Tuesday, January 27, 2009

Michael Marcus: Market Wizard

So, this will be the first book club post... it's very sloppy, but I wanted to get it up anyway.


The book I'm currently reading is a trading classic, Market Wizards, and the first chapter discusses the futures trader Michael Marcus.

Now, you could argue that Market Wizards is a bit like watching 1970s porn. Why would you do it? People didn't "shave" back then for chrissakes and the sound editing was awful. But Michael Marcus wasn't a porn star and the market hasn't changed nearly as much as the porn industry has.

Anyway, I'm not going to summarize the chapter or anything, because that would be boring. Instead, I'll just point out the things I found interesting.

First of all, the dude lost consistently for the first couple of years.  I thought of Dr. Suess, sending his books out to like 60 publishers and getting rejected by them all before becoming a huge success.  

The moral is, if you love something, keep trying.  However, don't expect it to be easy. 

I mean, the guy lost a lot of money... money he borrowed from his Mom even. And things didn't really turn around for Mr. Marcus until the market hit a wild inflationary run in the mid 70s.  I thought that was interesting too... the market always has active periods.  Like, take September to December for example of 2008.  The RO cleaned up, made loot.  Periods like that are what you have to take advantage of.  There are lots of dry spells where you can lose your ass if you're not careful... a good trader needs to take advantage of opportunity when it is present.  And don't discount luck.

Marcus kept trying, took advantage of a good market, gained confidence, and became successful.

But he didn't do it all on his own.  He had a legendary trading mentor, Ed Seykota (Rudy, you still out there?) who helped him early on.  However, despite that, he said the following, which I agree with:

You also have to follow your own light.  Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose.  Every trader has strengths and weaknesses.  Some are good holders of winners, but may hold their losers a little too long.  Others may cut their winners a little short, but are quick to take their losses.  As long as you stick to your own style, you get the good and the bad in your own approach.  When you try to incorporate someone else's style, you often wind up with the worst of both styles.  I've done that a lot.


He also claimed that trend following systems were "doomed to mediocrity."  He said this sometime in the 80s I guess.  Clearly, trend following systems haven't gone away.  I think the thing about this that I want to highlight is that the market changes less than our relation to it.

Another thing, and this I point out for my friends who have been successful, he mentions how he was an awful investor.  I can't tell you how many trading friends I've seen make a lot of money and then squander it on bad investments, including me.  Look, if you're a good trader and have made a lot of money, don't lose respect for that money.  Save it.  You'll need it someday.  Don't go investing in bullshit.

Now, it's not like you get many exact trading rules from Market Wizards.  It's really more a book about personalities and fun trading stories.  However, I did find one rule that you can take out of the Marcus interview.  It applies to all time frames and is especially important in our current market.

You absolutely want to put down a [short] bet when a market acts terribly relative to everything else.  When the news is wonderful and a market can't go up, then you want to be sure to be short.


Also, I thought the following was right on when asked about what makes a good trader...

His objectivity. A good trader can't be rigid. If you can find somebody who is really open to seeing anything, then you have found the raw ingredient of a good trader.


Finally, in a touch of psychology that Trader X and Attitude Trader would enjoy, Marcus claims that, "in the end, losing begets losing. When you start losing, it touches off negative elements in your psychology; it leads to pessimism."

So, this is why I like Market Wizards. I mean, Michael Marcus traded the commodity markets in the 1970s yet you can still find lots of wisdom in this interview that pertain to trading the stock market today. In fact, you can take this wisdom and apply it to any market you trade.

Next Tuesday, I'll "discuss" the Bruce Kovner interview.  Carry on.

20 comments:

Ilya and Nicole said...

nice post... i especially like your own voice shining through instead of a boring re-hashing of the whole chapter.

Why the surpise that there's actually some value to Market Wizards which is such an old book? I have found that the best, most "current" trading advice is the stuff that is timeless - like Reminiscences of a Stock Operator, and like some of the Market Wizards interviews.

Ilya and Nicole said...

also sorry bout today scum. lets make size tomorrow

Dinosaur Trader said...

Ils,

I was just making a joke. Markets are timeless since human nature is never changing.

However, one can argue that the 1970s were a little fucked up. Remember that dude with the rainbow afro at all the sporting events?


-DT

JMJAtlanta said...

I just picked this book up again the other day. Great reading.

Pete said...

schwager's books are great for inspiration.

i went to college party as 'rainbow afro guy w/ biblical t-shirt reference'. ended gettin in a fight w/ 4 footballs fatnecks- they were outside the party shouting- 'send out the clown-man'

Pete said...

http://img240.imageshack.us/img240/2821/rollenstewart0hn.jpg

Trader-X said...

It may be blasphemy, but I have never read it. I plan on picking up a copy in the next few days.

Thanks for a good post.

Dinosaur Trader said...

Pete,

That's awesome... bring out the clown man. Let's get some more details though. How'd you piss the dudes off?

X,

Well, like I mention in the post, it doesn't really get to the nuts and bolts of trading... it's really more for inspiration and you seem to have plenty of that already. But it's not bad to pick it up.

-DT

Anonymous said...

you've gone to another level dude, great stuff

Trader-X said...

You can never have enough inspiration!!!!!

Anonymous said...

I'm pissed. Why is the market acting so gay?

Dinosaur Trader said...

We're just smack dab in the middle of a range. It is very, very gay.

Best case scenario for the day is we base here until 2pm and then bust the morning highs and have an afternoon run.

-DT

mdawsz said...

The market is a flaming queer.

StockHunter said...

Nice post! I might be getting the book later today :).

Pete said...

was a few buddys' apt -hosting a halloween party- think they were underclassmen fatnecks who tried to push thru w/out paying. usual beer muscles.

funny thing was - cause of the wig - they never knew who i was and saw them at other parties/bars thru the year. 'clown man/john3:16' getup saved me a ass whoopin.

Attitude Trader said...

I've had Market Wizards and The New Market Wizards forever - they're pretty ragged now. Totally entertaining.

The biggest thing I got from them was the understanding (as you related here) that there are literally as many different ways to trade the markets as there are traders to trade them. You have to find your own approach.

Great post.

-AT

Complacent Panda said...

I know I posted something. Fuck. What's wrong with blogger...

Anyway, despite being unshaven (or perhaps it's like Samson, somehow), this book kicks ass.

Oh, you did a much better job at the quotation and discussion thing. Next time I post something from the book I may just post a quote of your discussion and quote. It'll work out a lot nicer for me.

Cheers!

rudy said...

Yes, I am still here, but on the outside looking in. Nice post, as always.

Dinosaur Trader said...

Thanks, Rudy.

You took your blog down? I was looking to link it with the Ed Seykota mention.

-DT

rudy said...

I set it to private. Wanted a break form blogging. Thanks for the thought. Rudy