Give Me A Market Maker, Not An Analyst

I just finished reading Jack Schwager’s new book Hedge Fund Market Wizards – How Winning Trader’s Win. And it was awesome. Just like the original Market Wizards, the interviews were really informative. This is the type of stuff I like to read. I don’t care how hungry your games are or how many shades of gray there might be. Give me a book filled with interviews with successful traders and I’m like a little kid in a candy store.

I wanted to share one of my favorite parts of the book with you guys. In Chapter 8, titled The Art and Science of Risk Control, Schwager interviews Fund Manager Michael Platt. My favorite question and response came about half way through:

Schwager: You have picked a lot of traders in your career. What do you look for when you hire a trader?

Platt: I want market makers, people who know that anything can happen. The type of guy I don’t want is an analyst who has never traded – the type of person who does a calculation on a computer, figures out where a market should be, puts on a big trade, gets caught up in it, and doesn’t stop out. And the market is always wrong: he’s not. Market makers know that the market is always right. You are wrong if you are losing money for any reason at all. Market makers have that drilled into their head. They know value is irrelevant in times of market stress; it’s all about positions. They understand that markets will trade against positions. They get it. It is built into their books. It colors the way they think. I look for the type of guy in London who gets up at seven o’clock on Sunday morning when his kids are still in bed, and logs onto a poker site so that he can pick off the U.S. drunks coming home on Saturday night. I hired a guy like that. He usually clears 5 or 10 grand every Sunday morning before breakfast taking out the drunks playing poker because they’re not very good at it, but their confidence has gone up a lot. That’s the type of guy you want – someone who understands an edge. Analysts, on the other hand, don’t think about anything else other than how smart they are.”

I thought this was a great answer. Now, a lot of my friends are analysts and some of them are great at what they do. Platt’s response regarding analysts is clearly a bit extreme, but I think you understand what he’s trying to get at. This is about what kind of person, or mentality, you’re looking for when trying to hire a trader. Risk management is the most important thing. The market doesn’t care how many times you’ve been right or wrong. If you want to look cool on TV or impress your families at a cocktail party, stick to your guns and take massive losses. Fine, not my problem. But to make money in this market consistently, you better check your ego at the door.



Hedge Fund Market Wizards (Jack D. Schwager)