U.S. Markets closed

5 Pearls of wisdom from market wizards

Kevin Chupka
Executive Producer/Writer

Any investor looking for advice on the subject will not have any trouble finding it. From pundits on TV and online to neighbors and co-workers, everyone has some guidance to give. So how do you separate the noise from useful pointers? Jack Schwager, author of the new book “The Little Book of Market Wizards,” decided to look to the wisdom of the most successful traders in history and he’s culled their tips and tricks together in one place.

Schwager shared five of the many pointers he collected with Breakout:

1. Find your investing personality

Schwager note that there are many different ways to go about investing and it’s important to find the type of set up that works best for you.

“Paul Tudor Jones, I remember walking into his office. He insists I come during market hours, he’s got all these monitors, in the days of the exchange floors...he’s calling orders out to the floors he’s got people bringing him messages, it’s bedlam. Another guy, Gil Blake has sort of figured out these patterns in funds and just would sit there going through microfiche in the library. You can’t picture these guys doing each others methodologies.”

2. Find an edge

It sounds overly simplistic right? Just find and edge. Schwager says that for all the chatter about having an edge, when boiled down it simply means “over time you make somewhat more than you lose...it’s the amount of money you win on the average win versus the amount of money you lose on the average loss.

3. Manage your risk

Bruce Kovner, “one of the great traders of all time,” according to Schwager is a master of this tip. “His line was ‘I never get into a position unless I know where I’m getting out.’” In other words, figure out exactly how much loss you’re willing to stomach before you make a particular trade.

4. Be disciplined

If you’ve figured out what kind of investor you are, you’ve found your edge and decided in advance where you want to get in and out of a trade it’s time to put that plan to good use consistently. Schwager points to Marty Schwartz for this example. “I remember interviewing him late at night, well after market hours. And after we were finished he was dead tired, he was still gonna sit down and do his two hours of homework on the markets.”

5. Flexibility to change your mind

No trader has been right every time, plain and simple. It’s important to know when you’ve made a mistake and, to the degree that you can, fix it. Schwager points to trading great Stanley Druckenmiller. “Back in the ‘87 crash he did the worst mistake anyone has ever made in trading history by switching from a short position to long the day before the crash. Then on the weekend he figures out that he’s wrong...and Monday morning he comes in the market gaps down about 12%. What does he do? Not only did he get out of his new long position entirely, he goes back short again. That’s what flexibility looks like in a professional trader.

More from Breakout:
Peter Schiff: Frothy IPO market a bubble for the 1%
Not dead yet: The American shopping mall is changing, not going away
Today's Trending Ticker: Hertz (HTZ)