Stock Market Wizards Interviews with America’s top stock traders by Jack D.Schwager

Stuart Walton

  • Technical
  • Fundamentals
  • How stocks react to round numbers
  • Gut feeling for direction of market as a whole

Restrictions in company

  • Price earnings ratio below 15
  • earnings growing at least 20%/year
  • Some balance and liquidity conditions

Trading rules

  1. Be patient, wait for the right opportunity
  2. Trade on your own ideas and style
  3. Never trade impulsively, especially on other peoples advice
  4. Don’t risk too much on one event or company
  5. Stay focused, especially when the market is moving
  6. Anticipate, don’t react
  7. Listen to the market, not outside opinion
  8. Think trades through, including profit/loss exit points, before you put them on
  9. If you are unsure about a position, just get out
  10. Force yourself to trade against the consensus
  11. Trade pattern recognition
  12. Look past tomorrow, develop a 6 month and 1 year outlook
  13. Price move before fundamentals
  14. It is a warning flag if the market is not responding to the data correctly
  15. Be totally flexible, be able to admit when you are wrong
  16. You will be wrong often, recognize winners and losers fast
  17. Start each day from last night’s close, not your original cost
  18. Adding to losers is easy but usually wrong
  19. Force yourself to buy on extreme weakness and sell on extreme strength
  20. Get rid of all distractions
  21. Remain confident the opportunities never stop

Some notes

  • Either go for it full fledge or do nothing, don’t dabble
  • Persistence
  • Self awareness
  • Methodology
  • Flexibility
  • Diagnostic capability

Ahmet Okumus

Checklist before buying stocks

  • Good track record in terms of growing earnings per share, revenue per share and cash flow per share
  • Attractive book value (theoretical value of a share if all the company’s assets liquidated and liability paid off) and high return on equity
  • Stock down sharply, often near recent low, but weakness have to be due to short-term reason while long term fundamentals remain sound
  • Significant insider buying and ownership
  • Having new management team with good track record may provide additional reasons

Trading rules

  • Do your research and be sure to know the companies you are buying
  • Buy low
  • Be disciplined, don’t get emotionally involved

Mark Minervini

  • Basic philosophy is to expose your portfolio to the best stocks the market has to offer and cut your losses very quickly when you are wrong
  • The fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions. In other words, take 100% responsibility of your results
  • Being wrong isn’t a choice, staying wrong is
  • Rigorously control your losses
  • Develop a method that fits your own personality, and master that one style
  • Do your own research, act on your own ideas, and don’t be influenced by anyone else’s opinions
  • Have a contingency plan for every possible event, which includes how to get back into a trade if you are stopped out and when to take profits when a trade goes in your direction

Maintain absolute discipline to your plan – no exceptions

Ari Kiev, MD

Define a target, a strategy consistent with the target, a set of disciplines to follow, and risk management guidelines Then trade, track, and evaluate your performance

  • Believing makes it possible
  • To achieve a goal, you not only have to believe it is possible, but you also have to commit to achieving it
  • A commitment that promises the goal to others is more powerful than a commitment made to oneself
  • Extraordinary performers continually redefine their goals so they are a stretch. Maintaining exceptional performance required leaving the comfort zone
  • After setting a goal, the trader needs to define a strategy that is consistent with the target
  • Traders need to monitor their performance to make sure they are on track with their performance to make sure they are on track with their target and to diagnose what is holding them back if they are not

Wizard Lessons

  1. There is no single true path
  2. The universal trait, develop an efficient trading strategy and an accompanying trading plan that addresses all contingencies. Follow the plan without exception
  3. You have to trade your personality
  4. Failure and perseverance
  5. Great traders are marked by their flexibility
  6. It requires time to be a successful trader
  7. Keep a record of your market observations
  8. Develop a trading philosophy
  9. What is your edge
  10. The confidence chicken and egg question
  11. Hard work
  12. Obsessiveness
  13. The Market Wizards tend to be innovators, not followers
  14. To be a winner you have to be willing to take a loss
  15. Risk control
  16. You cannot be afraid of risk
  17. Limiting the downside by focusing on undervalued stocks; 8-12 P/E, declined 60% or more from high, stocks with price as close to book value
  18. Value alone is not enough
  19. The importance of catalysts
  20. Most traders focus on when to get in and forget about when to get out
  21. If market behavior doesn’t conform to expectations, get out
  22. The question of when to liquidate depends not only on the stock but also whether a better investment can be identified
  23. The virtue of patience
  24. The importance of setting goals
  25. This time is never different
  26. Fundamentals are bullish or bearish relative to a price
  27. Successful investing and trading has nothing to do with forecasting
  28. Never assume a market fact based on what you read or what others say, verify everything yourself
  29. Never ever listen to other’s opinions
  30. Beware of ego
  31. The need for self-awareness
  32. Don’t get emotionally involved
  33. View personal problems as a major cautionary flag to your trading
  34. Analyze your past trades for possible insights
  35. Don’t worry about looking stupid
  36. The danger of leverage
  37. The importance of position size
  38. Complexity is not a necessary ingredient for success
  39. View trading as a vocation, not a hobby
  40. Trading, like any other business endeavor, requires a sound business plan
  41. Define high probability trades
  42. Find low-risk opportunities
  43. Be sure you have a good reason for every trade you make
  44. Use common sense in investing
  45. Buy stocks that are difficult to buy
  46. Don’t let a prior lower-priced liquidation keep you from purchasing a stock that you would have bought otherwise
  47. Holding on to a losing stock can be a mistake, even if it bounces back, if the money could have been utilized more effectively elsewhere
  48. You don’t have to make all or nothing trading decisions
  49. Pay attention to how stocks respond to news
  50. Insider buying is an important confirming condition
  51. Hope is a four letter word
  52. The argument against diversification
  53. Caution against data mining
  54. Synergy and marginal indicators
  55. Past superior performance is relevant only if the same conditions are expected to prevail
  56. Popularity can destroy a sound approach
  57. Like a coin, the market has two sides, but the coin is unfair
  58. The why of short selling
  59. The one indispensable rule of short selling, make it short term
  60. Identifying short selling candidates
  • High receivables
  • Change in accountants
  • High turnover in CFO
  • Companies blaming short sellers for their stock’s decline
  • A company completely changing their core business to take advantage of a prevailing hot trend
  • Very high PE ratio
  • Catalyst that will make the stock vulnerable over the near term
  • Uptrend that have stalled or reversed
  1. Use options to express specific price expectation
  2. Sell out of the money put in stocks you want to buy
  3. Wall street research reports will tend to be biased
  4. The universality of success
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~ by antinomian on July 24, 2007.

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