Michael Marcus, legendary trader

I am going to talk about Michael Marcus interview in The Market Wizards, the famous book about trading by Jack Schwager.

Michael Markus Market Wizards legend

Marcus is one of the most successful traders of all time.

He majored in psychology but did not take long to realize that his passion was trading the financial markets.

His first account he engaged the services of a friend who was a supposed expert in financial markets. He lost all of his money that time and logically dismissed his friend.

Later on, after a few frustrated attempts he became of the most famous and legendary traders of all time, turning 30.000 $ into 80 million after some years. And being the mentor of Bruce Kovner during the process.

It is quite a long interview, and I have to say that it is some of the best readings about the world of trading that are out there.

His stories about going bankrupt several times are worth their price in gold.

Michael Markus quotes

He said things like this:

Right. Our next trade, in wheat, did not work either. After that, we went back to corn and that trade worked out better, it took us three days to lose our money. We were measuring success by the number of days it took us to lose.

That was how he describes his first contact with trading.

That part of the interview is impressive, since someone with experience can see how this guy traded his first moments crazily.

He was leveraged to the hilt.

After that, I managed to rustle up another $500 and placed a few silver trades. I wiped out that stake as well. My first eight trades, five with John and three on my own, were all losers.

Marcus lost his shirt in just 11 trades. I imagine he took so much leverage that a 4% move would almost wipe him out.

He certainly was not a timid trader.

I lost my own $ 30.000, plus $ 12.000 of the $ 20.000 my mother had lent me.

It is about a trade where he bet his entire line on a single trade. And he lost.

He was trading well by then since he had turned a small amount into $ 30.000.

I found that even though I interviewed for positions for which I was unusually well qualified, I could not seem to get any job. I finally realized that I could not get these jobs because I did not really want them.

His desire to become a trader made him look “suspicious” in every interview. Hirers noted he was up to something else. This is something that happened after the loss I mentioned later. By that time, he realized he had to find a job.

Hi did not find a job as a psychologist I guess. However, he finally found a job as an analyst in a broker. That is why we should never get obsessed with our qualifications, and if there is something we find we are passionate about, we just go for it.

I borrowed from my mother again, my brother, and my girlfriend and opened an account at another firm. I worked out an intricate code system with my broker to keep people in my office from knowing that I was violating the rules. For example, if I said, “the sun was out”, that meant one thing..

Impressive. I find it amazing that his mother still gave him more money after the previous disaster. The fact that he had to trade from an office where he was not allowed and doing it by secret signals is hilarious.

He was an analyst; he was not allowed to trade, but the fact is that he had the quotes in front of him the whole day. His broker was really helpful.

They must have had a lot of fun those days.

I lost. It was the same old cycle of borrowing money and consistently losing it.

No comment.

Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “The trend is down, and I am going to stay short until the trend changes”. I learned patience from him in the way he followed the trend.

Finally, he was lucky enough to find an experienced and trend follower trader: the know Ed Seykota. And there it is probably the best trading advice: go with the trend till the end.

You know, if the market has fallen 40%, it is a truth that the market is “cheaper”, but it does not mean that the bear trend is over. It could go on for months.

You just better do not go long in a bearish trend.

That was the last time I bet everything on a trade.

Michael Marcus inflection point trading

He was telling us about an “all in” bet he made later, when he had turned 700 into $ 12.000 and lost 8 in a suicide trade which was close to destroying him completely again.

That was his inflection point, and he promised himself that was the last time he would bet so big.

From then on he would apply the correct money management, with stops every trade.

He was a very stubborn guy. It certainly took him a lot of time not to go “all in”.

I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone.

Michael Marcus trading strategy

He meant that when those conditions were matched, he bet more boldly. Consequently, after some time he would be more selective with his trades and the size he would bet.

More money is lost listening to brokers than any other way. Trading requires an intense personal involvement. You have to do your own homework, and that is what I advise people to do.

The best opinion you may find is the one that comes inside yourself. As Marcus said, if you were Tudor Jones´s barber, it may be useful to follow his advice, but the problem is that Tudor Jones are not many out there.

The foolish belief that there is a conspiracy in the markets.

His answer to the question about what he thought what was the biggest misconceptions about trading. And that is the truth.

The majority of the masses think that “speculators” take the price of oil to 148 $, or that the move magically any market and make all the profits while the public loses. Or that a trader can manipulate the market as he wishes. But that is a fallacy, of course.

Hungarian hyperinflation of the Twentieth Century did not need speculators of any kind.

The great market moves are not the consequence of a group of traders or speculators, but of more fundamental reasons.

It does not matter if governments implement price controls, or Tobin taxes, or whatever they want to do. If the government´s policy is destructive and socialistic enough, the financial system will collapse, with or without speculators.

What is more, when a country forbids “speculation” we may be sure that that country has entered the death valley of collectivism.

The absence of futures markets will not bring prosperity to society, on the contrary, it is prosperity that brings futures markets.

When futures markets disappear, prosperity will disappear with them.