Summary
Highlights
Ed Gotham introduces Jack Schwager, author of the Market Wizard series, who is back to discuss his new book, "Unknown Market Wizards." The book highlights the strategies of highly successful, yet previously unknown, traders.
Jack explains that while the strategies of these traders vary, common traits include extreme discipline, strong risk management, and a focus on trades where potential gain significantly outweighs risk. They patiently wait for opportune moments rather than trading constantly.
Schwager discusses his motivation for this book, which was to find successful solo traders who manage their own accounts, unlike the hedge fund managers featured in his previous "Hedge Fund Market Wizards." He was surprised to find performances comparable to those in his first 1980s book, despite market changes and increased computing power.
Jack introduces Amrit Sall, dubbed the 'Unicorn Sniper,' known for his extraordinary discipline and mental preparation. Sall specializes in event trading, meticulously planning for various outcomes around announcements and drawing on extensive logs of past trades. He utilizes techniques like meditation to maintain a 'deep now' mental state.
Sall has adapted his event trading strategy to the age of algorithmic trading, focusing on post-initial reaction moves rather than being faster than machines. He takes large positions but manages risk by exiting trades immediately if they don't move in his favor, demonstrating exceptional quickness. He famously only had one double-digit loss in his career due to a computer malfunction.
Sall's success is tied to his patience and ability to avoid 'marginal trades,' waiting instead for 'unicorn trades' that offer highly asymmetric risk-reward. He learned that taking unnecessary trades can distract him from truly excellent opportunities.
Jack introduces Jeffrey Newman, a trader who started with $2,500 and amassed over $50 million. Newman's strategy revolves around identifying and capitalizing on emerging trends in innovative industries, often in penny stocks, by being 'early' in every aspect of his trades.
Newman looks for stocks that have experienced a large decline or extended sideways movement, exhibit a product or service with significant upside potential (often generating hype), and have a clear catalyst. He also focuses on sectors he defines as primed for growth and personally investigates products.
Newman has an uncanny ability to exit positions at opportune times, sometimes seemingly due to 'luck,' but always combined with swift action based on his instincts. He uses a 'golf indicator' where he considers it time to exit when general acquaintances, not typically involved in finance, start discussing a particular stock or trend.
Newman pyramids his positions as his conviction grows, buying more as liquidity increases and the stock gains traction. He maintains tight risk management even with added positions, exiting quickly if a breakout fails, preventing gains from turning into losses.
Newman's edge lies in his observational skills, ability to spot early trends, and precise timing. He combines technical analysis with fundamental research, including trying products and engaging with company leadership, akin to Peter Lynch's approach of 'trade what you know'.
Schwager believes trading success is a blend of hard work (developing methodology, discipline, risk management) and innate talent. While anyone can improve, exceptional performance often requires a degree of natural aptitude, much like an Olympic runner needing the right body type in addition to training.
For novice traders, Schwager recommends reading widely to explore different ideas, then paper trading to test methodologies without financial risk. It's crucial to identify what resonates personally and keep a rigorous trading log to learn from mistakes and refine strategies, as a copied strategy rarely works for everyone.
Schwager highlights Sall's view that seeking a monthly paycheck is a detrimental mindset for traders. This pressure often leads to taking suboptimal trades when opportunities are scarce, aggravating losses instead of contributing to consistent gains. He quotes Peter Brandt: 'The market is not an annuity.'