Archives of “Jack D. Schwager” tag

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Who Really Beats the Market?

  
  Education
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Survivorship bias, or survival bias, is the logical error of concentrating on the people or things that “survived” some process and inadvertently overlooking those that did not because of their lack of visibility. This can lead to false conclusions in several different ways. – Wikipedia

There is survivor bias in looking at trading and investing performance and then there are the traders and investors that have an edge. People with an edge end up with the losses of those that rely on luck for profits.

This article is from an edited transcript of a talk given at Columbia University in 1984 by Warren Buffett.

Investors who seem to beat the market year after year are just lucky. “If prices fully reflect available information, this sort of investment adeptness is ruled out,” writes one of today’s textbook authors.

Well, maybe. But I want to present to you a group of investors who have, year in and year out, beaten the Standard & Poor’s 500 stock index. The hypothesis that they do this by pure chance is at least worth examining.

I would like you to imagine a national coin-flipping contest. Let’s assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar. They go out in the morning at sunrise, and they all call the flip of a coin. If they call correctly, they win a dollar from those who called wrong. Each day the losers drop out, and on the subsequent day the stakes build as all previous winnings are put on the line. After ten flips on ten mornings, there will be approximately 220,000 people in the United States who have correctly called ten flips in a row. They each will have won a little over $1,000.

Now this group will probably start getting a little puffed up about this, human nature being what it is. They may try to be modest, but at cocktail parties they will occasionally admit to attractive members of the opposite sex what their technique is, and what marvelous insights they bring to the field of flipping. (more…)

42 Ways To Trade Like A Market Wizard

  
  Education
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What if you could read the principles for success for some of the world’s greatest traders? Well you can, here is how author Jack Schwager summed up the the similarities of the ‘Market Wizards’ he spent years interviewing in his second book.

The following is a summarized excerpt from Jack D Schwager’s book, The New Market Wizards. I highly recommend this book for all active traders.

  1. First Things First
    You sure you really want to trade ? It is common for people who think they want to trade to discover that they really don’t.
  2. Examine Your Motives
    Why do you really want to trade ? Did you say excitement ? Then don’t waste your money in market, you might be better off riding a roller coaster or taking up hand gliding.
    The market is a stern master. You need to do almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you start.
  3. Match The Trading Method To Your Personality
    It is critical to choose a method that is consistent with your your own personality and conflict level.
  4. It Is Absolutely Necessary To Have An Edge
    You cant win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.
  5. Derive A Method
    To have an edge, you must have a method. The type of method is not important, but having one is critical-and, of course, the method must have an edge.
  6. Developing A Method Is Hard Work (more…)

Active Traders-Must Read These 42 Points

  
  Education
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What if you could read the principles for success for some of the world’s greatest traders? Well you can, here is how author Jack Schwager summed up the the similarities of the ‘Market Wizards’ he spent years interviewing in his second book.

The following is an summarized excerpt from Jack D Schwager’s book, The New Market Wizards. I highly recommend this book for all active traders.

  1. First Things First
    You sure you really want to trade ? It is common for people who think they want to trade to discover that they really don’t.
  2. Examine Your Motives
    Why do you really want to trade ? Did you say excitement ? Then don’t waste your money in market, you might be better off riding a roller coaster or taking up hand gliding.
    The market is a stern master. You need to do almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you start.
  3. Match The Trading Method To Your Personality
    It is critical to choose a method that is consistent with your your own personality and conflict level.
  4. It Is Absolutely Necessary To Have An Edge
    You cant win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.
  5. Derive A Method
    To have an edge, you must have a method. The type of method is not important, but having one is critical-and, of course, the method must have an edge.
  6. Developing A Method Is Hard Work
    Shortcuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple failures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of professionals. Why should you be any better ? If it were that easy, there would be a lot more millionaire traders.
  7. Skill Versus Hard Work
    The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may provide proficiency, but not excellence.
    Virtually anyone can become a net profitable trader, but only a few have the inborn talent to become supertraders ! For this reason, it may be possible to teach trading success, but only upto a point. Be realistic in your goals.
  8. Good Trading Should Be Effortless
    Hard work refers to the preparatory process – the research and observation necessary to become a good trader – not to the trading itself.
    “In trading, just as in archery, whenever there is effort, force, straining, struggling, or trying, it’s wrong. You’re out of sync; you’re out of harmony with the market. The perfect trade is one that requires no effort.”
  9. Money Management and Risk Control
    Money management is even more important than the trading method. 

(more…)

Trading Quotes from Way of Turtle by Curtis Faith

  
  Education
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Dont spent all your time admiring the fancy tools in the magazine.
First learn how to use the basic ones well. Its not the size of your tools that counts but how you use them.
Keep it simple. Simple time-tested methods that are well executed will beat fancy complicated method every time.
Trading with poor methods is like learning to juggle while standing in a rowboat during the storm. Sure, it can be done, but it is much easier to juggle when one is standing on a solid ground.
Trading is not a sprint; it is boxing. The market will beat you up, screw with your head, and do anything it can to defeat you. But when the bell sounds at the end of the twelfth round, you must be standing in the ring in order to win.
The market does not care how you feel. It will not prop up your ego or console you when you are down.
Therefore, trading is not for everyone. If you are unwilling to face the truth about the markets and the truth about your own limitations, fears and failures, you will not succeed. (more…)

Recommended Reading

  
Analysis, Education
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1. How to Make Money in Stocks  (by William J O’Neil)

This is the best stock market trading book ever written. It gives you an excellent blend of technical and fundamental analysis lessons based on what really works in the market. The strategies, methods and principles taught in this book are proven historically. This book covers a lot of ground and provides an excellent foundation to build your successful trading plan and begin your investment career.


2. Reminiscences of a Stock  Operator  (by Edwin Lefevre) 1923

An all time classic. This is the most widely read, highly recommended market trading book ever. Its certainly a must read for all investors, novice or experienced. Packed full of great trading knowledge. This book is full of market gems.


3. The Battle For Investment Survival  (by Gerald Loeb) 1935

Another all time classic. Great trading wisdom can be extracted from this book. Learn to trade stocks from one of the best. Loeb is truly a market genius. Reading this book would be a great investment in your future as a trader or investor. 


4. Market Wizards  (3 books by Jack D. Schwager)

Three excellent books that feature interviews of the world’s greatest traders and investors. The books ask questions that traders and investors would love to ask these superstars of trading. The answers given are a fantastic wealth of knowledge. Covers the stock market, futures, options and most other trading venues in the investment world.


5. Lessons From the Greatest Stock Traders of All Time  (by John Boik)

Five great stock market traders from various eras give you superb lessons on how to be a consistent winner. William J O’Neil, Gerald Loeb, Bernard Baruch, Jesse Livermore and Nicolas Darvis turn this book into a trading bible. Learn from the best and become a market superstar in the investment world. (more…)

“What advice would you give to a novice trader?” by Jack D Schwager

  
  Education
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This was taken from the book “The New Market Wizards”, it’s one of the questions posted by Jack D Schwager to Gil Blake. And this was his answer:
“There are five basic steps to becoming a successful trader.

  • First, focus on trading vehicles, strategies, and time horizons that suit your personality.
  • Second, identify non-random price behaviour, while recognizing that markets are random most of the time.
  • Third, absolutely convince yourself that what you have found is statistically valid.
  • Fourth, set up trading rules.
  • Fifth, follow the rules. In a nutshell, it all comes down to: Do your own thing (independence); and do the right thing (discipline).”
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