Market Wizard Joe Vidich

market wizards

market wizardsJack Schwager’s interview with Joe Vidich from Hedge Fund Market Wizards had plenty of great advice for all types of traders. I was particularly interested in the unique perspective Vidich seems to have on many different aspects of trading. He looks at things like market sentiment from a different angle from most other market participants.

I have a working theory along those lines that I have used successfully in fantasy baseball. Every year, I go out of my way to make sure that I am using different rankings from all of the other guys in my league on draft day. While there is a great deal of randomness that can influence any list of rankings over the course of a 162-game season, I believe that having different rankings allows me to view the draft from a slightly different perspective. The result has been a closet full of trophies that no one really cares about.

Top Five Quotes from Market Wizard Joe Vidich

I learned that it is always better to do your own work and get your own information because then you will have more confidence. If you listen to someone else to get into a trade and things go bad, then you have to listen to that person again to get you out. – Joe Vidich

While Vidich isn’t the first person to suggest that doing your own work is important, he does a nice job of illustrating why.

If someone simply handed me the rules to the DTAYS Quantitative Growth Fund ten years ago, would I have had the confidence to stick with the strategy through the past decade? The fact that I have built the entire strategy around concepts that appeal to my own trading personality make it a strategy that I can have confidence in when times get tough.

I learned the danger in selling expensive stocks just because they are overpriced and buying value stocks just because they are underpriced. Pricey stocks are always 30 percent pricier than they should be because people are willing to own them at 30 percent above what they should own them at. A good growth stock is always overvalued, and a lousy company is always undervalued. – Joe Vidich

This is another commonly misunderstood concept. Just because a company is trading at a high multiple doesn’t mean it won’t continue to trade at a high multiple. The same goes for struggling companies trading at low multiples. Traders are willing to pay up for growth. They always will be, so if a stock is growing, it will trade at what appears to be a high multiple for as long as that growth continues. When the multiple finally does come down, odds are good that the stock price will follow.

If everyone is bearish because that’s what CNBC says, that is public sentiment, but if the stock gaps higher after a conference call, that’s the market sentiment. What matters is the market sentiment, not public sentiment. I try to drown out public sentiment, except if public sentiment is so heavily one-sided…. – Joe Vidich

It’s no secret that I don’t care for CNBC. I just don’t understand why those people feel the need to talk so fast and use so many different charts and graphics.

I thought it was very interesting the way that Vidich distinguishes between public sentiment and market sentiment. Public sentiment is often a contrarian indicator, while market sentiment can be confirming.

It is really important to manage your emotional attachment to losses and gains. You want to limit your size in any position so that fear does not become the prevailing instinct guiding your judgement. Everyone will have a different level. – Joe Vidich

This is more classic trading wisdom. You can’t take your positions personally. If you do, the result will be similar to playing poker on tilt after a LONG night of drinking. You will lose everything and wake up with a terrible hangover.

Traders need to maintain a sense of awareness with regard to how their positions are affecting them on an emotional level. Too much excitement or pain means that the positions need to be smaller.

To be successful in the market, you have to be willing to change your opinion. Most people are not willing to change their opinion. You have to be humble about your ideas. – Joe Vidich

Things change, Mox.

Dealing with changes in the markets can be extremely difficult. What was a great looking setup yesterday might be an even better short opportunity today. Whatever strategy you choose to trade, you will have to master the ability to let go of what was and focus on what is.