We Study Billionaires - The Investor’s Podcast Network - TIP 085 : Jack Schwager & Stock Market Wizards (Money Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 85 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is The Investors Podcasts. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish, and Stig Broderson. Hey, how's everybody doing out there?

Starting point is 00:00:29 This is Preston Pish, and I'm your host for The Investing. investors podcast and as usual, I'm accompanied by my co-host, Stig Broderson out in Denmark. And I'll tell you what, we're going to have some people really excited about today's show because our guest today is the one and only Jack Swagger from the famous compilation of books titled The Market Wizard Series. Here's a little bit on Jack, and I know that people listening to the show already know who you are. A lot of people listening to the show already know who you are. But if they don't, I'm just going to give a quick background so people know who you are, Jack.

Starting point is 00:00:59 Jack got his degree in economics from Brooklyn College and also a master's in economics from Brown University. He's probably one of the most accomplished financial writers in the world and he's interviewed countless billionaires and prodigies within the financial community. When you read one of Jack's books for the first time, you'll quickly realize that the person who's asking the questions in the book, which is Jack, is at par and just as smart as the person who's answering the questions. So Jack's the author of Market Wizards, the new Market Wizards, Stock Market Wizards, hedge fund market wizards, the little book of Market Wizards, the complete guide of futures markets and market sense and nonsense. So these books are not like 100-page books, all those books that I just listed. They're not like these short little 50-page or 150-page kind of books.

Starting point is 00:01:45 In some cases, Jacks interviewed up to 20 different people that are total prodigies within finance. like Ray Dalio, we talk about Ray all the time on our show. Jack's actually sat down and had an interview with billionaire Ray Dalio. So that's just one of the hundreds of people that he's sat down and actually interviewed. So with all of that, Jack, I want to jump to the questions because the last thing I want to do is be the guy talking the whole time. We want to push the talking over to you so you can just share your knowledge with our community because this is really exciting to have you on our show. So thank you for joining us. Oh, thanks for that intro.

Starting point is 00:02:20 I appreciate it. So my question up front, knowing the caliber of people that you've sat down with, Jim Rogers, I mean, there's some people that you've interviewed that I'm big fans of. What was the one investor that you've interviewed that you were most impressed with? And what would be that one key takeaway that you had from that person's approach that you still keep with you today? What would be that one person and that one thing that you took away from all these interviews? You know, it's like asking who's the greatest baseball player ever. You know, it's impossible to answer, really.

Starting point is 00:02:55 I mean, totally. So I'm just going to not talk about these people now because we'll probably get into some of them later. But just to throw out what I mean by that, you take somebody like Ed Thorpe who had one of the best track records ever. I mean, so extraordinary that in one book I calculated the probability of getting that track record as being less than the amount of Adams and the entire mass of the earth. And you take somebody with that, and by the way, his record in terms of return risk, makes Dahlio look like he doesn't know what he's doing. Obviously, yeah, but on the other case, on the other case,

Starting point is 00:03:31 Ray Dallio has made more money for investors than any other hedge fund or any other fund. I don't know the mutual fund will, but any hedge fund that has ever existed. I think Dahlia has made more money for the investors as far as I know. then you have somebody like Michael Marcus who I know because I worked at the same firm that he did that turned a $30,000 account to $80 million in course of about a dozen years. You've got you've got somebody like John Bender who was a brilliant options trader who made literally hundreds of percent a year physics background. I can go on and on and on. So how do you say who, and I haven't even mentioned. people like Covner, incredible investors.

Starting point is 00:04:15 That's something like Drac Miller, like a 40-year track record with near 30% returns compounded. So how do you pick the best one? It's just not the most impressive one. In terms of pure intellect and accomplishment, if you put a gun to my head, it might be Thorpe. And Ed Thorpe, now for your audience, would probably know Ed Thorpe best not from his money management side, but they would be.

Starting point is 00:04:43 known because he wrote his famous book. Actually, his book sold more books than I did, beat the dealer. So that was not his only book, but that beat the dealer was the first book that tell people how to win a blackjack. That's the one that they built the whole movie around where they went to Vegas and they were counting cards. Yeah. So actually, because it's even more credible than that, I'm just going to give you a few

Starting point is 00:05:07 of the things here. Here's a guy. Starts out. Comes from a very poor background. grew up depression. He teaches himself physics in high school. Gets accepted. I forget to which California,

Starting point is 00:05:19 one of the top universities in California, well, he didn't have his PhD yet in physics. He was writing his thesis for his physics degree. Besides, he doesn't know enough math. Goes and starts taking graduate math courses, gets his Ph.D. in math. Never actually goes back. He writes his thesis,

Starting point is 00:05:36 so he doesn't technically have the PhD in physics. Then gets the idea that he'd like to beat casinos. It sounds completely preposterous. How can you be, not by cheating, by the way. And so the first scheme he comes up with is to, is roulette. Now, when I first heard the concept that, hey, somebody says they could beat roulette. I said, it's impossible because we're thinking probability. Yep. But you don't think in terms of Newtonian physics that what he, what he literally thought about was, well, if you could time it well enough, you could get. by the physics. If he got this velocity of the ball between two different points and you knew his

Starting point is 00:06:17 momentum and everything else, you could predict a probability of which octet of this wheel was more likely. This was back in the 60s. So we didn't have like, no, back in the 60s, I remember the 60s. Even in late 60s, I remember using an IBM 360, which took up a better part of a room and you have to use punch cards to do, you know, regressions or something like that. So he in the 60s did this miniature computer way ahead of his time. And so this thing worked. They played for like minimal amounts of money. They just wanted to prove the concept. They had like a 40% edge in roulette. Then he came up then he read a paper by some guys, some math guys and I can't where they were saying when the blackjack from a mathematical standpoint. But when he came in with the insight was, hey, it's not a matter of how

Starting point is 00:07:05 you just bet because that's what these guys were trying to do. So if you bet all the right ways, If you hold on 16, you know, take the card. You know, the typical standard rules. If you did all the right bets that actually turns out you still don't have the edge, you're coming very close. But he thought he got the brilliant insight. Wait a minute. Who says you have to bet the same thing every time?

Starting point is 00:07:25 So he kind of figured out that if you change the size of the bet, like when the more cards out, then, you know, you bet more picture cards out. You bet less, you know, less, you bet more. That that could totally change your probabilities. And he was doing this and realized it would take. them years in years or actually more years, maybe decades to do. So he had to find shortcuts. But he figured it all out and came up with this a couple of methods actually and then simplified. And he had, I put a book, a story in a book where there was an attempt on his life. I just thought

Starting point is 00:07:55 I got out of the movies, like his car was fixed, sort of, and brakes wouldn't work going down a hill. But in any case, so he did that, put out the book. That was the book that changed the casinos. We know the multiple decks, all of that. That's because of him. Oh, yeah. So, Jack, would you say that the thing that you took away from Edward Thorpe was just his pure intellect? Was he just... That was the thing that impressed me. It was just the intellect. Just a roar intellect. He was a really nice guy, too. I've got to tell you. I've met a lot of brilliant people. But, I mean, Thorpe is probably the smartest guy I ever spoke to. And I've known people that made me feel stupid. But when I say it made me feel stupid, I don't mean that he made me feel stupid.

Starting point is 00:08:35 it's just in comparison to his intellect. I just feel, but, you know, we're just not. Is he like a voracious reader that got him there? Or is he just? It's just raw intellect. I just think he's got that talent. And that's how we beat the markets. He started to apply this intellect, this pure quant intellect to markets.

Starting point is 00:08:54 And then you go on, first guy to start a market neutral fund. All these strategies, he's the first guy that does it and figures out how to do it and gets the edge. So not only brilliant, but innovative. innovative, thinking outside the box. He was the first guy to think of it. So he's an amazing guy. And people don't really know him to the extent they know some of the other big names. They know him for the beat the dealer book because it changed casinos and all that. But they don't know his hedge fund. Yeah. And correct me if I'm wrong, Jack. I think he came up with the pricing model for warrants long before Black Skolls, like, you know, get all the fame for

Starting point is 00:09:32 for the options theory. Thank you for reminding me. Yeah. Maybe the biggest thing is, everybody knows the Black Shoals model. Nobel Prize was given for the Black Shoals model. The amazing thing is, Thorpe's trading a mathematical equivalent of the Black Shoals model five years before that article was ever published. He could have been the Nobel Prize winner, right? But that's how he said, he was like the only guy in the world who got to price options and he was just printing money. So he was for that, until that article came out, he was just, he had like a printing press of money because he just couldn't lose. He didn't want a price option.

Starting point is 00:10:07 Nobody else did. He's like, I've already been doing that. I've been making millions of dollars doing that. Yeah. That's part of the record. That part of his record is because he came up of all these things ahead of everybody else. That's how you get a record of something like, I think it was about 277. I forget the exact number of months.

Starting point is 00:10:24 Three losing months out of 277 and all three of those were less than 1%. And that's why I say, you know, the probability, that's why the probability works out to be less than their, you know, less than picking one atom randomly out of the mass of the earth. Wow. You know, I'm so happy, Jack, that you mentioned it Thorpe. I haven't told this story on the podcast, and this will be for another time, but he's actually the reason why I'm standing here today. So I'm so happy that you actually imagine. Oh, well, you should say, go on. I mean, I'll talk enough on this, but I'm curious how that happened.

Starting point is 00:10:58 Yeah, I mean, it's just a very, very brief. I read some of his material early on and was just very fascinated about his way of looking at everything as a game. I think perhaps that's really his true gift. And perhaps that was also why he didn't necessarily win the Nova Prize. I mean, that was not the game he was playing and how he was looking at casinos. And then afterwards, how he was looking at stocks and how he was price and options. And I think I started reading that around the age of, I want to say, 20 or something.

Starting point is 00:11:27 And that was really what made me make decision to go into all this that we're doing now, even though it's just a long time ago. So I feel I owe him a lot. And it's just rare that we have a chance to really talk about him and how influential he's really been on so many people in so many different ways. For me, he's one of the most underrated out there into his own field, which is basically just really, really sad. Perhaps because he didn't want the fame, who knows. Yeah, he's kind of not the... He tends to be able to quiet. He doesn't seek publicity for sure, you know, on the contrary.

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Starting point is 00:16:07 That's Shopify.com slash WSB. All right. Back to the show. We were completely shifting gears here, Jack. So one thing that I know that we completely agree upon is how important. important it is to have independence in your strategy, whether it is investing or trading. And you have this quote from the famous trader, Michael Marcus, saying, you have to follow your own light. So still we can get swayed by other people that we consider really smart, even if these people

Starting point is 00:16:36 might follow another strategy. So I would like to ask you, could you please tell your personal story about not shorting the yen back when you were director of futures market? This was after I'd done the first book. And I'm not going to mention a name here deliberately, but one of the traders I interviewed would call me from time to time. And he would call me and ask my technical opinion on the markets. And I never knew why he was like a million times better traded than I was. Why he would want my opinion?

Starting point is 00:17:05 I don't know. But he would do that. And I would talk. So one day he calls and we're going through the markets. And it had to put this in context. This was a year. I started off. I made money.

Starting point is 00:17:15 I was ahead. Then dribbling of money, I was losing, losing, losing. I'd given them back most of the money I'd made. I was still ahead, but not by very much. I decided to sort of cut back. I had like one position left of any consequence. Maybe it had something else, but just really won. And he gets to that market as a Japanese yet.

Starting point is 00:17:33 Got to picture this. What the chart looks like. It had a very shock decline, like a falling off the cliff. And then it went into a very, very tiny consolidation, really really thin. And he gets to the end. I said, well, you know, when I've seen a pattern like this where the market's down extremely steeply then goes into a tiny consolidation, most of the time, it'll go down again. And he says, well, no, Jack, you know, it gives me 58 reasons why. I said, hey, you know, you're probably right. It's

Starting point is 00:18:03 just an opinion, you know. So anyway, so hang up the phone. And I knew, like I said, I knew I should not listen to other people. I mean, I knew that. And I normally wouldn't, I really think I wouldn't have. However, this is where fate intercedes. That afternoon, I had to travel for a few days to go to Washington, D.C. I knew I had a lot of meetings. I'd be busy. I didn't, this was pre pre-phile, you know, I obviously pre-smart phones and all that. And I wasn't going to even have a computer of any sort to look at anything. So I said to myself, well, you know, I haven't been, I haven't been doing so well lately. I've got this one trade for good profit. You know, here's one of the smartest guys that one of the best traders I know who's on the opposite side of this trade.

Starting point is 00:18:46 Do I really want to fade him on the trade? So I go over to the overnight desk and I get out of the position. Okay, I come back a couple of days later. I don't know where the market is. My following market, come back a couple of days later. You and your listeners will probably know the next thing. You know, sure, the ends down a few hundred points, right? Okay.

Starting point is 00:19:04 So that's no surprise. We know that's going to happen. Now, here's where the surprise is. And this is, I tell people, honestly, I'm not making this up. I couldn't make this up. That day he calls again. I wasn't going to be so gocious to bring up the end. You know, and it's like, hey, everybody can be wrong.

Starting point is 00:19:18 I'm not going to say anything, but he brings it up. And I say, hey, hey, are you still long? And he exclaims to me, long? He says, I'm short. Now, what I didn't tell you, what I didn't tell you is, for me, I traded positions at the time for like months at a time, you know. He, for him, a long-term trade was like two days. When he was speaking to me, he was bullish, because he was looking.

Starting point is 00:19:43 for a bounce. The market probably didn't bounce. He probably decided it wasn't acting, right? Maybe he went down a little bit, got out, went the other way. So he made money, and I was right all along, ended up not making anything. So it's like a perfect example. You can't listen to anybody that's going to mess you up. And going back to Marcus, of that great quote, you have to follow your own light. The rest of that quote, paraphrasing, is you could take the best traders in the world, two of the best traders in the world, and put them together and you'll get the worst of each. And incidentally, he was speaking about,

Starting point is 00:20:19 I know he was speaking about, Michael Marcus hired Bruce Covner, who then went on to form Caxon, and one of the great legends of trading and investing. He had hired a Covner, and for a time, they traded from the same office. So they talked, whatever. So when he says that, he's talking about himself and Covner.

Starting point is 00:20:38 So literally, two of the world's best traders. And he's still saying that if they don't stay true to their own approach, just look at it to get messed up. They try to trade like the other guy does. I've got a kind of a follow-up question that really hits at the point you're getting at, and that's matching your style or your personality with your investing approach, and it has to do with Joel Greenblatt. So I know that you are close with Jewel. I know he's endorsed some of your books. You've interviewed him a couple times. And Joel has some books out there that really kind of take Warren Buffett's approach and make it a lot simpler, and he calls it his magic formula.

Starting point is 00:21:12 and after interviewing him, do you think that people out there could simply pick up his two books and really kind of implement this magic formula and get the fantastic results that he's at? And please tell our audience, Joel Greenblatt's results, because he has really high returns in the years. And what kind of personality do you see

Starting point is 00:21:30 that really kind of gets attracted to the Jewel Greenblatt approach? I've heard of Greenblatt, and then I dug up the track record, and it ended like, I did the book in 2012, his track record it ended, I think it ended in 1995. It's a while ago. Now, it was a very interesting track record.

Starting point is 00:21:49 It was about 10 years long. It had all winning years, of course. The worst year he had was like a profit of about 28%. That was his low year. And that was like, you know, that was, and remember in that period, you had 87 crash, you had 94, which is a bear market. And his worst year was a positive 28, 29%. So, and then with the NAV in an all-time high, the fund disappears.

Starting point is 00:22:15 My first question, the green blank was, why did you close the fund? Who closes the fund in 10 years with the worst years plus 28%. He said that he had just gotten too big that he couldn't do the trades managing other people's money. Because he was doing a lot of sort of value-oriented trades, which might have been involved, some smaller cap stocks. they couldn't do them. Like he was doing net nets on small cap. Yeah, some stuff like that.

Starting point is 00:22:43 He was doing a lot of different strategies, but it's the Buffett philosophy of buying of a value orientation. And so that's what, at his heart, he's so cold, that's in his bones. And in fact, I'll go to your question.

Starting point is 00:22:59 I'll get to your question in a moment about whether people can use the formula. Let's, let me just give you this aside. Because part of what I do for the interview, I try to do different things to get no people in the interview process. It's not just, like I said, down with them for one hour or whatever. But in Greenblatt's case, I met him a couple of times.

Starting point is 00:23:15 But I also went, he was teaching a course of Columbia. He was teaching a course on the markets on the graduate school level in Colombia. And so I sat in on one of the courses. For this particular session, he said, well, okay, today I'm going to be, Bobbitt, that you guys ask me questions, you know, you ask me questions and I'll answer them. And so the class was asking questions, he was answering them. And they were getting completely confused. They said, well, wait a minute.

Starting point is 00:23:39 Are you answering this as Buffett or are you asked me as Professor Greenblatt? They didn't, they couldn't tell. I couldn't tell either. It sort of went back and forth between the two. So basically, this whole question of, and let me give you this other thing, which will answer your question indirectly, but in a more interesting way, as whether people can use a formula. So he did this study using this magic, magic formula or more advanced form of it or whatever,

Starting point is 00:24:03 and then it ranked the stocks going forward based upon a formula. And it turns out that the top desk. over a longer period of time. The top desal, you know, it did the best. The second destile did the second best, the third desk. And the lowest testile did the worst have lost a little bit of money. So my first question, you know, being a kind of an analytical guy and probably investing, the first question that sort of pops up to my mind, which is so obvious, is, hey,

Starting point is 00:24:28 why buy the top desal? Why don't you buy the top desal and sell the lowest decibel simultaneously? You'll have a balanced portfolio, presumably much less risk. and actually more return because the lowest sell actually lost a little bit of money. So to me, it seemed like, hey, that's such an obvious thing. How come you didn't do that? So he says, yeah, that's a good question. That's also a question a number of my students asked.

Starting point is 00:24:53 And they said, there's only one reason that I didn't do that. He said, I would have gotten wiped out if I did that. And the reason he explained was, good example, late 1990s. Late 1990s, stocks are going crazy. Everybody thinks, well, trend is small market. You know, S&B is up 20, 30%, NASDAX's gone through the roof, the internet, the internet craze. Stocks are going from 10 to 200. Okay, everybody knows all that stuff, right?

Starting point is 00:25:17 If you get that really the value stocks, a lot of value stocks aren't only going up, they might have been losing money, right? So you've got an atmosphere here where the worst garbage is going on its way from 10 to 200 before it goes back to 1 or 0, right? But you've got that interim period where it's going to 200. So you get a period where the really crummy stocks are going up tremendously and the good stocks are losing. What does that mean? That means if you've got 100%, 100%, you've actually lost more than 100% of your money.

Starting point is 00:25:47 And he literally would have been wiped out doing that. So while in most years that strategy looks like higher, much better return to risk, and that situation would get killed. So it's interesting. We had a guest. Do you know Wesley Gray? He's a hardcore quant guy, really awesome. Awesome, but we got to introduce you to West because he's just a wealth of information. He runs around with Patrick O'Shaughnessy and James O'Shaughnessy in that group.

Starting point is 00:26:13 But one of the things that he did was a lot of research on what you're talking about exactly, where when you get into a really high market valuation period, kind of like where we're at right now, growth picks do extremely well and maybe not what you would necessarily think. But then they just fall off a knife's edge whenever the value picks really start doing well when the market starts having a major downturn. So it's really interesting that you kind of got the same feedback and the same information from Joel Greenblatt when you were talking. I really find that interesting. Yeah.

Starting point is 00:26:43 Because it's facing true. Yeah. And we've talked about this on our show when we had Wes on. It's a really interesting discussion. I know Wesley Gray has a lot of published articles on it. Maybe we can throw some of those into the show notes to kind of complement this discussion. But awesome feedback. Thank you for that, Jack.

Starting point is 00:26:57 That's awesome. And also, so what Greenblatt says that this is kind of, it's cute but true. So he has three rules of value investing. He said, first rule is value investing works. The second rule is value investing doesn't work all the time. And rule number three is rule number two is while rule number one works. If anything worked all the time, enough people would use it, it would stop working. And it's because you get a 99 that value investing still works.

Starting point is 00:27:27 Because if it was just a matter of buying undervalued stocks and staying with him, then everybody would do it and would just, you know, but it would stop the edge would go away. But so, so anyway, that's his explanation. So the answer to the magic formula is it'll work most years, but there'll be times where it doesn't work. And it could be per long time. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up.

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Starting point is 00:31:21 the price will eventually go up. Now, traders, they also think in terms of leveraging their own position, not necessarily using debt, but if they have a really strong opinion about where our stock is going, they might be able to get a higher payoff. One of those ways to do that is using an option. And I know that you have a very interesting story about your good friend, Joan Greenblatt, and how he used options to invest in Wells Fargo back in the early 1990s. Yeah, so to set that up, I should say, because people have misperception, options being more risk and so forth. They can be more risky. The way most people use them, they are probably more risky. But the idea here is the way some great investors have used them

Starting point is 00:32:01 that I've spoken to, and Greenblatt's one of them, that's one of the ways he got such a great track record. And somebody like in the Hedgefield Market was like Jayne Mae's, a guy who really trades like that all the time. The math for the option market is that assumes there's always an equal chance of a market going up or stock going up or stock going down. And these traders realized or investors realized that there are points in time where that's not necessarily true. The natural pricing of an option to be symmetrical in terms of percentage or gain and percentage loss is not going to be correct. And so in this case, with Wells Fargo, he realized, well, Wells Fargo is a very, very solid stock, was a very, very strong company. However, at the time they had their book contained a lot of

Starting point is 00:32:45 real estate in California, and California was having, the real estate market was having real problems. so there was concern about the bank. But Greenblatt thought that they'd be fine, but he said basically, there's two possibilities. If this is really going to be a problem, they're going to go bust, then it's going to be a zero.

Starting point is 00:33:03 And if, like, I think it's going to be okay, then the stock is like tremendously on the price. He should triple, quadruple, whatever. So his play was, and of course he didn't want to just buy the stock and leave himself, take that bet, hold it that goes to zero, that take a chance of that.

Starting point is 00:33:19 What he did instead was buy out of, money options. And his thinking was, but they're out of a money option, you're basically not going to get paid unless the market goes up, or in this case, the stock goes up significantly. However, it's relatively cheap. You put up a small amount of money, in this case, if the stock goes down, goes sideways, or only goes up moderately, he loses that amount. But it's a small percentage of the total cost of the stock. However, if it gets to the strike price, and let alone if it goes well beyond the strike price, then you start getting multiples of your money. And so to him, it seemed like a really good play because the market was saying, hey, there's like a

Starting point is 00:33:57 50-50 shot of Wells Fargo going broke versus being okay, where in his mind it was much better than a 50-50 shot they'd be okay. And he played it in a way that if he was right, he could pay multiples of what he was risking. So that was the basic concept of the trade. You know, the end of that story is, I don't know, went up like four times or whatever. 400% return. Yep. So, Jack, one of the things that I really liked about your book is some of the people that you've interviewed through the years really kind of have just crazy or like really interesting

Starting point is 00:34:27 approaches to making money. And they're successful at it. That's the thing that's just so mind-blowing for me. Like one example that comes to mind was the guy from your hedge fund book, the hedge fund market wizard's book where he was breaking all the phones and just kind of seemed like he had this wild and rampant personality. and then another one was the gentleman that your son worked for who was actually betting in the exact opposite direction of whatever the market was trending and yet he was still able to make money. So I guess my question is this is what was one of the more interesting investing approaches that you've come across with all these different interviews?

Starting point is 00:35:03 What would you say that you took away from interviewing that person that maybe you could actually apply to your own approach? Boy, so it's a really bifurcated question because the latter part of that, that is like what did I take away and what I learned, that type of stuff. And there's lots of answers to that. And that has a positive answer. Then you began with a couple of people. And the second one you mentioned, the one of my son worked for Jimmy Ballademus. If you go through books, one of the things you note is, or most people realize is, hey,

Starting point is 00:35:34 all these guys are doing something different. You know, it's like they're just nothing like each other. It's not like a bunch of guys who do the same thing. So you got people all over the map. However, if your question had been, who was the most different trader, you know, style-wise, who used the most different approach versus everybody else? It would be Jimmy Ballademus because here's a guy who's using an approach that it just flies in the face of everybody.

Starting point is 00:36:00 You know, it's just counter to everybody's advice. It's counter to what everybody does. It's something like if you told me somebody does what Ballademus does, I said, this guy's going to blow up in a year or two. And he's been doing it for, I don't, 20 years, whatever he's been doing it for. First of all, what does he do? So what Jimmy Valdeemus does is he has this personality where he has to be opposite everybody. He can't stand to be, he always has to be fighting everybody. He has to be on the opposite side of everybody. And the more people are crazy about something, the more he wants to be the opposite side of it. So you get markets where

Starting point is 00:36:34 extreme markets, like, and he trades both stocks and commodities, but talk about some of the commodity examples because they're the really extreme ones. If your audience might remember silver, I don't know how four or five years, six years ago, I forget exactly what year it was. But silver was really going straight up and it went all the way up into the 40s and eventually got the low 50s. Well, and it's going almost vertical.

Starting point is 00:36:57 Who's selling silver? Well, there's Jimmy selling silver right into that uptron at 45, 46, you know. And, you know, we had cotton market, the cotton market that had since the Civil War had never gone to a dollar goes to like more than above two dollars and it does the last part in just a very short period of time just like another cliff and who's selling who's selling cock when is like two dollars that's baldeanus so he steps steps in front of freight trades and and not only that it'll be one thing if he did that and then just held the position when the markets eventually crashed but then when on the first good break he takes his profits it's like insane but no he has to be he has something else

Starting point is 00:37:38 the fight. So, so that's, that's the style he does. And the reason why, and, by the way, I say in that book, the first line of that chapter is Jimmy Ballademus breaks all the rules. And the first line of my, my conclusion to that chapter is, or the first line or second line is something along the line is, don't try this at home. You know, nobody trade this way. I don't want anybody to trade this way. How do I know he's for real? Because my, like I say, my son worked for him. And so he was there, he raged the interview and all that. So I knew for my son, worked in the firm and everybody knew that Jimmy was like this guy who produces multi, you know, a billion dollar results almost every year.

Starting point is 00:38:19 First day I go to interview him, set the scene. This is like the end of the first quarter. I forget which year it was, but it was a year, it was like 11, 2011, I think. But it was one of those years where the stock market was going up almost every day. And the first quarter had been up pretty steadily. and that March, the month I went to visit him, it was one of those days the market couldn't go more than three or four days without making a new high. So if you were like short, I mean, you just, you couldn't grasp, you can get, you can catch a breath. It was just like

Starting point is 00:38:50 down a day up again. You know, it's like. And so at the end of the month, very end of the month, last day of the month, I think it was, the market's down two percent. And there was some story about like Libya or something. And there was some excuse for the market to go down and sold off. And so I go into his office and he's got the monitors. My son's there too. And all the screens are like all red. Everything's like all red because that was the day the market was down, right? And it turned no sure enough, of course, he's been short everything, right? So, but it's one day the market's down. And first of all, he's a day. Good tellers is like, you figure a guy's been short of markets going straight up. Finally a day, the market's down 2%. Everything, the whole screen's

Starting point is 00:39:29 red. He's short. The thing the guy would be like, you wouldn't know if you want to loss that day. I came on a day he was losing you'd be the same way. He's just like, you know, that's the way it was. How's the guy short of market that goes up every day, virtually not every day, but he's going up almost every day of the month, gets one day where it's down and still ends up breaking even. How do you do that? So the thing is, and this is where he makes the money.

Starting point is 00:39:50 This is where his skill is. And this is what you can. This is something you can't teach. But he's always taking profits. He's always taking money off the table. So he's short a stock. And it's a terrible trade. The stocks are to go from 50.

Starting point is 00:40:03 to 100, but he's short. So he goes short, let's say he's short at 50. The stock picks that opens up 49 and a half. He sells some of it. Goes up 51, you know, I mean, I'm sorry, he buys it back and then goes up to 51, he'll sell it again. So he's constantly taking these small profits along the way. And so even though he's wrong in the trend, he's making his profits on these, because he's just capturing money off the table continuously. He does, he does, he's doing about 500 trades a day going to my son. So that's how he was making his money. but he could have made a lot more if he did the same thing with the trend,

Starting point is 00:40:37 but he insisted on doing it against the trend. It just seems like that you would eventually blow up with using that approach. But you're saying he's still been doing it for a long time. And I don't, I can't tell you how, I would have been the first one to say the same thing, Preston. I would have been the first one. And I would have said it's impossible.

Starting point is 00:40:55 Nobody could trade this way. And maybe he won't get away with his record. But it's been a long, long time where he's been doing it. And so. I don't think anybody should. I really mean it. Don't trade that way. 9,99 people out of 10,000 will go broke doing this.

Starting point is 00:41:12 And the last one out of 1,000 will lose 80% in the money. So nobody trades in. This wraps up our first part interview with Jack Swagger. Stay tuned for the next episode where we continue the discussion with Jack and learn more about fundamentals in trading and how to measure your performance in investing. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www.com.

Starting point is 00:41:40 Submit your questions or request a guest appearance to the Investors Podcast by going to www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

We Study Billionaires - The Investor’s Podcast Network - TIP 085 : Jack Schwager & Stock Market Wizards (Money Podcast)

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