Mac Murray

“Your average broker couldn’t be a trader in a million years.” Michael Marcus, Market Wizard

In MYTHS & Markets on January 4, 2011 at 2:41 PM

MARKET WIZARDS

Ouch.  You’re killin’ me Marcus.

So who is this guy?  And why would he have the audacity to say this?

If I didn’t know any better my knee jerk response would be to come out swingin’.  However, anyone who’s had the good sense to get their hands on Jack Schwager’s Market Wizards already knows Marcus is interview numero uno of 16 interviews from among the world’s top traders at the time.  I don’t know about you, but that’s reason enough for me to sit down, shut up and listen.

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Michael Marcus, Market Wizard

As Jack Schwager puts it, Marcus got his start as a professional trader at Commodities Corporation, a firm that hired professional traders to trade the company’s own funds.  Marcus’ profits eventually exceeded the combined total profit of all the other traders.  Over a 10-year period, he multiplied his company account a phenomenal 2,500 fold!  Since the Schwager interview (1989) Marcus, along with the other interviewees, is referred to somewhat reverentially as a Market Wizard.

Marcus was personally trained by Ed Seykota.  Judging from the Schwager interview as well as from Michael Covel’s provocative best-seller Trend Following, Seykota may hold the top known performance record of any trader of the 20th century  (e.g., 1972-1988 Seykota’s private account was up 250,000 percent).  Marcus also discovered and trained Bruce Kovner, himself a Market Wizard who in 1989 was one of the worlds largest currency traders.  By 2008 Kovner ranked #106 on the Forbes 400 with a net worth of $3.5 Billion.

This is the legendary stuff which inspires reverential silence even among the most hard-nosed brokers.

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With that in mind, let’s listen in on the interview with Marcus and see if we can pin down why he slams the average broker:

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Jack Schwager:  “What kinds of misconceptions about the markets get people into trouble?

Michael Marcus: “I think the leading cause of financial disablement is the belief that you can rely on the experts to help you.  Typically these “experts” are not traders. Your average broker couldn’t be  a trader in a million years.  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.”

Chinese Rose Marble Half Slice.

Will the real trader please stand up?

So what, precisely, is Michael Marcus getting at?  It helps to understand that from a world-class fund manager’s perspective, not everyone who calls themselves a trader (or merely wears the label) is a trader.  Based on my own experience, there are at least 3 work roles labeled “trader” which interface with the investing public.  2 are “pseudo-trader” positions; 1 is the real deal. Starting with the “pseudo-traders”:

1. The Salesperson “Trader” :  If you spend the bulk of your schedule pounding the pavement, talking to clients, or looking for new ones, let’s face it:  you’re a salesperson.  If your boss is breathing down your neck to bring in more clients or increase your buy/sell transactions, don’t kid yourself, you’re in sales.  Hey, I’ve got no beef with sales. You may even be good at it.  If so, more power.  Just don’t confuse being a good car salesman with being Michael Schumacher.

"Have I got a hot number for YOU."

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2. The  Cash Register Clerk “Trader” : These are the folks who populate the main trading floor.   Like the cashier at the grocery store, this is where customers line up, typically by phone, to buy and sell things.  In other words, the day is spent before a blur of retail investors who, by and large, have a less than profound understanding of how to manage their investments.  They buy and sell this, that, and the next thing depending on what they saw on T.V. last night, read in the paper this morning, or a “hot tip” gleaned over the office water-cooler.  The cash register clerk “trader” is paid to oblige them–after all, the “customer is always right”.  Right? (In this business?).  When the cashier trader is asked, “So how’s XYZ doing today?” what can you say, really?  Some variation of “Well, the Market’s up/down x-points today” always seems to work.  It’s tough for a cashier to give informed answers to uninformed questions.  It’s sad to admit, but after awhile it’s less taxing on the nerves  to lower the bar and be uninformed as well.  If you can’t beat ’em, join ’em.

"That's 20 Alaska Milk, 10 SM, and 100 Agrinuture? P20, 500 please."

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3. The Trader:  Finally, this guy (or gal) is the real deal. He or she can articulate a complete trading system–in detail–and execute it accordingly.   If you have a Self-Directed Account and were to call a real Trader intra-day, he or she would have a prepared fundamental and technical assessment of potential entries and exits for you to act upon.  If you have a Managed Account, the Trader would manage your investment as if it’s a fund, and build your portfolio with the mindset of a portfolio manager.

"We'll stick with our trading plan, precisely as we've discussed Mr. Jones."

The real Trader has a highly refined skill-set but continues to seek the wisdom of renown traders throughout the years by means of self-education.  In fact, your Trader probably boasts a trading library that would rival anything you would find at Barnes & Noble or PowerBooks.  If you were to ask about Fundamental Analysis, Technical Analysis, Elliott Wave, Fibonacci, Pattern Recognition, mechanical trading systems, or high frequency trading,  your Trader would have a working knowledge of each, their relative strengths and weakness,  and would be able to explain which strategies he or she specializes in and why.  Lastly and most importantly, over time your Trader should be able to consistently generate competitive returns.

(See Pseudo-Traders with No Face-to-Face with the Investing Public).

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The Average Broker

So there you have it.  Now that we have more understanding of what Michael Marcus may have been talking about, it’s easier to see why he would say:  “Your average broker couldn’t be a trader in a million years.”  Speaking as a broker myself, I guess there’s no way around the fact that a broker must be able to demonstrate that he or she is not average.

From the perspective of an investor it’s easier to see the wisdom behind Marcus’s words.  Why on God’s green earth would you want an average broker to handle your hard-earned money anyway?

And if you’re a broker, why in the world would you be content to be average?

"I sure wish I had more than just sales training."

One thing’s for sure, based on my vantage point on the main trading floor, if I were an investor I most certainly wouldn’t want the average broker managing my money.  Not in a million years.

E. M. M.

For more tough medicine see

Be Careful Who You Listen To

The #1 Sign You Are Likely to Blow Up Your Trading Account

 

E. M. Murray--Managed Accounts with Fixed Downside Risk

E. M. Murray. Customized stock portfolios. Professional Management. Fixed Downside Risk.

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