The interview you're about to listen to is with the renowned author Jack Schagger Jack is most well known from his series Market Wizards all of which are an absolute necessity for any level. Trader Due to his background of speaking with some of the best traders of all time, I Really think you're going to enjoy his insights? Let me know your thoughts in a comment below: Jack You're a man who's had the unique opportunity to be around, speak with, and even interview some of the best traders that this world has ever seen. So my question to you is, can people make money Trading Can the markets be beaten? The answer is yes definitively, but it's not easy. So um, and I I can say that definitively.

I've I've got people know me through the market Wizard series, books and so forth. but I've written other books on the markets and one of them was Market sense and nonsense in which I have a whole chapter on what's wrong with the efficient Market hypothesis which which basically at its core is the idea that the markets can't be beat. Now for most people, that's actually a good way to think of it. Most people would be better off putting their money in an SMP index fund, lowc cost index fund and just leave it and do nothing because most people don't have an edge in the markets, don't know how to trade and they're just going to do worse.

They're going to do worse if they try to. you know, trade. So so for them acting as Demarcus cannot be beat is actually the best is the best course. However, I've met too many people we who have disproven that beyond a shadow of doubt.

and I can give lots of examples. I'll just take one uh Ed Thorp who's a brilliant mathematician F Got famous Really? not through trading initially, but he wrote this this uh famous book beat the Dealer which basically told people how to win a blackjack and CA Vegas You know casinos not just Vegas but casinos to changed the way they they you know been multiple decks and reshuffling and there was even was even a part there was even talk about. should we rub this guy out I Mean you know all of that, but that's where he started. Then he turned his his expertise as mathematical expertise to markets and he ran a fund.

He ran two funds, but the first fund he ran 19 years, 19 years, three down months. In all 19 years. Okay, and all and all of those down, all three were less than 1% down. Okay, so I I did a mathemat just a simple probability calculation using a binomial distribution and just assuming that the simplifying assumption is his gains were equal to his losses.

which is actually not true because his gains were larger on average than those three losers. and I came up with the probability that getting that track record was less likely, significantly less likely than randomly picking one atom from the the entire mass of the Earth not just the surface, but the entire mass and then doing another random pick and ending up getting the same atom. literally. Mathematically, the odds of doing that are are better than getting Thorp's record if the markets were efficient.

So I mean there are, you know people say Well if you get enough people, some people will do great. Yeah, but he won't have 19 years with only three losing months. You know those typ records are impossible. So there are people who have by their performance have just disproven this idea that the markets can't be beat.

So bottom line, it's certainly can be done. but it's not easy. It almost sounds like you're saying most of the time it's efficient, but there's almost pockets of inefficiency and the great Traders seemingly always are taking advantage of that. Yeah, it's the markets act.

There's a lot of Randomness in the markets, but there's enough non-randomness for people who find their sweet spot. Whatever their technique, you know people and everybody I've interviewed has had a different way of doing this, but they found their way of getting those spots. You know, where are the markets where there is a bit of non-randomness where the odds are are better than 5050 and they have the patience to wait for those opportunities and not to trade all the time. I'm so happy that you brought up brought up Ed Thorp Folks, if you're listening to this and you don't know who that gentleman is, you got to look into him truly crazy story.

but I want to share a story with you I was in College as a college student would do in the library pushing off doing homework and projects and I just kind of walking around and I actually came across Ed Thorp's book and I was like oh that's interesting so I picked that up and then from there I actually got led to some of his other books I believe the main one with the market was a man for all markets so I read that and I was like oh this is kind of interesting man SE man for all season or maybe I something like that so I read that one I was like oh this is kind of interesting cuz I studied computer science I was like I wonder if there's like a mathematical way to actually do this and then that actually led me to a Larry Williams book the long-term secrets of short-term trading and I really liked it. The issue was every example and it almost every example related to Futures Trading and I barely heard of stocks I barely heard of options and I definitely never heard of Futures So the first thing I do is like okay, what are Futures and that's actually how I came across your book I believe it was a complete guide to the future's market. so I read that one and I recognized your name and it was years later. where was like oh, you have to read unknown Market wizards but by check I was like I don't think that's the same guy so most people I know in the world know you because of your series of unknown Market wizards but my I actually didn't know was the same Jack like I was reading your futures book just to figure out what Futures were and then from there.

it's kind of funny. You're in a weird way, the gatekeeper of a lot of retail Traders and professional who care about trading. When people recommend books, it seems like your books, like your whole work is like almost like half the entire list because unknown Market Wizards you have obviously a grouping of them now and folks, just so you know, there is a new one unknown Market Wizards and there's a couple that I want to talk about in this, but uh, just a funny story of how like I I think most people know you for this and I was completely the opposite. Yeah and actually my first book was not was not Market Wizards it it was the complete the fut Mar I don't know if you got the later.

it was revised in 2017, but that original book was written in 84 so that's awesome. Well with this so Ed Thorp obviously phenomenal Trader You very much don't believe in efficiency a lot of Randomness maybe it is pretty efficient, but not like fully efficient. and it seems like that's what people take advantage of. and I guess for decades you've been around these people.

You've interviewed so many and we're talking about literally some of the best Traders ever. I I I Be willing to bet that you're not going to say they're all the same, but is there certain aspects of their psychology that you're noticing in most of them? Like are a lot of them like I I Assume they're very hardworking. Are they super disciplined? Are they more Alpha and aggressive? Are they More Meek and reserved? Would you define them as hyper intelligent? or do they have a lot of knowledge in like one specific thing like is there I guess a common through aspect that you're seeing in the personality of these Champion Traders Yeah. so there are multiple ones I You hit a kind, a couple in your question um, and a couple which are not which are not not typical.

So first thing I would say is that there is no common personality. Okay, there's um, they're They're very, very different. Like any, like any random group of people would be very different. So uh, some of them are.

Some of them are very aggressive, some are very, you know, shy, some some are very liberal, some are very conservative. You know, uh, some are very fit, some are out of shape. I mean all all walks of life, no commonality. But here's a lot of things that they do share.

You mentioned a couple of them. Odd work, You know people. Ironically, people want to get into markets because they think it's an easy way to make a lot of money. But the irony is that the people who make a lot of money are almost inevitably really hard workers.

many times to the point of obsession. Um, discipline was another one you mentioned. Uh, absolutely critical. Um, so these these Traders tend to be very, very disciplined.

That is a common trait. It's probably no accident among the five Market Wizards book books that I hit upon three. Marines x x Marines I should say uh, because that is the type of mentality that is geared for the markets. Uh, that discipline aspect.

Then there were some very other important points. Uh, a lot of them. But just let me mention a few which are most critical. Um, the the the understanding that trading is not about making money, but it's about not losing money and that that that belief that that risk management supersedes all is very common almost among every Trader right there.

There are a couple of maybe exceptions, but almost invariably that that was a common trade. um, and another one. I'll just mention one more. uh, flexibility.

Um, the these people tend to usually be the type that can change their mind and not stick to they I'm this is my opinion. I'm going to stick with it. I'm right. The Market's wrong.

You know they if they recognize that they made a mistake, they'll get out and they'll even sometimes you know reverse. So they have this. this this great flexibility. Interesting.

I I Appreciate that So obviously as you're going to hear from not only yourself, your books, and any other person who's been in the market, it's this concept of protecting your risk. What I find so interesting is it's so easily said. But what? What's going on psychologically? That when we all get to that moment where we know we should cut because we all told ourselves that was the risk. the trade just didn't work out what's going on.

Why many, many people end up going further, taking a bigger loss than they anticipated, potentially blowing out their account. And then we have a small cohort of people who have that discipline that the the switch is in their mind, that they truly can pull off a simple basic plan when the rest of us is. it's one of those things where it's easier said than done. Have you noticed a weird Bridge there of how some people get to the other side? Well sure the the basic thing to understand is that human nature is very poorly attuned to making correct decisions in the markets.

In fact Bill eart who was thinking the second Market Wizard New Market Wizards uh I'm I think I'm getting him almost word for word here he said, but human nature is so poorly attuned to trading that people will do worse than random. What he's literally saying is that you know the old example. The people like to say, well, you could take a monkey, can throw darts at the Wall Street page and do as good as the uh as as money managers in Wall Street And he's not saying that he's saying the monkeys could actually do better. Uh, because the monkey is not inhibited by human traits which are counter to to winning in the markets.

And and and that's all part of a behavioral economics. So people, uh, you know, take So if you have a losing position the the the human the the instinct is, well, you know I I think I'm I I think I'm right I'll G give it another day because as long as I don't get out it now I still got hope you know and that so as long as you perpetuate the position, you still have the hope that hey, maybe it'll come back. it is over yet and so that's that's a natural tendency. It's a it's It's a bad tendency to have um to take positions that are difficult to take.

Um, those are that are uncomfortable to take. Those are may be the best positions to take, but that's people. People will gear away from it. I if you have the second or a couple of minute I give you a tangential uh story here on this like Joel Greenblat who ran the Golfin film and he eventually closed it because he just wanted to manage his own money and friend money but he later on went on and he had a website uh and he wrote number of books and one of them was like this magic formula thing about the value value investing and he basically had the service where people go and see what his picks were and he also he offered those for free and he said but if you want we could manage the portfolio and they charged something for it So some years later he went back and he looked and compared what happened to people who would you know subcrib to the portfolio versus to those who just done their own thing and and basically found by the people who did their own thing.

While there was net profitability they they sort of they they blew it all so they they had very little profitability in their accounts so the edge that was there from the SL stock selection was was wiped out and I asked them well why do you think that is and he said well One reason and this made perfect sense is that when people pick their own made their choices instead of just take doing all the recommendations they tended to avoid the stocks that were most difficult. you know that had the worst stories that were the most beaten down. So and those tend to be the situations where the very uncomfortable to take because it's all this press and everything that's negative at that point and those tend to be the points where the markets you know those stocks are bottoming the whole the news is out. so it's another example of human nature leading to the wrong direction man.

I Find this so all fascinating of what you're bringing up right now because from one of your books a quote I have on my own trading monitor I believe it's from Bruce Governor I Want to say uh, but know where you will get out before you get in I have that one basic line right here on my computer. Single favorite line in the whole Market Wizard series. Oh really yeah, no that's what. like.

It's one of these things that at first when you start trading it feels like there's so much to learn and it's very complicated. but by the time you get the other side of it, you're like It's not much for me, at least in my mind. it's the 90% discipline. The other 10% of knowledge of what to do.

It can be taught and like with rigorous study. I Think you could learn it actually relatively quickly? I Think the thing that stops people from being massively successful versus not isn't necessarily intellect and knowledge of certain instruments. it's just can you stick to your plan. Does your plan have an edge? And can you stick to the plan that has an edge And it's that thing that sounds so simple that's just not there.

And that's exactly why I have the quote on my computer is just basically stick to the plan. Yeah, and and that that line that you brought up from covor know where you get out before you get in is critical because it it is a way of circumventing the emotionally pitfalls of just holding on, holding on, holding on because if you make that decision before you get in, you've defined okay I think the Market's going up and if it goes down to this point, I'm out and you know what that loss is and you don't have to agonize what to do if the market goes down to that. Also, you're making that decision at the point where you have objectivity because the minute you put on a trade, you lose that objectivity. But before you put it on, you could say well, it shouldn't go here and and not have to and not have it clouded by I'm a false hope Yeah, definitely.

In the past you've talked about how one of the ways that you end up picking the people in your books are you're looking for not just good Traders as in like big big returns but by your definition spectacular and I myself if I talk to these people I feel like I'd be dumbfounded because you've definitely talked to many spectacular people you have. Ed Thorp I Don't know how many millions he ended up making but he made many many millions in the most recent book. Jeff Newman I Want to say that was the crazy story of 2.5k to 50 million and then historically I think there was even people like uh Michael Marcus 30k to like over 80 mil or something like that. So it not only are you looking at spectacular Traders you're looking at like like the the Outliers of outliers and I guess in that coming back from any of these interviews was there one that like you're just like they're operating on another plane or are like the outliers of outliers all very very similar or was there one that you just walked away and like to this day you're still just shaking your head in disbelief that that type of person is here operating in the market.

well probably a number of them you know I mentioned Thor but you mentioned recent book Jeff Jeff Newman Literally you know to you know and you know Jeff Newman uh emailed me originally when before you know he just said you you may not believe this but here's my story and he told me that you know that's what we made and I said look I'm not planning another book at that time I wasn't but within about a year I decided to do this. what ended up being unknown marker Wizards and I said well hold your email and if you can prove, prove, prove this to me, you know I'll be Happ I'll be delighted to interview you and so got. So then you know I decided to do book I I said okay, you know, show me your results I and I got all the statements going back. you know, for 20 years.

whatever it was and it was real. So um, and not only that, believe it or not, he's probably quintuple. that's you know, at least since the last time I spoke to him. you know when I did when I did the update, the unknown Mark and Wizards which included sort of follow-up interviews so he just just kept on rolling so so that it's hard to, that's that is sort of an extraordinary story.

Uh, and you mentioned Marcus is another great example. Literally 30,000 80 million again, you know, documented. So um, there's a lot of people that I interviewed that just God I You know, just just I'm boggling. That's very, very impressive.

I Guess maybe a fun question is is if you had a million dollars in cash in your pocket right now and you had to give it to one of the people that you've interviewed in the past, who would you give that million dollars to to like invest on your behalf just for safety's sake? If Thor is still managing money, I'd give it to Thor because it's just that return risk is unbelievable you know? but uh, you know, you know, quite you know the most recent book. uh quite a number of the people in the recent book I'd be comfortable. you know, giving money to um, a number of them I don't know if it's a single, not just half of them, but but quite a few that that had just extraordinary performance, consistent and uh, you know Newman we talked about and there's a a number of traders in in London that I think were all so spectacular that were in that book uh you know s Sa and Barge and uh um and and Del wall so quite a few Traders Let's take that hypothetical to the the next level. if obviously I'm sure when you met them, they all had their own quirks and style.

If you could create your quote unquote own perfect Trader would it be similar to one of these humans? would you go straight AI system like almost like a motionless and just try to code in some of the knowledge like I Know we're getting really into the hypotheticals here, but if you could create your own Trader what would be some of the main things you would like assure are in this person the this, the risk management element and the well I should back up here. One problem is that it's hard to have the type of edge that that some of these people have which in many cases and I think of a lot of Traes we just talked about. not not in Thorp's case Thorp case he came up with creative mathematical inefficiencies in the market. But for the other Traders like uh, you know, uh like Newman and and Ncus and and the Lemon Traders I mentioned uh in their case, it's very very individually uh based.

It's it's this. I would call it intuition. purely but combination of intuition, experience, discipline. and it's just in just an in a talent.

you know. So it it's not that you can, it's not. You can program it like whatever. It's not like you can program it in any way.

it's almost intrinsic to that person that they. They've got this combination of skills and traits. Just like in sports, you have some people who are exceptional in their sport, but you no matter how hard any other people might try, they could never reach that that that level because of something about the people who are the best in the world. and uh, it can't be duplicated.

it's it is somewhat intrinsic in their nature. So on that note, do you think the way like obviously AI is in the news right now and it's super big? Do you think AI Trading will like one a dominate all trading and human Traders won't do it anymore. Or do you think because there is somewhat of like I guess life experience and a lot of Randomness a lot of variables. Do you think technology will just never get to that level? You know you can.

An easy way to be wrong is to underestimate what technology can do. Okay it just see the growth in In in the scope of what technology can achieve is just mindboggling just in my lifetime. However, what I would say is in the case of AI while it will change the world spectacularly and have great uh impact and May at some point get to the point where it has some Domin in trading I don't see that in in in in the next decade or two or something like that or or maybe ever I don't know and the reason is there's something about the markets that is different than other problems which AI you know might might be applied to. and the big difference in the markets is anything else.

Like if you apply AI to Tri playing go which is many times more complex in this combination say than chess um it it eventually you know can beat the best uh the best you know go player and come up with things that people have never thought about. but the difference is in any game or most applications that you might apply to. um There Are Rules There everything behaves, you know the the moves are always uh the sign you could be the same if you talk about Chess you know the Knight is not going to move. You know, uh, diagonally one time and then normally two and one over.

uh other times. However, markets, that's the way they work sometimes. let's say in R you know Rising interest rates would be good for the market Believe It or Not sometimes will'll be bad because bonds, bonds and stocks sometimes will go together. Sometimes they go opposite.

so you have it's you have in you have inputs on markets which not only change but they can change entire Direction and that variability and how how things impact the market makes it I think a very difficult uh problem for AI which is looking for pass patterns but those pass patterns may change. you know in different environments so definitely see what you're saying. It seems like there's whole new regimes of like what the market is like, even going back a little bit before a AI in 2021. the Rise of Retail Trading Right now, the Rise of Zero DT Trading like there are completely different new games within what we call trading.

Um, actually on that note, I'm so curious because you've documented you've been through it. You lived through it of the tech bubble in the late 90s. In your mind is there are a lot of similarities in what we saw with crypto and the meme Saga AMC G and the like cuz I mean even to this day I still joke about like I'm still long tulips from the Netherlands in the 1600s and to me it just seems like this is actually an aspect of human psychology of we create Bubbles and it's more of like truly that a psychological phenomena and sometimes it just represents itself within markets. So do you think it's completely different? Or do you think oh, it's the same thing, just a different flavor.

Yeah I I I think it's the same thing. So in in uh you know the tech bubble. particularly the internet stocks. uh you had all these stocks that were H you know companies that had a formula which was always losing money and eventually of course they went broke.

but during that that bubble they they just got you know they went up a lot. So you had stocks that went up I don't know 20 times and then end up going to zero. So um and by the way, that whole Tech bubble uh up and down is like about three years. So a little over three years and I mean the whole trip up and whole trip down.

So half the front half of the period the market goes up 600% internet stocks and the next three you know, year and a half it goes all the way back down again. and the amazing thing is there's not. It wasn't like there was tremendous amount new news and fundamentals that were driving it up and they those all changed. It's what happened is there was a hype and people got you know fear missing out the typical thing and just you know.

everybody just kept on piling on and at some point musical chair sto and it just went all the way back down again. So I think crypto is a lot like that now. Maybe Bitcoin Bitcoin will probably survive. maybe a couple of others, but a lot of these other you know cryptos.

uh just um, you know they went up a lot and I went down L and and those a lot of them, a lot of them will just eventually go to zero because there's no reason they should have any value. Um so I I think it's very much. it's very much this. uh you know, like the classic example be like Doge B right? You know it.

Start it starts as a it starts as a as a prank. you know, just as a goof and it gets bit all the way up. you know I remember listening uh the the new New York Times has a good podcast I think I heard her on that uh call The Daily and um and they had. They were interviewing this guy who had made you know he was always like in a tough bind for money and then he made a couple of million.

He had enough money to buy to buy his mother house and everything else but he just insisted and on listening to him and this with Dooy and I'm saying just take some profit and he's talking about if it goes down, he's going to buy some more And yeah I Knew was doomed. You know? So uh anyway yeah I agree. it's it's Tulam Mania it's it's the Internet bubble. It's the same thing Man It is so interesting of with all the advances right here we're talking about like technology and you probably yourself witnessed the technological Revolution being applied to markets.

But even with all those changes, it's still inherently not that different than what we've been documenting for more than 400 years. And honestly, there's probably examples of the same things happening for even longer. So as much as we're getting quote unquote, better and more advanced, it's like it's still the same old same old because human emotions don't change. That's the reason it's psych.

human psychology drives a lot of the market moves, and that that that human nature doesn't change. Do you think it's because of that that markets will never be efficient? Is that your like I guess Glaring example of why market efficiency is not real and will never or not I shouldn't say not real, not accurate and will never be accurate. Yeah He in that chapter I mentioned I wrote in Why Why the Efficient Market Hypothesis is wrong One of the things that that one of the ideas in there is that what what as core, what's what's wrong with it is that it doesn't include offici. It doesn't take into account human human psychology and any.

And because human psychology has such an impact on markets, any model that doesn't Incorporated cannot be right. So the official Market hypothesis assumes that humans are rational. Well, we know, no, humans are not rational you. That's the problem so that you know you.

That's why you get like that. you know Bubble Up and Down Um Well one of my favorite stories that this is not one in the chapter I I Would have put it in the chapter if I had heard it at that. you know in time. but I heard Richard Taylor Who's one of the famous behavioral economists Uh, he's written a number of books and you know, uh, nudge and a number of others.

but I heard him give a talk when I was living in Seattle and he gave this example. there was a closed end fund called Cuba Cuba which uh which held South American stocks or something like that. whatever. But anyway, Clos end funds without getting into the detail.

Just listeners could take this at my word, but usually trade it a discount. They trade probably a 10, you know, 15% discount. normally. um, and this part and this.

this was the same case with this particular close and fund. and then one day it goes from a 15% discount to like a 60% premum or somebody you know one day one or two days what the hell happened? Well what happened was President Obama came out and he says he's going to work towards normalizing relations with Cuba and this and this this close. Now the irony of here is that there are no Cuban stocks and therefore of course the fund didn't hold any Cuban stocks and even if the word would be illegal to invest in them, you know so and of course a couple of days late. but in a few days I think went back down all the way down.

But how can you say the markets are efficient. If you can have that type of ID idiotic move occur in real life, you know? Yeah, no. I think that's a very valid point. So for everyone who's listening, they're like okay I get it, markets are not efficient.

They are irrational. How can I I ideally make money off of it. Most people watching this beyond your very cool stories, they're probably thinking, how can I make my P&l go up, how can I make my bank account go up And my major question I've heard you talk about this before, but I think it's so important to have a person of authority talk about it is I think there's a lot of snake oil in the world of retail education and you even brought that up I Believe the quote you, Ed was a well-timed example. Can you get a little into that and maybe just, uh, explain to the audience some of the bit pitfalls to avoid you're talking about the well chosen example.

Yeah, well chosen example. Yeah. so this is one of my one one of my big pet peeves. I got a lot of pet peeves so this is you.

You You read these book, you know, look at these some of these books or articles or whatever. particularly articles. um and they'll have some you know way of trading the markets and they'll have an example and and it you know it looks great and wow, just got to do this right. I Remember way back way way way back in my career and when I was developing trading systems and I read this article and it it showed like what seemed like two simple moving averages and uh you know the results were like really I said wow and and n a partner I I who who was who was a physicist and he was the one who did the programming and stuff.

uh anyway I said hey no you know we let's you know, let's just try. I let's try you know? So we programmed you know he programmed it and you know on on a basket of markets. Well big surprise we I think he programmed that on 20 different markets. Big surprise.

the single best year, the and best market and the whole sample was the one in that article. and in. and they work spectacularly for that particular year and market. And if you looked at the whole sample of all the other markets, um, it basically barely made any money and you know it wasn't anything, there was just nothing there.

And I think I couldn't understand how that approach couldn't be so good. Well it was because a well chosen example and that I find it over and over. So when I wrote my own book the one that you mentioned originally complete guide I went out of my way not to take well chosen examples I mean I I I I Of course had examples we which Illustrated the point but made sure to show. in fact I had a whole chapter I think which The most important rule is is when when classical chart analysis fails, you know, so you know that the failure of of patterns is more important than the pattern itself and things of that nature.

So so yeah, so that's so you need to be. People need to be very cognizant and cautious about when they read something and they see an example. Odds are that that example has been. well, chos it That is absolutely phenomenal.

Advice to the point that I think we should cut it there because I want people that to sick in their mind if people want to keep up with you and know what you're doing in your current I guess just like whether it's books or blogs or anything like that, what's the best way to like? Keep up with Jack Okay so I'm on Twitter and uh, it's Jack Schwager. just my name. um there. be careful spell it right because they're like cockroaches these popping up and and they don't mean to do you any good.

Um and then I have my I don't do anything on my website. it's there. Uh, but it's Jack It's it's it's again Jack Schwager Dcom so my name.com and as far as the books you know, they're pretty much available anywhere you know Amazon or anywhere else. Awesome! I And folks, if you're listening, all those links will be in the description of the video.

I'll put the right ones there so it's just a click away. But obviously for me and the audience, we truly appreciate your time. We appreciate your insights and enjoy the rest of your day. Hey I Enjoyed talking to you.

All right have a good one. Bye sure Thanks.