Jack Schwager’s career runs from pre-financial futures markets to author of the Markets Wizard books to an online start-up today. As the recipient of the CTA Expo’s 2105 Lifetime Achievement Award in New York in April, he spoke with Jim Kharouf, editor-in-chief of John Lothian News about what he knows about about top traders and his new venture, Fundseeder, an online platform for the next generation of market wizards.
For Schwager, top traders don’t just post profits, but have great risk management as well.
“It doesn’t have to be complicated at all,” Schwager said of risk management systems. “Most risk management can be achieved with some very, very simple rules.”
Schwager outlined several keys such as: don’t risk more than a very small percent of your capital on each trade, don’t risk more than a certain percent of your portfolio and if you hit that amount you stop trading and take a break, and keeping track of correlations.
“That gets you very far,” he said.
Schwager has interviewed many of the best traders in the world with his books, Market Wizards (1989), The New Market Wizards (1992), Stock Market Wizards (2001), Hedge Fund Market Wizards (2012), and The Little Book of Market Wizards (2014). He said one common quality for top traders is simply, honesty, the ability to objectively and truly look at their trading. He recalled Stanley Druckenmiller, the legendary fund manager who was long heading into the 1987 market crash. Over the weekend he recognized his mistake and moved quickly to exit his position and limit losses.
“When they recognize that something’s changed and they are wrong, they’ll act on it,” he said. “They’re not going to say “I really believe I’m still right.” They are willing to see reality and accept the facts as they are.”
Today’s markets may look like they are changing daily, getting more electronic, more global, faster and more automated. Yet, Schwager said that they are in many ways the same as they always were.
“There are some big, big changes,” he said. “Yet, ironically, in some way the markets are still the same. Why that is true is because the one thing that never changes is human nature, and the natural tendencies that humans have fear, or are greedy; to express those emotions in the market and that causes certain repetitive patterns. You have bubbles and crashes.”
Schwager, who has also spent time as a fund advisor and director of research for Wall Street firms, is now turning his attention to a new start-up created by Emanuel Balarie, CEO of Fundseeder, a platform that finds undiscovered trading talent globally and helps pair them with sources of investment capital.
“Think of it as a web search for trading talent,” he said. “Our goal is to become the meeting place between undiscovered trading talent, or discovered trading talent, and investors looking for new trading talent.”
Performance is based on real numbers that come from the broker, which means the returns are verified. Traders will also receive tools as well that help with analytics – charting rolling returns and drawdowns, Monte Carlo simulations for risk, along with other instruments.
“We think it has the potential to be disruptive to the industry,” he said. “For a third party marketer, it’s hard to compete against that. Our hope is that this will become a key medium for investors to find trading talent.”