Market Wizard Colm O’Shea

market wizards

market wizardsColm O’Shea uses fundamental and technical data to make discretionary trades that reflect his macro economic view of the world. This is the first interview in Jack Schwager’s Hedge Fund Market Wizards. As usual, despite the interview having nothing to do with my trading strategy, it was still packed with relevant information.

Top Five Quotes from Market Wizard Colm O’Shea

People get all excited about the price movements, but they completely misunderstand that there is a bigger picture in which those price movements happen. Price movements only have meaning in the context of the fundamental landscape. To use a sailing analogy, the wind matters, but the tide matters too. If you don’t know what the tide is, and you plan everything just based on the wind, you are going to end up crashing into the rocks. That is how I see fundamentals and technicals. You need to pay attention to both to make sense of the picture. – Colm O’Shea

O’Shea uses a great analogy here to illustrate the importance of using both fundamental and technical information. Thanks to my time studying O’Neil and Darvas, I have a good appreciation for the combination of fundamental and technical data. I like the way O’Neil uses fundamental data to screen for top stocks and then times his entry and exit points based on technical data.

The greater point here is that we must be conscious of both the price movement and the context that the movement happens in. O’Shea explains that many people trade based on the story they create to explain what is happening, but they don’t adjust that story when they are wrong. He strongly emphasizes that the stories generally follow the price movements, they don’t create them. Therefore, while the two are related, it is not necessarily a cause and effect relationship the way we might think.

Even though something might be a good idea, you need to wait for and recognize the right time. I am not particularly original. If you read the Financial Times, it’s all there. You don’t have to be a brilliant economist; you just have to recognize when something matters. – Colm O’Shea

Going back to my O’Neil roots again, just because a stock is considered a market leader doesn’t mean that the timing is right to buy it. The same concept shows up in my Live Trading Experiments. When I started trading these systems, many of the systems would have already had largely profitable long positions. Rather than wait for sell signals, I jumped right into those longs. Now, instead of giving back some profits, I’m losing money because I got in late.

Markets don’t think. Just like mobs don’t think. Why did the mob decide to attack that building? Well, the mob didn’t actually think that. The market simply provides a price that comes about through a collection of human beings. – Colm O’Shea

I think this is a very important concept for struggling traders to remember. The market is not out to get you. It isn’t trying to mess with your head. I certainly felt that way during some of the times when I was struggling.

It is important to remember that markets are just prices, nothing more. How we react to those prices is on us.

Since I don’t know you, I can’t tell you what your trading style should be. But if you are willing to put in the effort, you can learn what that style should be. If I try to teach you what I do, you will fail because you are not me. If you hang around me, you will observe what I do, and you may pick up some good habits. But there are a lot of things you will want to do differently. A good friend of mine, who sat next to me for several years, is now managing lots of money at another hedge fund and doing very well. But he is not the same as me. What he learned was not to become me. He became something else. He became him. – Colm O’Shea

As someone who has struggled with a number of different trading styles, this one really resonated with me. We all need to find the right approach to fit our own personality.

Reading through all of the Market Wizards books has really helped with my understanding of this concept. There are so many different ways to make money trading, and Schwager does a great job of profiling people from a number of different backgrounds. Some of the Market Wizards trade exactly opposite strategies but are somehow still profitable.

The bottom line is that anyone can be profitable with any approach, so long as it fits with their personality and they implement risk controls.

Perseverance and the emotional resilience to keep coming back are critical because as a trader you get beaten up horrible. Frankly, if you don’t love it, there are much better things to do with your life. You can’t trade because you think it is a way to make a lot of money. That won’t cut it. No one who trades for the money is going to be any good. If successful traders were only motivated by the money, they would just stop after five years and enjoy the material things. They don’t. – Colm O’Shea

This goes with anything in life. O’Shea continues by using Jack Nicklaus as an example. If it was just about the money, Nicklaus would have retired after only a few years of golfing. Clearly, for him, it was about something more.

I often question whether my motivation for trading is purely financial. It certainly was at the beginning, but if that was still the case, I probably would have given up by now. I have made plenty of money in restaurant management and freelance writing, but for some reason I am still fascinated by the idea of figuring out how to take consistent profits out of the market.