Skip to main content

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. 
Subscribe to the free Finance Trends Newsletter. You can follow our real-time updates on Twitter.      

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.