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Marty Schwartz: Market Wizards Interview Insights

In our follow up to last week's post, Marty Schwartz ("Pit Bull") speaks at Amherst College, today we bring you something old and new. 

From Jack Schwager's original Market Wizards (1989) comes an interview with Marty Schwartz, "Champion Trader". We'll provide you with some quotes and insights from Schwartz's interview, but I also encourage you to get a copy of the book and read it cover to cover, if you haven't already. 

On to the good stuff. Here is an excerpt from Jack Schwager's intro to the discussion: 
Market Wizards Jack Schwager Martin Schwartz
"I interviewed Marty Schwartz at his office after trading hours. I found him to be very opinionated and intense about the subject of trading. This intensity occasionally spills over into anger when a raw nerve is hit (such as program trading). In fact, Schwartz readily admits that he finds anger a useful trait in trading. None of this "going with the market flow" philosophy for Schwartz. In his view, the marketplace is an arena and other traders are the adversaries.
I was also struck by Schwartz's dedication to his daily work routine. He was doing his market analysis when I arrived and continued to run through his calculations during our interview. When I left that evening, his analysis was still unfinished. Although he appeared very tired, I had no doubt that he would finish his work that evening. Schwartz has followed his daily work routine religiously during the past nine years.
Schwartz spent a decade losing money on his trading before he found his stride as a remarkably successful professional trader. During his earlier years, he was a well-paid securities analyst, who, as he describes it, was always broke because of market losses. Eventually, he changed his trading methodology, in the process of transforming himself from a repeated loser to an amazingly consistent winner..."

Now as Schwartz admits at the outset, his early years of trading were not his first source of difficulty. Having been a hard worker and excellent student since childhood, he was surprised to find himself facing difficulty at college. After righting the situation and improving his grades, he graduated with a new found appreciation for learning and went on to Columbia Business School. 

Schwartz was unhappy at Columbia and decided, during the height of the Vietnam War, to join a Marine Corp reserve unit. He recalled the intense pressure that came with the training procedure, including some unpleasantness that stemmed from his being the only Jew in the Officers Candidate School. However, he persevered and made it through successfully. 

As time passed, the pain of the experience faded and a sense of achievement took hold. This is how Marty Schwartz recalled his experience: 

"The rigorous Marine training gave me the confidence to believe I could perform at levels beyond my previous expectations. Just as Amherst had strengthened my mind, the Marines strengthened my body. The two experiences convinced me that I could do almost anything if I worked hard enough and provided the groundwork for my successful trading. That's not to say that it worked right away, because it didn't."

After completing his MBA, he took an analyst job on Wall Street. By 1973, Marty was (for reasons mentioned in the interview) becoming more interested in trading the markets and studying technical analysis than in hammering out his research reports. 

After a couple of job switches, he met someone who would have a profound influence on his life and his trading: his future wife. She made Marty realize that this life is not a dress rehearsal and that he had better make something of himself. By 1978, Marty had decided "it was now time to be successful.".

Jack Schwager asked Marty Schwartz, "When did you turn from a loser to a winner?". Schwartz responded: 

"When I was able to separate my ego needs from making money. When I was able to accept being wrong. Before, admitting I was wrong was more upsetting than losing money...

...When I became a winner, I said, 'I figured it out, but if I'm wrong, I'm getting the hell out. I want to save my money and go on to the next trade.' By living the philosophy that my winners are always in front of me, it is not so painful to take a loss."

This theme of money management and risk control was stressed in Schwartz's talk to Amherst students. As he said to the assembled group of future investors, "Why do most traders lose money? Because they'd rather lose money than admit they're wrong."

Although Marty continued to work as a fundamental analyst during his transition into trading, his trading methodology had become almost purely technical. When asked about his shift to technical analysis, Marty replied: 

"I always laugh at people who say, 'I've never met a rich technician'. I love that! It's such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician."

Sometimes it's better to let go of what you know in favor of what works. In the markets, Schwartz found that a technical, price-driven approach was far more successful than a trading methodology built on fundamental analysis. 

As a full-time trader in the early 1980s, Schwartz moved upstairs from the floor and transitioned from trading options to trading S+P futures and stocks. His wealth grew and he made sure to protect his earnings as he "never wanted to be broke again". The stories he relates to Schwager about the 1987 crash, selling out his losing positions and walking over to the bank to retrieve his gold coins from the safe deposit, only reinforce this view. For Martin Schwartz, the need to play defense when "under attack" was, and is, paramount.

I'd like to end with one last quote from Marty, and it deals with a topic I've been thinking over lately. When asked about his trading mistakes, Marty says:

"The great thing about being a trader is that you can always do a much better job. No matter how successful you are, you know how many times you screw up. Most people, in most careers, are busy trying to cover up their mistakes. As a trader you are forced to confront your mistakes because the numbers don't lie."

Ask your friends in the corporate world and in politics to ruminate over that last part. On second thought, don't bother - they won't want to hear it anyway. Just know this: the bottom line is unavoidable when it's your ass and your money on the line. Study your mistakes (keep trading records) and work to improve your results. No one else will do it for you. 
   
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