Jack Schwager on Timeless Lessons from Elite Traders

**Excess Returns Host** (0:02)
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I've got the Gandalf the Gray of Finance here. He's back with me. We're doing Wizards. We're doing Market Wizards. It always has to be this way. I'm going to get this excited every time. Jack Schwager, welcome back to Excess Returns.

**Jack Schwager** (0:21)
Yeah, thanks. Appreciate it.

**Excess Returns Host** (0:23)
I mean, 40 years now of profiling some of the best traders alive. It's been 40

**Jack Schwager** (0:29)
88 to, I guess, 38 years.

**Excess Returns Host** (0:32)
You're at 38 All right. We're going to cross the...

**Jack Schwager** (0:34)
Not quite 40

**Excess Returns Host** (0:36)
Not quite. We're not going to age you anymore. We know, I mean, so many of us love the series of books. This one with George Coyle is maybe the, am I correct to say this, youngest, most risk-adjusted cohort we've ever seen in one of the books?

**Jack Schwager** (0:50)
Well, yeah, I mean, definitely the youngest group.

**Excess Returns Host** (0:54)
This is wild. I feel like this is like watching the World Cup and thinking about the young talents, where you go, there's just something about the youthfulness of some of these people that blew my mind.

**Jack Schwager** (1:04)
There are certain differences that strike out, which, not strike out, is maybe the wrong term, but strike one.
And like, for example, not one, not two. I don't even remember how many mentioned that playing video games was kind of an influence, that they were real fanatics about video games, and they ended up being short-term traders, and the skills were compatible. So never in any prior Market Wizard book did I ever have the subject of video games come up.

**Excess Returns Host** (1:38)
You ever play with a video game, Jack? You ever play the video games? You personally?

**Jack Schwager** (1:42)
Yeah, I never was much into video games. Although, I mean, just early on, the really beginning of video games. I mean, I remember I'm old enough to have played Pong.
If you don't, the audience doesn't know it, look it up. But it's like one ball in two panels, typically in a bar.

**Excess Returns Host** (2:03)
Typically in a bar. You have a sub mean Pong technique. Are you competitive guy when it comes to stuff like that? If you're playing Pong, no?

**Jack Schwager** (2:10)
No. Yeah. No, I'm not competitive.
Not in that sense.

**Excess Returns Host** (2:15)
All right. So one of the questions that I wanted to ask about this is basically the requirements for considering people.
Because this is very, very different than like talking to Bruce Covner and people like that. This is just, it feels like a different set approaching the book even. How do you think about the requirements for getting in?

**Jack Schwager** (2:32)
I'm ultimately looking for a story. Has to be a good story. And as far as the performance side, there are two elements that two possible roads to it. One, somebody takes a small amount of money and turns it into a lot.
A good example, one of the traders in this book went from a $40,000 account to a half billion.

**Excess Returns Host** (2:58)
We're going to talk about Simon Rousseau, that's got to be it.

**Jack Schwager** (3:00)
So that's a good example of that. And then you have people who have kind of crazy return risk numbers.
Often, I'm not talking about, and people think, I don't use the sharp, I'm biased against it for a number of reasons, but people know the sharp. So we're not talking here sharps of one or two. We're talking like, well, in some cases, not even calculable, because one of the traders in the book never had a losing month. So you kind of get an infinity number, you divide by zero. But even some of the others, you've got these crazy, let's say, equivalent to sharp ratios of 10 plus. We're not talking one or two. We're talking about really crazy numbers. Actually, one of the things about these traders, because the return risk is so good, the sharp ratio is always understanding it, because the sharp uses volatility as a risk measure.
As far as the sharp is concerned, as far as the risk denominator, it doesn't make a difference if you made 25 percent in the month, or lost 25 percent in the month. The risk measure and the sharp is the same, but there are other risk measures which really look at losses, not the volatility, and only therefore are looking at volatility on the downside. Those measures are much more extreme for these traders. Not all of them, but like I say, they usually fall to one or two categories.