From the October 01, 2012 issue of Futures Magazine • Subscribe!

Hedge Fund Market Wizards: How Winning Traders Win

Hedge Fund Market Wizards: How Winning Traders Win
By Jack D. Schwager
John Wiley & Sons, Inc.
$40.00; 526 pages

Jack Schwager’s newest book is his fourth in the “Market Wizards” series that showcases interviews with top traders who have racked up double-digit annual returns over many years with outstanding risk/return ratios.  

His first two books, Market Wizards (1989) and The New Market Wizards (1994), have been acclaimed by thousands of readers and traders over the years. His third book, Stock Market Wizards (2000), is less well-known and not nearly as insightful as the other two. I have read each book and used key concepts and strategies to improve my trading. Now, Schwager has focused on hedge fund traders, many of whom will not be known to readers, because a number of them are based outside the United States.

The book is divided into three parts: Macro Men, Multistrategy Players and Equity Traders (seven traders profiled). I would like to have seen other U.S. hedge fund traders profiled if they met Schwager’s criteria for inclusion including John Paulson, James Chanos, Steven A. Cohen and Clifford S. Asness. Perhaps they will be included in a future Schwager book. 

This book is Schwager’s most comprehensive work, extending to 526 pages covering 15 traders. Most readers will be familiar with the names of two of them: Ray Dalio of Bridgewater, and blackjack expert Edward Thorp. I was surprised that Thorp was included, as his background and trading approach have been covered in other books and will not be new to some readers.

Schwager follows the same format in all of his books. First he provides an overview of the interview followed by detailed information on the background of each trader, why and when he/she got started and his/her current status. Then, he focuses on uncovering the trader’s trading approach, rules and experience. Last, he provides summary comments and insights on the trader’s approach.

Interestingly, each of the interviewees has a different trading approach, style and timeframe, but they all are highly successful and adapt their trading to market conditions. They all realize that changing market conditions require adjustments; otherwise the results could be disastrous.

Schwager points out that every trader needs to develop his/her own trading approach that fits his/her own personality. No one can really copy the methodology of the top traders and be successful, as there are too many critical variables that cannot be emulated exactly. It is clear that hard work and a passion for markets are critical elements to achieve trading success. No trader will succeed with a half-hearted effort or by taking short cuts.

If you are looking for trading secrets in this book, then you will be disappointed. No trader is willing to give away his/her methodology. But read this book with a pad and pen handy as you will want to note key trading nuggets that are provided throughout.

One useful feature is the 40 key trader lessons compiled in the last chapter. This is a shortcut to some of the key elements of successful traders.

The book is great for newbies, seasoned traders and investors who want to gain insight into how the best traders operate and make their money. The high points of the book were the interviews with Ray Dalio and Jimmy Balodimas. A bit too much ink was spent on the very early background of the traders.

For trading wisdom, the “Market Wizards” series continues to be one of the best out there. This book provides another set of successful traders who are willing to talk about their approach. The book’s friendly conversational style makes it feel like you are sitting in the room with each trader. Thankfully, Schwager is back.

Leslie N. Masonson is the author of Buy DON’T Hold and All About Market Timing, (Second Edition). Reach him at lesmasonson@yahoo.com.

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