The Market Wizards

Except for my tin position, most of my positions are down for the beginning of 2022. I have been preparing for corrections between 30-50% and how to deal with them. Nothing has changed fundamentally with the uranium thesis and I am staying the course. I have a very small cash position, and I am keeping it on the sidelines to be more aggressive if we see further weakness in the market.

I want to quickly comment on what we saw with Facebook on Wednesday after the market closed. The company went down over 20% in the after market on disappointing numbers. As an investor who exited the tech sector way too early, I have seen this as a possibility for a long time. Valuations decide everything. Expensive companies that do not deliver results can experience sharp drops that look very similar to the moves we see in the commodity sector. With 20% loss in a day, and nearly $200 billion gone, the general market is paying attention. Stock and sector selection will maybe have a higher priority going forward.

The Market Wizards

When you start investing there are several books one can choose to read to increase one’s knowledge. Off the top of my head “The Intelligent Investor” on valuation and “One Up On Wall Street” for a very accessible book on stock selection are two must reads. There are also countless books about trading and investment strategies, options, position sizing and investment psychology among others, but I am not going to talk about them today.

The books I come back to at the moment are The Market Wizards books by Jack D. Schwager. He has interviewed some of the most successful traders in several different markets, known or unknown. You are not given a cookie cutter approach to the market, but you get an insight into many investors and traders’ approach to the market.

For me the books have always been great at showing that there is more than one way to make money in the markets. You hear very different strategies and goals, and if you want to reach your goals you have to be aware of this. You also have to know yourself and what kind of investor you are. 

If you do not like to see big drawdowns, you will probably want to trade with tight stop losses and rather take many small bets and get stopped out of the ones who do not go your way. If you can stomach volatility without losing sleep at night, you can invest without a set stop loss and have fewer trades.

Investors and traders can have very different time horizons. Some traders have trades that last a couple of minutes while some investors have trades that last several years. For both parties it is important to stick to their strategy. A trade that is meant to be short should not turn into a long one and vice versa. What is a commonality among the market wizards is that they always regret breaking their own rules.

Another thing you can observe is the difference in knowledge of the participants in the market. Some know the sector and all their companies in detail. Others know a lot about the sector, but only buy futures and trade the specific commodity of currency. We also have purely technical traders who do not know the sector or companies. They only trade on information the charts are giving. A purely technical trader can outperform an investor that knows everything about a sector or company. It all depends on their execution.

Some traders only operate in a very liquid market. Very often it is because they are a big player, a whale, and want to enter and exit a position without too much trouble. For me, I look for the opposite. I am a small fish and my strategy is to enter the market before the whales arrive. I want their entry into the sector to move the price up. I want the bigger players to come in and help increase the liquidity over time. My plan is then to exit over time when the price is substantially higher. (This is easier said than done).

There are several other lessons to take from these books, and I have probably forgotten some very important ones. The biggest one for me is in any case that you have to make your strategy work for you and your temperament. This post is just meant as a taste of what you can get from the books. I am going over them for the second time around now, and still have to stop and take notes. If some of you have other books to recommend, please tell me so I can add them to my “to read” pile.

Leave a Reply