Michael Marcus (born in 1956) is considered one of the top traders in the world. In less than 20 years he has been able to build up a well-earned reputation for himself, starting with just $30,000 and transform it into $80 million in just 10 years. In his interview for Market Wizards Michael shares his knowledge and is handing beginning and novice traders tips to improve trading results.
Before entering the world of commodity trading, Michael Marcus was a near top of his class student. He graduated in 1969 Phi Beta Kappa from John Hopkins University, and continued with a Ph.D. fellowship in pyschology at Clark University. Michael expected to lead the life of a professor.
Early trading career
Instead of becoming a professor, Michael met via a mutual friend a fellow named John. John claimed that he could double Michaels money every two weeks. Michael who never invested anything at the time, didn’t get skeptical from John his “too good to be true” promisses and hired John to be his commodity trading advisor. Now Michael was ready to go with the $1,000 he had saved. Going to the brokerage house for the first time was very exciting, but it quickly became clear that John wasn’t as good as an advisor has he claimed to be. After a few reckless trades Michael’s stake was gone, and John fired.
After the loss of his initial stake, Michael managed to rustle up another $500, but also this time his money’s faith was the same. Of his first eight trades, five with John and three on his own, were all losing trades. Instead of walking away from trading Michael never questioned his ability to hit it big. As a well performing scholar he expected soon to get the hang of it eventually.
When his father died he cashed in the $3,000 in life insurance. He started studying how to trade and made his first winning trade on buying Wheat futures. Which he bought on recommendations from a investment newsletter. The next trade he made, also based on this newsletter’s recommendation, hit a homerun. At the end of his summer trading he was left with $30,000 in his trading account.
Going back to class after that summer trading Michael couldn’t keep his attention. The only thing he wanted was to trade. This eventually resulted in him dropping out of school and moving to New York. He borrowed another $20,000 from his mom and added it to his already grown trading stack of $30,000. But with just one all-in trade on Corn- and Wheat futures only $8,000 was left of the $50,000.
Professional commodity Trading career
After this disastreus loss Michael applied for a job as commodity research anaylist at Reynolds Securities. Here he really started his professional commodity trading career in 1972. The guy that really helped Michael Markus becoming one of the best traders ever is Ed Seykota. The two most important lessons he learned where: be patient and say with the major trend.
It was the Nixon price freeze on commodities that offered the opportunity for needed to skyrocket Michael Marcus his trading career. He managed to grow his account to $64,000 with buying plywood futures.
In August 1974 Michael Marcus got hired as a trader at Commodities Corporation. It is here where he made fame turning an initial $30,000 into $80 million in just 10 years. What makes this even more impressive is that the company, being in an expansionary phase, taxed their traders 30% a year to pay for expenses. Where for common people 30% a year is already an insane return, Michael has been able to get a minimum return of 100% for years and years.
It is at Commodities Corporation, where Michael Marcus hired and taught Bruce Kovner as a trader.
Lessons to learn
Despite Michael Marcus his incredible long-term performance record, his early trading career was an unbroken string of trading losses. He got wiped out serveral times, before hitting it big time. What we can learn form this is that despite his early failure, it is not necessarily a good predictor of potential failure or success, it is just a sign that you are doing something wrong. For most great traders, early failure is actually more the rule than the exception.
Lessons that can be learned from Michael his interview with Jack D. Schwager are the importance of money management. Michael got whiped out several times due to making all-in trades and over exposure to risk. Tips Michael gives to traders during this interview are:
- Always bet less than 5% of your money on one idea (so not 4 trades of 5% risk on shorting the USD against different currencies)
- Always use stop-loss orders, and also place them!
- Once you opened a new position and it doesn’t feel good from the start. Don’t be embaressed to change your mind and get out that positions straight away.
- Wait for the good trades. Don’t try to trade everything. Be patient for the big opportunities to arise.
In his interview in Market Wizards Michael Marcus stressed that letting winners ride is every bit as important as cutting losses short. In his words, “if you don’t stay with your winners, you are not going to be able to pay for the losers.”
Lastly on the question “What are characteristics of a good trader” he replied: Being objective and open-minded. By being able to take in information that is difficult to accept emotionally, but which you still recognize to be true, you have an edge on the market already.