Disclaimer - I have no commercial, monetary or any other interest, other than information, in anything I review. All views, opinions and comments belong entirely and exclusively to the reviewer.
The Market Wizards
Conversations With America's Top Traders
© 1989 by Jack D. Schwager published Harper Collins.
Note : This book consists of several interviews conducted by the author and top traders. I have decided to review each interview in turn because each has a different context and personality.
Bruce Kovner
Starting in futures with just 3,000 USD, before his retirement in 2011, Kovner was at various times one of the largest currency traders in the World in the interbank and futures markets at one point handling over 650M USD of other peoples money.
Investing in one of his hedge funds with 2,000 USD in 1978 would have turned it into 1M USD 10 years later!
Due to changes such as the birth of the Euro and the simultaneous death of many of the European currencies, this interview feels dated. However ,the principles Kovner speaks of are, in my view, still pertinent.
Kovner is first and foremost a fundamentals trader. He acknowledges the value of technical patterns but insists the best trades are where fundamentals are supported by technical conditions.
One of his earliest trades, which incidentally made money, taught him the value of Risk and emotional management.
Was getting out of your entire position immediately after your broker called to tell you the market was limit-down a matter of panic, or do you think you had some instinctive common sense about controlling risk?
“I'm not sure. At that moment, I was confronted with the realization that I had blown a great deal of what I thought I knew about discipline. To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event.”
In another question on risk management he has this to say :
....and the price starts to move against you—that is, back into the range. How do you know when to get out? How do you tell the difference between a small pullback and a bad trade?
“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. For example, if the market is in the midst of a trading range, it makes no sense to put your stop within that range, since you are likely to be taken out. I always place my stop beyond some technical barrier.”
Interestingly, Kovner tells us that at his size of trading the stops are not on the floor. In other words they are not hard but they are not mental stops either and are known and exercised by those executing his trades. Reviewer – remember this is when pit traders did most of the action.
Kovner started trading other people's money (OPM), when he joined Commodities Corporation where he was given an initial stake of 35,000 USD.
At Commodities Corporation he met Michael Marcus (reviewed previously) and he says he learnt some subtle but very important lessons from him.
“He taught me that you could make a million dollars. He showed me that if you applied yourself, great things could happen. It is very easy to miss the point that you really can do it. He showed me that if you take a position and use discipline, you can actually make it.”
It sounds like he gave you confidence.
“Right. He also taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.”
Emphasis by reviewer. Regular mistakes are OK! Kovner says losing money does not trouble him
unless it is due to poor money management. In other words he is OK taking a hit as long as he has followed his management rules.
He says trading skills are difficult to impart to others having tried to do it with over 20 people himself.
Reviewer – This assertion necessarily begs the question is the deficit component his teaching skills or the ability of the learners to understand what he was teaching ?
On the question of following trading recommendations of others as a trader he has this to say:
Do you think people can trade profitably by just following the gurus?
“Probably, but my impression is that to make money, you have to hold a position with conviction. That is very difficult when you are following someone else….”
Reviewer - Clearly, he feels following your own instinct is preferable because you will have greater conviction in your analysis than in that of someone else.
Kovner has one killer response to a question on whether or not great traders have special talent.
Do you feel great traders have a special talent?
‘In a sense. By definition, there can only be a relatively small group of superior traders, since trading is a zero-sum game.’
Reviewer –
This suggests we cannot all be great traders because someone has to lose. Question is are you a great trader or a loser ?
Finally when asked about advice for novices he says:
“First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position
ought to be, cut it at least in half. My experience with novice traders is that they trade three to five
times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2
percent risks.”
Besides overtrading, what other mistakes do novice traders typically make?
“They personalize the market. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn't care whether you make money or not. Whenever a trader says, "I wish," or "I hope," he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process.”
Overall I thought Bruce Kovner came across as passionate about trading, clearly a very important as a trader but somewhat lacking in personal interest for me.
He did not spark any feeling of – I can do that, I want to do that or I want to be like him.
Key lessons I took from what he has to say :
1) Understand and respect risk and money management
2) Understand correlation and it’s impact on your trading
3) Be strong minded
4) Be an independent thinker
5) Be prepared to take contrary positions to common opinion even if that means making mistakes
6) Be a disciplined trader
Charles
A library mainstay ? 3 / 5 Stars
Easy to read ? 3 / 5 Stars
Any practical applications ? 3 / 5 Stars
Overall personal recommendation 3 / 5 Stars
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