Jack Schwager’s interview with Jaffray Woodriff from Hedge Fund Market Wizards exposes us to a completely unique style of trading. Woodriff takes massive amounts of market data and uses computers to identify patterns. He describes how he developed this method by saying that he didn’t really want to be a trend follower, but didn’t want to trade mean reversion strategies either.
At the root of Woodriff’s approach is a strong passion for differentiating himself from the crowd and a willingness to work harder than anyone else.
Top Five Quotes From Market Wizard Jaffray Woodriff:
In retrospect, Bill James’s style of quantitative analysis was a very important influence in how I eventually ended up thinking about the process of building trading systems to predict the markets. – Jaffray Woodriff
While I have heard plenty of comparisons between baseball and trading, this is the first time I have seen someone reference Bill James with respect to trading. As a somewhat obsessive fantasy baseball player, I have read quite a bit on many of the saber metric stats that James invented. The concept that Woodriff applies that type of “next level” analysis to trading had me hooked from the beginning.
My broker recommened a trade to me, in typical broker fashion. “It’s a layup,” he assured me. I lost money, and I never followed another broker’s recommendation in my entire life. Doom. Done. One trade; I will never do it again. – Jaffray Woodriff
I can imagine that this is a rather common experience among beginning traders. For some reason, I never had the thought to take any recommendations from a broker. That is probably because most of the brokers I have dealt with didn’t strike me as very smart.
Of course, I did fall for some of Cramer’s Mad Money recommendations in college. I never made any money following that advice either.
I just can’t stand being part of the herd and simply accepting the consensus. I want to evaluate everything on my own. – Jaffray Woodriff
At this point, I’m thinking that Woodriff is the kind of dude I need to hang out with. We would get along great. I can totally relate to his desire to avoid being a part of the herd. I’ve done that in many other aspects of my life, so it was only natural that it would carry over to my trading.
People are so excited about building and using software that allows them to handle so much more data than ever before that they are missing the point of doing the process properly. Not only does the software fail to guide the user in doing data mining correctly, it actually leads users in the wrong direction because it allows them to generate bogus evidence to support their pet theories. – Jaffray Woodriff
I’ll confess that I don’t really understand exactly how Woodriff’s data mining process works. I can’t comprehend how he would search that amount of data and be able to identify patterns, even with powerful computers.
With that said, I can totally relate to what he is saying about people using the power of their computers without understanding the basics.
When I was in my teens, my highly insightful father was somehow able to instill in me the discipline of objectively evaluating your own progress. That lesson, more than anything else, has been critical to my success. – Jaffray Woodriff
So Woodriff believes that the most critical component to his success has been his ability to objectively evaluate his progress. This is one of those things that is hard to honestly see in yourself. It’s easy to identify it in other people. I know plenty of traders who are obviously lying to themselves, and I know plenty of traders who honestly assess their progress even after years of success.