Martin S. Schwartz (born: 1945) is a famous Wall Street trader who made a fortune trading stocks, futures and options. For many young traders today Marty Schwartz is probably best known for being the author of the book “Pit Bull: Lessons from Wall Street’s Champion Day Trader”. An absolute must read for every trader! But national fame Marty gained by winning the U.S. Investing Championship. What makes Marty Schwartz his story interesting is that he spent a decade losing money on his trading before he became successful. It was after he changed his trading methodology, and his mindset that changed him from a repeated loser to an incredibly consistent winner. Probably most impressive is that he generated massive returns without ever losing more than 3 percent of his equity on a month-end to month-end basis. Marty his struggle at first might inspire many struggling traders today. Let’s look into how this struggling trader became one of the best in the world.
Unlike other traders Schwartz trades independently from a home office. His entries in the U.S. Trading Championships gave him a lot of publicity. His performance in these contests have been incredible. From the 4-month trading championships that he entered, he managed to win 9. What makes it even more impressive is that he managed to do this by making more money than all the other contestants combined. Which comes down to an average return over the 9 contests of 210%-nonannualized! The contest he didn’t win he made more or less breakeven. The one time that Schwartz entered a one-year contest he really hit the ball out of the park. With an astonishing 781% annual return.
So I think it is clear that Marty Schwartz well deserved a spot among the best traders in the world which are discussed in these top traders spotlight.
One of the attributes which Schwartz is famous for is his work ethics. Already from a young age he had an ethic of working hard. Cleaning driveways after a snowstorm for a few extra bucks. With this ethic of working hard he became a honor student in high school. After graduating from Amherst College in 1967, Schwartz went to Columbia Business School. Because graduate school military deferments were just ended, he joined the U.S. Marine Corps reserve unit. The Marine training helped Marty a lot through life. It gave him the confidence to believe he could perform at levels beyond his expectations.
After leaving the Marines, Schwartz goes back to Columbia to finish his M.B.A. and starts working as a securities analyst. His training to think purely about the fundamental side of trading will be broken when he meets a guy who had developed computer programs for trading commodities. This draws Marty’s attention and he decides to invest some money, which he lost almost completely. After this failure he starts to work for Edwards & Hanly, where he met Bob Zoellner. Bob was a managing partner of the firm and a great trader. He starts to help Schwartz how to analyze market action. An example lesson was, when the market gets good news and goes down, it means the market is very weak; when it gets bad news and goes up, it means the market is in a healthy shape.
Around this year Schwartz starts taking trial subscriptions on many different trading newsletters. He took a number of different methodologies and molded them into his own approach. This is start of his success in trading. He started trading like crazy and by mid-1979 his account had run from $5,000 u to $140,000 in just two years. Besides having a clear methodology another mental attribute made that he became successful. According to Schwartz it was the crucial part of accepting to be wrong. Before he explained that being right was more important that the money lost.
Starting off on his own
With the $140,000 Schwartz paid for a seat on the American Stock Exchange, leaving him with $20,000 to work with. For additional funds he borrowed another $50,000 giving him a total of $70,000 of working capital. After four months as a market maker Schwartz is already $100,000 up. The next year he earned $600,000. After 1981 he never earned less than $1,000,000 a year.
After a 1,5 year Schwartz realizes that the floor trading wasn’t big enough for him. He starts with trading futures. On which he was very successful. In his overall career he took $40,000 and ran it up to $20,000,000 with never more than a 3% drawdown month-end to month-end.
Marty Schwartz his tips for other traders
According to Schwartz many traders are losing money because they rather lose money than admit they’re wrong. He also struggled with this in his early trading career. Once he changed his mind set, he became extremely successful. Like many top traders Schwartz also urges the importance of capital preservation. As trader you shouldn’t let your losses get out of hand.
- Always check your charts and moving averages (MA) prior to taking a position. There is many information found in how the market trades compared to its MA. Try not to go against the MA; it is self-destructive!
- Always ask yourself if you really want to take that position
- Take a break after a successful period. This is necessary for your mental game. According to Schwartz his biggest losses have always followed his largest profits. So, after a strong run of profits, take a break, or definitely play smaller rather than larger.
- Know in advance the maximum amount you’re willing to lose.
- Money management is the most important concept in trading successful.
Marty Schwartz’s story is a story of failing for almost a decade, before hitting it big. Finding a methodology that worked for him, in combination with a change in mindset made his transition to a successful trader reality. Throughout his losing years, Schwartz focused on fundamental analysis for his trading. It was not until he immersed himself into technical analysis that he found his key to success. The take away is not to choose between fundamental or technical analysis but that each trader must find his own approach. Some traders feel comfortable trading with the trend while others prefer counter-trend trades.
Or an insightful presentation of the Master himself click here.