Tell us a little bit about Bart yeah,
Speaker 1: Barnes is a quite interesting fellow. So actually, uh grew
Speaker 1: up in a farm in England. Um, sort of got
Speaker 1: his trading job as his first job. And he's I
Speaker 1: guess his approach. The thing that struck me about Barge
Speaker 1: was how how much he weighed psychology and the whole
Speaker 1: into all of trading and everything he did. And he
Speaker 1: was very meticulous. So for exactly he like would bring
Speaker 1: out a binder you'd have like litterally thousands of pages
Speaker 1: of just keeping kept keeping notes on everything, not just
Speaker 1: the trazy that why did him? And now he did him?
Speaker 1: But what does emotions were? And you know, and even
Speaker 1: as he even showed me a spreadsheet like I don't
Speaker 1: know what you give become spreadsheet? We has all these
Speaker 1: different types of emotions and every day he will check
Speaker 1: if he was subject to any of those. At the
Speaker 1: end of the week we review it, and if there's
Speaker 1: too many checks in a certain column, he knows that
Speaker 1: something he has to work on. So he's he's alway,
Speaker 1: he's kind of combined an analysis of his own psychology
Speaker 1: as an integral part of of trading. And um, yeah,
Speaker 1: so and and this this whole psychology thing, not only
Speaker 1: comes up with Barge, but it comes up with a
Speaker 1: number of the other traders as well as being sort
Speaker 1: of highly critical to their approach, someone like Sal talking
Speaker 1: about how you know, it affairs for a trade mentally
Speaker 1: and getting in, you know, getting himself calm and and
Speaker 1: getting totally focused, and um, is that the former marine
Speaker 1: you're referring to? No, it's no, Sal wasn't the marine
Speaker 1: that that? The marine is John nettoon, Yes, I was
Speaker 1: one of the other UK traders. Actually he was the
Speaker 1: gooko who actually was partially a mentor to the Barge
Speaker 1: because it turned out that three of the traders at
Speaker 1: one time worked at the same prop trading firms and
Speaker 1: they knew each other, you know, so so Salin Netto
Speaker 1: both discussed doing something that I was kind of intrigued
Speaker 1: with and reminded me of some former traders I worked
Speaker 1: with who were in the military, which was envisioning the trade,
Speaker 1: envisioning what could go right, what could go wrong. Not
Speaker 1: just working out a plan, being the plan see and
Speaker 1: all the contingencies, but imagining what your emotional state would
Speaker 1: be if something is going good or going bad, and
Speaker 1: prepping yourself so that when those emotions bubble up. You
Speaker 1: can sort of shove him off to the side and
Speaker 1: remain objective and focused on the task at hand. It's
Speaker 1: a very military trained methodology. Yeah, well, that of course
Speaker 1: is the Marine. But the one who probably most epitomize
Speaker 1: which you're describing, is Salum because he would literally for
Speaker 1: and I think we should explain his background that his
Speaker 1: primary trading methodology is to look for special situations like
Speaker 1: a Central Bank announcement or something some event and do
Speaker 1: enormous preparations for that and think of every contingency and no,
Speaker 1: so he would literally plan out what do we do
Speaker 1: under no matter what was that, how it was that,
Speaker 1: and just just would have in his mind every possible
Speaker 1: fork in the road on that trade and be totally prepared.
Speaker 1: So that was that. That is actually essential part of
Speaker 1: the way he approach approaches market um and really interesting
Speaker 1: when when I was a new beyond a desk, I
Speaker 1: sat between these two monsters. One guy was a former
Speaker 1: Marine jungle combat instructor, the other guy was a former ranger,
Speaker 1: and after work we would have these conversations about what
Speaker 1: it was like. Ps. You go to bar with these
Speaker 1: guys and I could be the biggest wisest I wanted
Speaker 1: nobody was. People would look at me and then they
Speaker 1: look at these two monsters with me, and I would
Speaker 1: be like, yeah, we're not going to get involved in that.
Speaker 1: But what I was these guys weren't just big and fit.
Speaker 1: They were really savvy and smart. And I recall hearing
Speaker 1: some of the Army Ranger prep discussions where you map
Speaker 1: out literally every step along the way. Here's where the
Speaker 1: helicopter is gonna pick us up. Here's what happens if
Speaker 1: the chopper is laid, if it doesn't ride, if this happens.
Speaker 1: Here's what happens when we're flying to the target. Here's
Speaker 1: what happens if we have to make an unscheduled landing.
Speaker 1: And they literally sort of I guess the right word
Speaker 1: is war game, all the various scenarios that could happen
Speaker 1: that might go wrong. That what what your plan B,
Speaker 1: C D E. Is. But what I was so taken by,
Speaker 1: and I sort of reminisced of it going through the book,
Speaker 1: is how they think about what is your emotional reaction
Speaker 1: going to be if you show up here and your
Speaker 1: gun uh is jammed and it doesn't work, or if
Speaker 1: whatever the task at hand, we're missing a piece. How
Speaker 1: do we improvise like the preparation for a mission and
Speaker 1: the prep of some of the traders in anticipation of
Speaker 1: a giant trade, very very parallel. Yeah, and actually you
Speaker 1: mentioned read in the book NATO here's approach. Me I
Speaker 1: should end up spending years systematizing you computerizing it. But
Speaker 1: but his approach is exactly that sort as the reports
Speaker 1: could could be coming out, kind of figuring where the
Speaker 1: probabilities are, where it might happen. You know, what if
Speaker 1: its falls and this range warderfals and this range worderfals
Speaker 1: in this range and every contingency have having that you
Speaker 1: know that like a systematize, so computer will will know
Speaker 1: what to do no matter what which which of those
Speaker 1: things happen. And it isn't that anticipating all different types
Speaker 1: of scenarios as part of the trading plan. And and
Speaker 1: it does sound very much like what you're describing your
Speaker 1: personal experience with these army ranges of marines. And there's
Speaker 1: one other element of it, uh, I should say Netta
Speaker 1: wasn't the first marine. I think in the course of
Speaker 1: the market Wizards books has probably been thinking about form
Speaker 1: marines that I interviewed and and X Marines. Uh, and
Speaker 1: if it's not an accident, and I think it's not
Speaker 1: just planning, but I think it's a discipline. And you know,
Speaker 1: because because to be successful you really need rigorous discipline. Uh.
Speaker 1: That's something that's inbred innate in X Marines generally. So
Speaker 1: can I tell you right now that that there would
Speaker 1: all tell you the same thing. There's no such thing
Speaker 1: as an ex marine once a marine. Well that's true too,
Speaker 1: and that yeah, I wouldn't surprise me if they said
Speaker 1: the same thing. And it really shows up in the description.
Speaker 1: I was flashing back to my days on the desk
Speaker 1: because that's the exact description. So let me ask you
Speaker 1: these three concepts that I really struck me from the book.
Speaker 1: The first was know your edge. Tell us a little
Speaker 1: bit about why you have to know what your edge is? Yeah,
Speaker 1: because there's two things you need, maybe over simple mind
Speaker 1: and not really, there's really two things you need to
Speaker 1: be successful in training. One you need a methodology of
Speaker 1: an edge, and two you need risk management. So how
Speaker 1: people sometimes go too far by saying, well, Chris, management
Speaker 1: is is absolutely critical and mandously important. But bottom line,
Speaker 1: if you don't have a methodology that has some edge. Uh,
Speaker 1: there's no reason why you should you should win. You know,
Speaker 1: it's just simple probability. So you do need some edge,
Speaker 1: and you need to obviously know what it is meaning Uh,
Speaker 1: you know, you're not truly from the hip. You've got
Speaker 1: an approach and and you've got to follow that approach
Speaker 1: and and then presumably that approach has some edge and
Speaker 1: I and you have to obviously know what it is.
Speaker 1: You can't you can't just sit at the front of
Speaker 1: your screen and say, oh, I think this is going up,
Speaker 1: I'll buy it. That's that's not a methodology. So essentially
Speaker 1: that's the simplest that But it's not knowing where your
Speaker 1: edge is. And it could be it could be it
Speaker 1: could be anything. It could be, you know, in any realm.
Speaker 1: But it has to be something specific to your approach.
Speaker 1: And let's stay with the idea of the methodology. You
Speaker 1: have to number two, you have to make sure your
Speaker 1: trading style and methodology fits your sonality. Let's let's talk
Speaker 1: about that for a moment. Yeah, so that's that's one
Speaker 1: of the things I kind of leaded to earlier. It's
Speaker 1: really everybody I think has uh, you know, a natural
Speaker 1: affinity for certain types of ways of doing things, or
Speaker 1: when it comes to trading, for certain types of trading
Speaker 1: and and whatever you do, it has to be compatible.
Speaker 1: If you're if you're impatient, it's not gonna work. That
Speaker 1: has to do a long term trading approach. If you're
Speaker 1: oriented to wanting to you believe everything has to have
Speaker 1: economic reasons. Uh, and you're disdainful of things like charts,
Speaker 1: you know, trying to do charts. It is not going
Speaker 1: to necessarily be compatible. It doesn't mean those approaches don't work.
Speaker 1: It just means they won't work for you. So this
Speaker 1: is it's a discovery process. You have to find. You
Speaker 1: have to find what fits, what fits your for yourself.
Speaker 1: For example, I started out trading based on fundamental us
Speaker 1: why because I had an economics degree, you know, and
Speaker 1: I and it uses natural to think in those terms.
Speaker 1: But I discovered that, hey, you know, but the mentals
Speaker 1: didn't work for me, and I have problems, you know,
Speaker 1: doing the fundamental approach and combining with proper risk management,
Speaker 1: which is a separate tangent, but to me, the two
Speaker 1: were almost in confidence sometimes. But I found that technical
Speaker 1: analysis worked much more naturally resource management. So I ended
Speaker 1: up evolving from somebody who thought it was purely fundamentals
Speaker 1: for trading and then end up being somebody who and
Speaker 1: he just uses technicals for trading. So you have to
Speaker 1: find what's compatible with your philosophy, what feels right, what
Speaker 1: you're comfortable. This is important. You have to use an
Speaker 1: approach that's comfortable for you to trade. So, for example,
Speaker 1: at one point my back the number decay. Once I,
Speaker 1: you know, gone to techno analysis, I thought, gee, you know,
Speaker 1: I don't think it liked the emotion to any e'll
Speaker 1: goo systematic, And for a while I traded systematically, but
Speaker 1: I discovered that I just actually that was more that
Speaker 1: was more uncomfortable. I didn't have to make decisions, but
Speaker 1: I had to wait for the dance system to change signals,
Speaker 1: which I just didn't like. So I felt uncomfortable relegating
Speaker 1: the ability to act in the cut losses to assist them.
Speaker 1: So I eventually just went back to the discreptions trading.
Speaker 1: And it has to be something that you're comfortable with
Speaker 1: makes sense. And then the third one um that I
Speaker 1: thought was kind of interesting is understanding the market narrative
Speaker 1: and recognizing the consensus tell us a little bit about that.
Speaker 1: Well that that comes you know that that applies to
Speaker 1: certain traders, not everybody necessarily, but for somebody like we
Speaker 1: talked about as somebody like a Shapiro, you know, understanding why,
Speaker 1: you know, you know, how the market is thinking why
Speaker 1: in this case eventually going against it is integral to
Speaker 1: the approach. But so it really depends on the trader.
Speaker 1: But for some traders that is how they look at markets,
Speaker 1: and they need to they need to know what story.
Speaker 1: Netto is another one where that comes in. You go,
Speaker 1: he wants to understand. That's part of his approach. He
Speaker 1: wants to understand what what is a story that's driving
Speaker 1: the market, and uh that understanding that is critical to
Speaker 1: being able to trade the markets. Quite quite interesting. Let's
Speaker 1: talk about some of the people you interviewed in this book.
Speaker 1: I like the guy whose name is the Unicorn Sniper.
Speaker 1: His track record you alluded to earlier up three hundred
Speaker 1: and thirty seven for thirteen years, and I want to
Speaker 1: clarify that that's not a cumulative return. That was his
Speaker 1: annual return over thirteen years. Before we get into what
Speaker 1: he does, you have to explain how you're verifying that
Speaker 1: those are real numbers because those are just you know,
Speaker 1: he's saying, you're saying sorts of returns. You started out
Speaker 1: with a few thousand and turned it into fifty million.
Speaker 1: Oh no, that's Jeff Newman. Oh really yeah, yeah, so
Speaker 1: this is somebody else, the Unicorn sniper. Unicorn snipers actually
Speaker 1: sell Okay, gotcha? What was So let's talk a little
Speaker 1: bit about his track record. What did he start with?
Speaker 1: And what did three d and thirty seven percent a
Speaker 1: year for thirteen years compounding two? Oh? So the thing
Speaker 1: about these percent returns is you have to keep in
Speaker 1: mind that they're not they're not letting. He's not keeping
Speaker 1: the money in and compounding out. Yeah, he's pulling it out.
Speaker 1: So he's he's always treating a few million dollars or
Speaker 1: whatever it is, and he keeps them pulling it out,
Speaker 1: you know, best thing or whatever uh in other things.
Speaker 1: So you I think he couldn't do He couldn't get
Speaker 1: those type of returns if he were trying to, you know,
Speaker 1: if it was compounding. The money just doesn't scale up
Speaker 1: to bill You couldn't trade hundreds of millions forget billions.
Speaker 1: And his approach essentially is is UH is highly selective.
Speaker 1: As picking certain events very tremendously, uh, just being super
Speaker 1: expert on on that on those situations, and that's why
Speaker 1: it calls he's been he said, people have described them
Speaker 1: as as unicorn sniper. The point being that it looks
Speaker 1: for the rarer event that provides tremendous opportunity with much
Speaker 1: less highly asymmetric, big, very big opportunity that can be
Speaker 1: realized without taking commender at rescue, thank you, by smaller risk.
Speaker 1: Go ahead, I'm sorry, Yeah, that's okay. So, so while
Speaker 1: while he may have these really high returns but are
Speaker 1: in very high, very individual trades to make a lot
Speaker 1: of money, he cuts his losses very quickly, so he
Speaker 1: doesn't have really large losses. You can go through his record,
Speaker 1: you can probably find thirty days where he's made you more.
Speaker 1: I mean like a lot of days he's made like
Speaker 1: these very large returns, but you won't find any days
Speaker 1: where he's had the reverse um And the line that
Speaker 1: really stuffed stuck out from amrit cell. Right, if if
Speaker 1: I'm getting his name is of the time the market
Speaker 1: is not providing any opportunities I make of my money
Speaker 1: the other ten percent of the time that that's pretty
Speaker 1: astonishing talk about waiting for your pitch. Yeah, so that's
Speaker 1: that's it. That's critical critical um and a lot of people,
Speaker 1: a lot of people make that mistake and it relates
Speaker 1: to human nature. Is we're just not patient, right, so, uh,
Speaker 1: people want to people can't can't stand around, you know,
Speaker 1: a few not do hally anything and then wait for
Speaker 1: that month. But but that's what stal does it even
Speaker 1: there's no opportunity. I mean, he may trade a little bit,
Speaker 1: but the with the trades where he takes these big
Speaker 1: positions on they're isolated and they're not that many, and
Speaker 1: he makes most of his money, you know, probably less
Speaker 1: than a half a dozen trades a year. But he
Speaker 1: has the patience to wait for That's that. That's kind
Speaker 1: of the sniper thing, you know, just you're waiting for
Speaker 1: the shop and the unicorn is it's not that, it's
Speaker 1: it's it's it's rare. So that those two words really
Speaker 1: describe him extremely well. And h it's difficult to do.
Speaker 1: People don't have the patients. And one of the points
Speaker 1: that I made, and I get it was Stala one
Speaker 1: of the other traders, but he makes the point that
Speaker 1: trying to be consistent and this is again very counterintuitive.
Speaker 1: But the point makes is that people who try to
Speaker 1: make try to make money every month for saying, you know,
Speaker 1: a certain amount of money every month the same way
Speaker 1: he is a he says, in this experience, those traders
Speaker 1: will fail because they're the markets will not provide opportunities
Speaker 1: every month, and if you're trying to if you're trying
Speaker 1: to make the same target every months, when the opportunities
Speaker 1: aren't there, you're actually gonna end up losing money, not
Speaker 1: making money. So that's actually a negative, a negative trade,
Speaker 1: not a positive thing. M really quite quite interesting. Um.
Speaker 1: Somebody who had a very different approach than a lot
Speaker 1: of other people was Chris Camillo Um who who specifically
Speaker 1: I love this quote. My trading is depending on my
Speaker 1: ability to identify meaningful off radar information, early information that's
Speaker 1: either not recognized or underappreciated by the investing public. Very
Speaker 1: reminiscent of the Peter Lynch methodology, as you point out
Speaker 1: in the book. Tell us a little bit about Chris. Yeah, so, Chris,
Speaker 1: I mean, this is a truly kind of almost remarkable.
Speaker 1: I won't go in through your career expanse from the
Speaker 1: early seventies in the markets and through all those years,
Speaker 1: with those decades, I just naturally resumed there. You've got
Speaker 1: two general approaches. You're either will be you know, using
Speaker 1: some sort of fundamental analysis or using some sort of
Speaker 1: technical analysis, or you might be combining the two, like
Speaker 1: somebody who like a Covenant does. But what else is there? Right?
Speaker 1: And the amazing thing about Camillo was turns out here's
Speaker 1: a guy who's done phenomenal. I mean, he turned eighty
Speaker 1: thousand to twenty million plus and he did that, and
Speaker 1: he doesn't use fundamentals and he doesn't use technical and
Speaker 1: people listening to this probably scratching a head whole what
Speaker 1: do you mean? What else? What do is to do? Well?
Speaker 1: He uses social media and he actually started out just
Speaker 1: by observing, as you say, Uh, Peter interes the perfect example.
Speaker 1: He talks about as a kid that I think was
Speaker 1: with the Arizona Stougher or whatever it was. But he
Speaker 1: had a distoted that he that he liked, and uh,
Speaker 1: he would go to Snap and they coolidated it and
Speaker 1: here's this new company, Arizona. I stay, yeah, so yeah,
Speaker 1: so he goes one day may mean they he on
Speaker 1: the weekends he would go to auctions try to buy
Speaker 1: stuff that he could resell. And he was very like
Speaker 1: as a teenager was at the topic and he would
Speaker 1: get he would get us. He would go to get
Speaker 1: a Snapple and me that was a street. And one
Speaker 1: day he goes and there's no h you know, the
Speaker 1: the Snapple columns were replaced by all. The don was
Speaker 1: very know that and he asked to be the big
Speaker 1: proprietor and he says, well, you know that's this is
Speaker 1: a new but it's a new brand of adding more this.
Speaker 1: And then he asked his brother, hey, is there anyway
Speaker 1: his brother was a talckbroker. Is when I could take
Speaker 1: advantage to this? You know? His brother explained options then
Speaker 1: and that was his first train. So he was he was,
Speaker 1: you know, he was that he because of naturally went
Speaker 1: to the Peter Lynch approach. And there's interesting example he
Speaker 1: talks about sort of um, the Wendy's pretzel bacon cheeseburger.
Speaker 1: I never heard of this. That just cracked me up.
Speaker 1: Yeah I didn't, Eve I don't either, But does this
Speaker 1: type of stuff he did. He does. Eventually he ended
Speaker 1: up building a company computerized us all approach. But so
Speaker 1: he would go to one of these seasonal specials that
Speaker 1: the one you just mentioned, and he went he would
Speaker 1: go to the managers at these doors and how are
Speaker 1: they selling it? Talk to customers, and he found this
Speaker 1: was and they were telling him that this has been
Speaker 1: the most popular sandwich we ever had. We've never seen
Speaker 1: anything like this before. It's just even though everybody else
Speaker 1: does this seasonal thing, this one really had tracked. It
Speaker 1: was that it was Wendy's, it was under Armours, New
Speaker 1: Cold Gear, Netflix, Stranger Things, National beverage about some of those, Yes,
Speaker 1: the Stranger Things is a good example. So, yeah, everybody
Speaker 1: was a popular show. But by that point he had
Speaker 1: kind of he was using a primarily Twitter but as
Speaker 1: a social media but and he had also, like you know,
Speaker 1: he built a company to do all these tags and
Speaker 1: stuff like that word tax, combination phrases to search for
Speaker 1: things that were coming up a lot. But in this
Speaker 1: particular show, what he noticed was not just that it
Speaker 1: was popular, but he had the data so he would
Speaker 1: see that it's stayed popular for a very very long time.
Speaker 1: And other big hits on Netflix, yeah, they were popular
Speaker 1: for a few weeks and then and sort of died down.
Speaker 1: But he could see that this chatter was like that
Speaker 1: he had this data on his Twitter chatter was staying
Speaker 1: at a super high level for a long time, and
Speaker 1: I told him this was different, and so he anticipated
Speaker 1: the earnings were being to be, you know, much better,
Speaker 1: and he was sort of you know, he dissipated this
Speaker 1: before anything showed up, very early on. It was basically
Speaker 1: just a matter of this social media analysis. So so
Speaker 1: this raises some really interesting question because, uh, Camillio learned
Speaker 1: from his Snapple put purchase and that was a winning trade.
Speaker 1: But but when you read through the chapters, it really
Speaker 1: seems that losing trades are far more instructive than than
Speaker 1: winning trades. How how important is failure as a feedback mechanism? Uh,
Speaker 1: extremely important. And that that's a theme that comes up,
Speaker 1: that comes up repeatedly in you know and every Market
Speaker 1: wizard book. And I think that the one I would
Speaker 1: highlight the most because I think it's so core to
Speaker 1: his philosophy in the Firmly Built would be Ray Dalio Um.
Speaker 1: And Dalio's whole philosophy is is to learn from mistakes.
Speaker 1: And that's and and and his whole you know, bridge
Speaker 1: imbued in Bridgewater with that philosophy, and and I think
Speaker 1: Dalue would himself say that his successfu he would lie
Speaker 1: in his ability to learn from mistakes. And in this
Speaker 1: book you have you have traders like we went we
Speaker 1: talked about Barge and as example, so uh, and he'll
Speaker 1: record every trade and you know, whatever mistakes he's made,
Speaker 1: and mistakes and trading mistakes in emotional state, by trading
Speaker 1: when he's misertain emotional state. So so recognizing mistakes he
Speaker 1: is really important. How you can approve as a trader
Speaker 1: is by being able to recognize the mistakes you make
Speaker 1: and to minimize or idea the eliminate but at least
Speaker 1: minimize repeating those mistakes in the in the future. I mean,
Speaker 1: that is probably the most effective way anybody can as
Speaker 1: a trader. Really quite interesting, Um. One of the things
Speaker 1: that comes up pretty consistently is when you're when you're
Speaker 1: having a losing trade, you're looking to do two things
Speaker 1: conserve capital. But to think that really struck me was
Speaker 1: how often people said I need to conserve my mental bandwidth.
Speaker 1: Tell us a little bit about how how a trader
Speaker 1: conserves mental bandwidth as opposed to either being distracted or
Speaker 1: just exhausting your bandwidth on on a losing trade. This
Speaker 1: is sort of there are a number of trade but
Speaker 1: Barge is a good example because he does this uh
Speaker 1: if if if he's something goes wrong, there are he
Speaker 1: gets he gets knocked off his equilibrium by the market.
Speaker 1: He'll he'll just stop, he'll he'll he'll take a breather,
Speaker 1: you know, he'll go away for the day, for a
Speaker 1: few days whatever. Uh, he breaks that, he breaks that cycle. Um,
Speaker 1: And it's important not to let your bad events in
Speaker 1: the trade or negative negative outcomes and trading affect your
Speaker 1: your mental state. And so and style makes the same point.
Speaker 1: You you have to preserve your you're kind of mental validity.
Speaker 1: And uh if you don't want to get into this
Speaker 1: cycle where you have a bad trade and another bad
Speaker 1: trade and you start getting negative on yourself, you don't
Speaker 1: want to let that that that get out of camp.
Speaker 1: So you need to break that cycle because being in
Speaker 1: the proper mental state is essential at least discretionary trade
Speaker 1: is essential to being able to trade effectively as a
Speaker 1: discretionary trader. So so it's not just it's not just
Speaker 1: a loss, it's the impact of that loss uh on
Speaker 1: on other trades if you let it happen. And that's
Speaker 1: what that's something people don't realize. It's just not you
Speaker 1: take a loss and where you make a mistake. It's
Speaker 1: not just that trade. But if you if you're not careful,
Speaker 1: it can start affecting other trades and and and and
Speaker 1: it can result in missing trades as well. So that
Speaker 1: that's that's that's something that does come up thematically in
Speaker 1: many interviews. Well, one of the traders referenced to quote
Speaker 1: that I think was French composer Claude Debussy who said
Speaker 1: music is the space between the notes, and that was
Speaker 1: their parallel for their trading approach. Tell us a little
Speaker 1: bit about the space between the notes. This is actually
Speaker 1: something that I that I used that I thought of,
Speaker 1: um when I in the case of one particular trader,
Speaker 1: and this is this is a trader in in hedge
Speaker 1: fund market wizards and I follow. My name is Kevin Daily.
Speaker 1: Now he uh, he's a what he calls himself a
Speaker 1: long short, you know, long short equity trader. Um. I
Speaker 1: kind of put a quotes around the short because when
Speaker 1: I interviewed him, turns out he has never had more
Speaker 1: than a single digit short position's primary long for a
Speaker 1: little bit of sprinting of shorts. Uh, Kevin starts starts
Speaker 1: his hedge fund in October nine. Now I don't know,
Speaker 1: but to me, October ninety nine is not the best
Speaker 1: time to start a hedge fund which is gonna be
Speaker 1: primarily long. So I I interviewed him a decade later, um,
Speaker 1: a decade later or or maybe twelve years later. H
Speaker 1: And at that point, yes, twelve years later. So it
Speaker 1: was after the financial crisis. Yeah, it was after yeah,
Speaker 1: so so so so daily basically trades through the bear
Speaker 1: market in two thousand, two thousand two, and the financial crisis.
Speaker 1: He does made you know, all the smoke clears by
Speaker 1: the time I interviewed him. He since he started his
Speaker 1: head fund, and in October nine that there was it was,
Speaker 1: you know, there was some There was six months when
Speaker 1: the market was still going up early on. But anyway,
Speaker 1: during that interim, turns out the SMP was pretty much
Speaker 1: close to dead flat. You know, his record cumulatively before fees,
Speaker 1: So we're just looking at the training aspect of it.
Speaker 1: His his his record accumulatively. I think he's up eight
Speaker 1: under a nine. So the question is the question is
Speaker 1: how does somebody cuninally make it under nine under the
Speaker 1: and at the same time the market's going sideways. And yeah,
Speaker 1: so he in that chapter he really is pretty specific
Speaker 1: and quite detailed and all the all the he's he's
Speaker 1: a fundamental guy, and he he talks about all the
Speaker 1: things he looks at and yees, so he's a good
Speaker 1: stock picker. Yeah, that's something out of it. But really
Speaker 1: the essence of it is that, um, when the market
Speaker 1: environment wasn't good, like two thousand, two thousand two, uh,
Speaker 1: he actually during that three year period, even though he's
Speaker 1: mostly long, he trades very little, and he's actually up
Speaker 1: slightly to that period in two thousand and eight. He
Speaker 1: you know, when the markets you know, down, he's down
Speaker 1: like single digits. He's not trading that much. He recognize
Speaker 1: that the environment is bad. So essentially his success can
Speaker 1: be attributed, to my mind, more by when he didn't
Speaker 1: trade than when he did trade, because he had the
Speaker 1: right times not to trade. And that's why I used
Speaker 1: that quote that that reminded me of that the beauty
Speaker 1: quote that they that music is the space between the notes,
Speaker 1: and so to my mind, the analogy was, you know,
Speaker 1: good trading is the space between trades. Makes a lot
Speaker 1: of sense. You were a trader for a bit or
Speaker 1: I have to ask, are you still trading or you
Speaker 1: step back and more of an investor these days? Yeah,
Speaker 1: So I was never an investment. What I invest in.
Speaker 1: An investment is basically real estate, you know, just you know,
Speaker 1: but that's kind of always I've had a bias to
Speaker 1: just that being a safe place to to keep money.
Speaker 1: You don't get a print every second, so that's the
Speaker 1: But it just makes just stakes in true of sense
Speaker 1: to me, and and particularly in environments where the markets
Speaker 1: have had long runs and an interest rate in the user,
Speaker 1: it just seems like like like the best place I
Speaker 1: can think of to keep money. Uh so, you know whatever.
Speaker 1: But anyway, I actually clarify that unlike the people I interview,
Speaker 1: I actually don't see to myself a trader. I consider
Speaker 1: my off a lot of things before I said myself
Speaker 1: a trader, and trading for me is just a hobby
Speaker 1: and it's and it's something that I don't do continuously.
Speaker 1: And certainly you know those beers where those decades where's
Speaker 1: working you know, full time or whatever. It was always
Speaker 1: a side issue, and even even a six side of that.
Speaker 1: It depends on a certain circumstances, depends if on the
Speaker 1: mood of trade or whatever. So I'll there be periods
Speaker 1: where all trade and the peris but you don't trade.
Speaker 1: And strictly it's more of a hobby to me than
Speaker 1: than anything else. And and if I start not doing
Speaker 1: well in my trading, I'll stop trading. And then you know,
Speaker 1: a few months later I said, oh yeah, maybe I'll
Speaker 1: feel it trading. But so so one day, the one
Speaker 1: day the sidles feels right again. So that's that's it.
Speaker 1: So it's like again, it's it's a it's a it's
Speaker 1: a hobby, nothing, not a not a not a full
Speaker 1: time endeavor. But but you've clearly picked up some things
Speaker 1: from from some of the traders you you've interviewed, which
Speaker 1: raises which raises the question, um, how different is it
Speaker 1: this time? You know, there's there's been people scoffing um
Speaker 1: at the markets. I don't know for since O eight
Speaker 1: oh nine, I've I've continuously read about people who are
Speaker 1: pushing back against the FED and zerup and keewee and
Speaker 1: and pretty much, but for the COVID pandemic, the market's
Speaker 1: gone mostly up over that period. How do you how
Speaker 1: do you respond to people who tell you, hey, this
Speaker 1: is a bubble, you can't trade at the fittest ruins everything.
Speaker 1: What's the standard response to that, Well, apparently it's not
Speaker 1: the case because there are people trading very effectively and
Speaker 1: not necessarily, not necessarily because they're long a biased uh.
Speaker 1: In many cases. You know a lot of these traders
Speaker 1: in the book are are an equity raders at all,
Speaker 1: so so their their success is not coming from the market.
Speaker 1: And even when the requity traders, they could be both
Speaker 1: on the walk short side. So I think those traders
Speaker 1: who are in this book equally traders are are on
Speaker 1: both sides the market. So I would say it has
Speaker 1: nothing to do with the market being in a pown market.
Speaker 1: Being successful trading is is more, you know, man, that
Speaker 1: matter the the individual methnology and as far as the
Speaker 1: whole premise about well, at some point they're gonna be right.
Speaker 1: But you find where I find that traders who are
Speaker 1: successful that the forecasting is not the is not the thing.
Speaker 1: If they may think of markets going to act in
Speaker 1: a certain way, they they have plans to to to act,
Speaker 1: you know, to respond to that, and they'll they'll be
Speaker 1: out quickly if they're wrong. You know, the best quote
Speaker 1: here is uh is speed of Graham, and and it
Speaker 1: is the UH. I like his quote so much that
Speaker 1: I think I used it as the title of the
Speaker 1: of this chapter, which is strong opinions weakly held. So
Speaker 1: he puts on a trade, he has a strong opinion.
Speaker 1: But if he goes, you know, with in his words
Speaker 1: for paraphrasing, if the market puts and in this pocket,
Speaker 1: he's out. So you can have a strong opinion, but
Speaker 1: you have to be very like Peter says, you know,
Speaker 1: you have to hold it weakly. And if if they're
Speaker 1: not right, you have to you have to ment you
Speaker 1: wrong and just get out of the way. So people
Speaker 1: who have this premise that the market is going to
Speaker 1: do this, or the forecasting it's going to do that,
Speaker 1: that's usually not only not helpful, but it's usually counterproductive.
Speaker 1: I'm with you on that completely. Um let me let
Speaker 1: me ask you an interesting thing. That the book is
Speaker 1: really divided into two halves. The first part is futures trading,
Speaker 1: the second part is stock trading stock traders, and then
Speaker 1: you have rules and there's in appendix and there's additional stuff.
Speaker 1: But I can't help but notice given how crazy n
Speaker 1: f T s and crypto and bitcoin and all that
Speaker 1: stuff has gone. There's not a lot of there's not
Speaker 1: a whole lot of mention of of crypto trading in
Speaker 1: this What are your thought it's on this space? It's
Speaker 1: pretty clear some people have made hundreds of millions, if
Speaker 1: not billions. I think the the Winkle Vieys funds is
Speaker 1: now up to something like two billion dollars from what
Speaker 1: they rolled over a few hundred million in Facebook stock.
Speaker 1: What what is your thoughts on that space and how
Speaker 1: people might be trading it? Yeah, well, for for all,
Speaker 1: there's the one Jeff Newman, you know, is the one
Speaker 1: trader who did mention who did trade crypto, and it's
Speaker 1: because it fits into the way he trades markets. He's
Speaker 1: looking just for being early to anticipate when something's going
Speaker 1: to happen, when the markets just getting interested in something.
Speaker 1: So crypto was just another thing and it had nothing
Speaker 1: to do with crypto itself, and it's just it was
Speaker 1: like a new product in a way. So um, so
Speaker 1: it's come up in that chapter. You know. My own feeling,
Speaker 1: I don't know, I'm kind of old school and I
Speaker 1: always look uncomfortable. My my initial in commination was the
Speaker 1: say the looks like, you know, it looks like a
Speaker 1: bubble and I, you know, uh the thing that but
Speaker 1: I've avoid it, uh by and large, I don't. On
Speaker 1: one hand, I kind of it looks bubble like in
Speaker 1: a lot of ways. But there is a The one
Speaker 1: thing I guess has kept me away is there that
Speaker 1: there it's kind of odd for something like bitcoin, you know,
Speaker 1: the main some a bitcoin like bitcoin was the main one.
Speaker 1: There is actually there's an apple. There's two things that
Speaker 1: counted that argument. One there's actually a use for it,
Speaker 1: and the use is not The use is not what
Speaker 1: people say. It's not an alternative currency. No reasonable alternative
Speaker 1: currency will swing in a short period of time, not
Speaker 1: usable as as in that way. But what it is
Speaker 1: useful for is actually quite It's an a various usage,
Speaker 1: but the market doesn't care. You know, it's you don't
Speaker 1: like ransomware or other things of that nature. Black market.
Speaker 1: So there is a there is a use for it,
Speaker 1: right so that it's not like some other things, like
Speaker 1: like internet companies that started out losing money and never
Speaker 1: made a dimond. Just the longer there just the more
Speaker 1: money they lost, there's no way they could do. So
Speaker 1: that's an example of a bubble where there was just
Speaker 1: no no rationale whatsoever. Here's a rationale. It's not particularly
Speaker 1: attractive rationale, but it's a rationale. And if this be used,
Speaker 1: the market will put a value on it. And then
Speaker 1: the other thing is a scarcity to the only bitcoin.
Speaker 1: There could be only a certain number of bitcoin. So
Speaker 1: so that's a you know, defined maximum numbers. So there
Speaker 1: there are countervailing arguments and and that's what. If it
Speaker 1: wasn't for those two things, I think I would have
Speaker 1: been inclined that you know, to look at it as
Speaker 1: a bubble. But certain other things like dose coin, which
Speaker 1: starts as a joke and then goes you know, it
Speaker 1: goes up, but you know, God knows somebody percent. I
Speaker 1: think a lot of those me two coins over time
Speaker 1: will eventually my own feeling probably go don't go to nothing.
Speaker 1: Um And you know, so I think there are certainly
Speaker 1: elements of of of a bubble bubble in this whole sphere.
Speaker 1: There might be some you know, some that survive and
Speaker 1: maybe go much higher. I don't know, but not my
Speaker 1: expertise is just kind of my thoughts. Huh, very very interesting.
Speaker 1: Um So what would you need to see from one
Speaker 1: of these traders before you hand it over your capital
Speaker 1: to them to manage for you. And really, this is
Speaker 1: a broad This is a broad question. It's not so
Speaker 1: much literal as what do you need to see before
Speaker 1: you write a check? But you've witnessed a ton of
Speaker 1: different um traders and fund managers. I think your perspective
Speaker 1: would be helpful for those people who wrestle with what
Speaker 1: do I need to do in order to feel comfortable
Speaker 1: giving money to a third party to manage from me? Yeah,
Speaker 1: well a few points. First of all, I would focus
Speaker 1: more on return to risk rather than just return, because
Speaker 1: you do have managers out there that that will put
Speaker 1: up spectacular returns, but they also have spectacular losses. And
Speaker 1: the truth of the matter is, even if it's over
Speaker 1: the long run, they turn out okay. But if you
Speaker 1: have these giant drawer downs, the reality is even investors
Speaker 1: don't survive. They they just mail out. So you may
Speaker 1: look at it the benefit of hindsight, the track record
Speaker 1: that look has a good return and with a lot
Speaker 1: of volatility, and you said, oh, well it all works
Speaker 1: out fine. Yeah, it works out fine because you're looking
Speaker 1: with hindsight. But believe me, if you're going fresh and
Speaker 1: you have that type of track record, you're gonna blow
Speaker 1: out somewhere in the middle logue or or plus investors will.
Speaker 1: So I think it's important to look at the return risk,
Speaker 1: not just not just to return. Uh. Another element is
Speaker 1: you want to have a sense that there's some explanation
Speaker 1: of why that person has done particularly well, that that
Speaker 1: would there would be a reason to expect it to continue.
Speaker 1: And that's not would always easy to do, but that's
Speaker 1: I think important And and I guess another the last
Speaker 1: time I was making it's very difficult, like the old cliche,
Speaker 1: and it's not a cliche for no reason. It's a
Speaker 1: past performance is not a is no guarantee of future performance.
Speaker 1: So you can do everything right and the person could
Speaker 1: still end up not doing well. And there is a
Speaker 1: there is a regression to the mean problem here, because
Speaker 1: when you pick people who have done very well, it's
Speaker 1: hard for them to continue with that extreme and there's
Speaker 1: it's almost natural for to have aggression to the mean.
Speaker 1: Uh and uh, so I would expect that. I mean,
Speaker 1: even if people who have done extream well, I would
Speaker 1: not I would be unrealistic to expect them to continue
Speaker 1: to do as well. In the future. You have to
Speaker 1: be comfortable saying, well, even if they's great this much,
Speaker 1: it's still fine, really really intriguing. Um. We mentioned Peter
Speaker 1: Grant has been around for quite a while, but it
Speaker 1: comes back to just about everybody else in the book.
Speaker 1: Are are on the youngest side. There are a few
Speaker 1: people who have been around for for a decade or two.
Speaker 1: Do you get the sense that trading is a is
Speaker 1: a young person this game? How how does this new
Speaker 1: crop of traders make you feel about the previous traders
Speaker 1: you looked at in the past couple of bucks. I
Speaker 1: guess you're right on that. I didn't think about it,
Speaker 1: but I guess with a couple of exceptions there, they're
Speaker 1: younger as a group. I I did. I I do
Speaker 1: try to get people who have at least a decade
Speaker 1: or longer of trading. And I think Barge was the
Speaker 1: one exception I made at the time I interviewed me
Speaker 1: only any about eight years, but I thought it was
Speaker 1: so exceptional that it it merited being in there. Um,
Speaker 1: So even though they're young, they still have Yeah, I
Speaker 1: wouldn't take anybody was like a three or four year
Speaker 1: ago or something like that. So they still have a
Speaker 1: decade plus in almost all cases, the fact that I I,
Speaker 1: you know, it just ended up being maybe because I
Speaker 1: was looking at individual traders, it just turned out that
Speaker 1: those that proper traders and being on the on the
Speaker 1: younger side, this problem maybe more interest now among the
Speaker 1: people of trading than than previously. Maybe that's another bias.
Speaker 1: It just it just just ended up it wasn't I
Speaker 1: don't know if that's if that's representative of traders as
Speaker 1: a whole. It's certily hard, too small of a sample,
Speaker 1: and and everything only about the less than a dozen traders,
Speaker 1: and a couple of them have been around for quite
Speaker 1: a while, so even there, it's not not exclusively you
Speaker 1: really really kind of kind of interesting. Let's stick with
Speaker 1: the current environment. Um by the dip has really that
Speaker 1: mentality has really taken hold. We saw the thirty pandemic
Speaker 1: sell off and what was that barely five or six
Speaker 1: weeks and and market I think it bottomed the end
Speaker 1: of March and the market had recovered by August. What
Speaker 1: what does this mean? Is this suggest relate in the cycle,
Speaker 1: or hey, if it's been working for the past ten years,
Speaker 1: people are gonna keep doing till it's doing it until
Speaker 1: it stops. How how do you how do you look
Speaker 1: at this? Say, okay, so that almost approaches forecasting zoom
Speaker 1: begetting something. That's not a matter of advice. But I
Speaker 1: will say this. I did a book seven eight years
Speaker 1: ago called Market Sense and Nonsense, And in one of
Speaker 1: the chapters in that book, I basically well and so
Speaker 1: there I try to dispel some of these some of
Speaker 1: the myths and misconceptions and mistakes people making markets. And
Speaker 1: one of them was this idea of and of investing
Speaker 1: when things are you know, when things have been good.
Speaker 1: And I didn't now actually going back you know, back
Speaker 1: in the eighteen fifties in terms of data, uh, and
Speaker 1: just show that I took five year periods and fifty
Speaker 1: and I showed what happened in the next five and
Speaker 1: twenty depending on on the previous and and not surprised
Speaker 1: only to be at least is you know, when you
Speaker 1: invested when they're when the last five and twenty years
Speaker 1: were relatively poor, you did extremely well. And vice versa,
Speaker 1: if you invested if they're really well. So the fact
Speaker 1: that now we've had a pretty much as you say that,
Speaker 1: minor exceptions here and here we've had a running bolt
Speaker 1: market since two thousand and eight. It's getting a bit old.
Speaker 1: And so I would say probability wise now investing over
Speaker 1: the next five, ten years, fifteen years has become at
Speaker 1: the at this point has become much less attractive. Just
Speaker 1: some straight statistics and numbers and and that's just the reality.
Speaker 1: It's not a forecast. So I just put to put
Speaker 1: that in perspective. And my advice, especially when they speak
Speaker 1: to younger people, always is putting party of money long
Speaker 1: term in the market is a good idea, but try
Speaker 1: to but it's best to do it when everybody hates
Speaker 1: the market. It's much less attractive when you've been on
Speaker 1: a low long, long long bull market like we are now.
Speaker 1: So yeah, I don't know, could could then you could
Speaker 1: end next week, could then two years when I don't know.
Speaker 1: But I would just say the probabilities now are much
Speaker 1: less favorably skewed than they would have been. You know
Speaker 1: what's earlier on So you're you're touching on one of
Speaker 1: my pet peeves, and and so let's talk about this.
Speaker 1: You know, when we look at these long term bull
Speaker 1: markets following World War Two is forty six to about
Speaker 1: sixty six um following the inflation and oil embargo in
Speaker 1: the sixties and seventies. The new bull market started in
Speaker 1: eighty two and ran to two thousand. But in in historically,
Speaker 1: when we look at these bull markets, we don't date
Speaker 1: them to the bottom of the prior low. We we
Speaker 1: date them to when the market breaks out from that
Speaker 1: prior long trading range. So the Dow kiss the thousand
Speaker 1: and sixty six, it didn't get over on a permanent
Speaker 1: basis till eighty two. We we don't date apple market v.
Speaker 1: Four bear market lows. Why is everybody so fixated on
Speaker 1: March O nine? That's the low of arguably a thirteen
Speaker 1: year long secular bear market that started in March two
Speaker 1: thousand and it ended in March when markets got over
Speaker 1: and above that trading range. Does that make any difference
Speaker 1: to how you look at markets? Am I being a
Speaker 1: little pen pedantic here or you know, everybody just seems
Speaker 1: so hyper focused on March O nine. Well, what it
Speaker 1: has to do with, you know, the point I just
Speaker 1: making before is is what the prior record was, so, uh,
Speaker 1: you know, from from that point forward, years work now,
Speaker 1: so you have a long period of favorable returns and
Speaker 1: and that's the type of statistic when I'm looking at
Speaker 1: what the market do in the past thing or fifteen
Speaker 1: or twenty years, that's the type of statistic that that
Speaker 1: would be relevant. That's a type of statistic that's gonna
Speaker 1: look strong. It's not the fact just that it was
Speaker 1: the bottom. It just happens to be that for a
Speaker 1: long period of time the market has had very, very
Speaker 1: above average returns. Huh. Quite interesting. And then the curve
Speaker 1: ball question I have to ask you before we get
Speaker 1: to our favorite questions is simply, are we going to
Speaker 1: see yet another market Wizard's book after this? Are there's
Speaker 1: still more traders to be uncovered? Yeah, well, there's certainly
Speaker 1: more traders to be uncovered. Uh, but that's not necessarily
Speaker 1: correlative with another market wizars book. So um, whenever I
Speaker 1: finished one of these, I don't anticipate another one, and
Speaker 1: so far always another one I just didn't want to
Speaker 1: and typically no complete reception of the second book, which
Speaker 1: which I did a few years after the first one,
Speaker 1: because the first one was such a big hit and
Speaker 1: I still had a number quite a number of trainer
Speaker 1: as I hadn't gotten to. So I did that those
Speaker 1: only three years upon. But than that, the books have
Speaker 1: been space seven or ten years apart, and I don't
Speaker 1: have to spay do one anywhere in the foreseeable future.
Speaker 1: And I kind of I'm skeptical if I'll do another one,
Speaker 1: but I guess I haven't been right about that in
Speaker 1: the past, so I will make that an absolute prediction.
Speaker 1: Never never say never. Alright, So so let's jump to
Speaker 1: our favorite questions that we ask all our guests, starting
Speaker 1: with tell us what you're streaming these days? Give us
Speaker 1: your favorite Netflix or Amazon Prime shows or whatever podcast
Speaker 1: you're listening to. What's keeping you entertained during the pandemic?
Speaker 1: Sure so, so really strong recommendation here for a UK
Speaker 1: program called Clarkson's Farm, which I like, that enormously entertaining
Speaker 1: about Jeremy Clarkson, who, during the COVID year he owns Farmly,
Speaker 1: it's a big farm in the UK, in the UK,
Speaker 1: and he besides, well why not following himself? So the
Speaker 1: reason I like it one, he is it's just a
Speaker 1: great sense of humor and it underlies the whole show.
Speaker 1: And second, it gives you to appreciate issue that just
Speaker 1: how dawn and difficult farming is. So the combination of that,
Speaker 1: I made that a great series. And then there's one
Speaker 1: I just watched recently, which is which is of a
Speaker 1: one of these eight series type of single story things
Speaker 1: that maybe call it a thrill or whatever, um, but
Speaker 1: really well done, holds consistently way above average. Is a
Speaker 1: typical one, and it's called clickbait. So I would recommend that.
Speaker 1: And oh and recently I this is decades old, probably,
Speaker 1: but I finally got around to Washington. Of course, of
Speaker 1: course they see's uh documentary on on Dylan. It's like
Speaker 1: three half hours long called No Direction Home. And if
Speaker 1: if you're a fan of early Dylan, it's it's a
Speaker 1: high recommendation. And one last one on the podcast. I've
Speaker 1: got a new favorite podcast over the last couple of years,
Speaker 1: and it's called Cautionary Tales and it's by it's Tim
Speaker 1: Tim Harford, whos goes by the name of the cover Economists.
Speaker 1: It's a phenomenal, phenomenally well done show. Uh, he's so
Speaker 1: so many interesting things he pulls up just just not
Speaker 1: only highly entertained. But didn't you if you're interested in
Speaker 1: in um in the pavial economics that really uh, it's
Speaker 1: not it's not educational in that way, but it comes
Speaker 1: out of the story and so to speak. And uh,
Speaker 1: he does a great job in doing the narrative. So um,
Speaker 1: like I said, highly recommended courtionary tales really interesting. Uh,
Speaker 1: tell us about some of your mentors who helped shape
Speaker 1: your career over time. There really is only one mentor
Speaker 1: in my case, and he was a close friend. Unfortunately
Speaker 1: he had a few years the number of years ago
Speaker 1: named Steve Chronowitz. Um. And you won't find anything about
Speaker 1: Steve because he never wrote anything. Uh. Yeah, but Steve
Speaker 1: he when I was back in the day, when I
Speaker 1: was a director of research, he was He was an
Speaker 1: analyst who work for me and he he was the
Speaker 1: technical analysts. All the other analysts for fundamental analysts and
Speaker 1: I and Steve and I shared this large office space
Speaker 1: and so we were friends as well. But I noticed
Speaker 1: that all the analysts they were right, they were wrong,
Speaker 1: you know, lucky to break even, you know, over the total.
Speaker 1: But Steve was the only one who was right more
Speaker 1: than wrong. And this is back in the day. Coming
Speaker 1: out of graduate school for an economic street, I was
Speaker 1: very very skeptical of of of technical analysis. But I
Speaker 1: was open and open mind enough to talk to him
Speaker 1: about it and okay, tell me what you do, and
Speaker 1: and I do him. At first I understood why the
Speaker 1: premise of why technico analysis can work, And to put
Speaker 1: it simply, it's that when you think about it, everything
Speaker 1: that happens in the market, everything that's known about the market,
Speaker 1: every trade that's done in the market shows up in price.
Speaker 1: You can't hide it, right, so we're even insider things.
Speaker 1: It shows up in price. So there's a logic to it,
Speaker 1: this reason why price could be meaningful as a reflection
Speaker 1: of everything that's known about the market. So it's not
Speaker 1: black mumbo jumbo, it's it has a rationaley. That was
Speaker 1: one thing that I understood and learned from him, and
Speaker 1: then he showed me just basic you know, charred analysis
Speaker 1: and more appreciative risk management. So he really he was
Speaker 1: the one who kind of was an influence for me
Speaker 1: that switch over from fundamental technicals. That was where I
Speaker 1: kind of transition from losing to being that profitable. Um
Speaker 1: and I would consider him basically my mentor. M let's
Speaker 1: talk about books. What are some of your favorites and
Speaker 1: what are you reading lately? Okay, ironically, uh, top of
Speaker 1: my list here is the and you had Chaldini and uh,
Speaker 1: uh not that long. I listened a nice podcast with him.
Speaker 1: Uh Influence, the book Influence and Uh. I would say
Speaker 1: that Influence is not just a recommended book. I would
Speaker 1: say it is a a great book, a classic. UM.
Speaker 1: I would say, you know, and I've read a number
Speaker 1: of behavior economics books and his more of a psychology,
Speaker 1: but there's probably as much information in that book about
Speaker 1: useful information about human behavior as any volume I can
Speaker 1: think of. So UM, if you have any interest in
Speaker 1: psychology of human behavior, strong recommendation on Influence. UM. Then
Speaker 1: I've read two books more than its day side recently
Speaker 1: which I which are One is phenomenal called In the
Speaker 1: Kingdom of Ice, which is about the the first x
Speaker 1: US expedition in the nineteenth century to define the North
Speaker 1: Pole by boat where they didn't realize that you couldn't
Speaker 1: do that and they got trapped in one trapped in
Speaker 1: the ice. And it's an incredible narrative, it's a true story. UM.
Speaker 1: It is just a phenomenal read. It's literally one of
Speaker 1: the best books I've ever read. It's called In the
Speaker 1: Kingdom of Ice, and UM kind of another similar historic
Speaker 1: reventure or direct reaction, which I would recommend. It is
Speaker 1: called The River or Doubt, which is about Teddy Roosevelt
Speaker 1: after he lose this has been for a third term
Speaker 1: as president, actually goes off and co co Co has
Speaker 1: an expedition to explore previously uncharted the major river in
Speaker 1: the Amazon. And it's all again a true story and
Speaker 1: kind of you read that, it's amazing the grit of
Speaker 1: that of that man, and and you know what the
Speaker 1: risks he took and uh, and that whole story is
Speaker 1: a pretty incredible one as well. And it's something I
Speaker 1: mean nothing about and it's pretty amazing that it's true.
Speaker 1: So those are some good book recommendations. I literally gave
Speaker 1: a copy of Influence to my nephew who's in his
Speaker 1: early twenties and working as a banker. Yesterday so um
Speaker 1: today is I'm sorry Tuesday. I gave that to him.
Speaker 1: He was he was for the days and I uh,
Speaker 1: it's just a great book to to share with young people.
Speaker 1: The in the Kingdom of Ice looks fascinating. I'm going
Speaker 1: to pick that up. Have you ever It's a great read,
Speaker 1: A great read. Have you ever read Endurance about Shackleton? Yeah?
Speaker 1: And its funny you say that because because people as
Speaker 1: one of my favorite book is and Endurance is my
Speaker 1: favorite book. That's just unbelieving. It's an unbelievable book. It's
Speaker 1: it's just it's nothing like Yeah, but you know, this
Speaker 1: is the thing in the Kingdom in the Kingdom of
Speaker 1: the Ice is the first book I've read that stands
Speaker 1: can stand at the exact same level as Really it's
Speaker 1: that good. Yeah, wow, I'm in count count me in
Speaker 1: for that. Um, what sort of advice would you give
Speaker 1: to a recent college grad who was interested in a
Speaker 1: career as a trader? Oh? Sort of, if interest career
Speaker 1: as a trader? Um, there's well one I think of
Speaker 1: a quote that's the title of one of the chapters
Speaker 1: in this the latest book, which is don't quit your
Speaker 1: day job. So U. On the other hand, something like
Speaker 1: Jeffrey Newman went out to graduated college and went straight
Speaker 1: to training and became an amously successful So there are exceptions,
Speaker 1: but I think that's more of the long shot. And Uh,
Speaker 1: people's perception of what it's how difficult it is to
Speaker 1: succeed as a trader are misplaced. And it's particularly difficult
Speaker 1: if you don't have a real stake in you know
Speaker 1: to fall back on if you've got to you've got
Speaker 1: to pay your rent or something like that, and you're
Speaker 1: depending on making money. That's that's a real big dispantage.
Speaker 1: So so one piece of advice I would say is
Speaker 1: you don't really get serious about a training career until
Speaker 1: you have enough money to be comfortable to take every
Speaker 1: basic pences and and be able to give it a chance. Uh.
Speaker 1: Otherwise it is difficult enough and you're just putting the
Speaker 1: arts too much against you by trying to do it.
Speaker 1: At the same time, you have monetary responsibilities that can't
Speaker 1: be met unless you're making money. And our final question,
Speaker 1: what do you know about the world of trading today
Speaker 1: that you wish you knew thirty or forty years ago
Speaker 1: when you were first getting started in this field. A
Speaker 1: couple Well, the most important thing probably is that of everything,
Speaker 1: risk management is the most important thing, and that was
Speaker 1: certainly something I had didn't understand at all. It's not
Speaker 1: an add on, it's not something that you'll get to.
Speaker 1: It's if you don't have some sort of and it
Speaker 1: doesn't have to be difficult, doesn't have to be complex,
Speaker 1: but if you don't have rigorous risk management, the odds
Speaker 1: of succeeding are very low. So that's something I fully
Speaker 1: that's burned into my bones at this point. But I
Speaker 1: didn't understand it all when I got in. And I
Speaker 1: guess the other thing is is that no matter how
Speaker 1: good you do at any point in time, don't get complacent.
Speaker 1: The market at least has a way of surprising you.
Speaker 1: So I've kind of learned at this point if I'm
Speaker 1: doing really well, I'm probably gonna have a lousy period
Speaker 1: coming up. But you know, you got to learn to
Speaker 1: not assume that you've discovered it because you never do. Uh.
Speaker 1: It's always an ongoing thing. And and like I said,
Speaker 1: the market will always surprise you quite quite fascinating. Jack.
Speaker 1: Thank you for being so generous with your time. We
Speaker 1: have been speaking with Jack Schweger, author of about eight books,
Speaker 1: most recently Unknown Market Wizards, the Best Traders You've Never
Speaker 1: Heard of. If you enjoyed this conversation, well be sure
Speaker 1: and check out any of our previous almost four hundred
Speaker 1: prior discussions. You can find those at iTunes, Spotify, wherever
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Speaker 1: weekly column on Bloomberg dot com slash Opinion. Follow me
Speaker 1: on Twitter at Ritholtz. I would be remiss if I
Speaker 1: did not thank the crack team that helps these conversations
Speaker 1: come together so nicely each week. Charlie Volmer and Tim
Speaker 1: Harrow are my audio engineers because this particular podcast required
Speaker 1: two engineers. Paris Wald is my producer. Uh Tico val
Speaker 1: Bron is our project manager. Michael Batnick is my head
Speaker 1: of research. I'm Barry Hults. You're listening to Masters in
Speaker 1: Business on Bloomberg Radio.