Mr. Schwager has written extensively on the futures industry and great traders in all financial markets. He is perhaps best known for his best-selling series of interviews with the greatest hedge fund managers of the last three decades: Market Wizards (1989, 2012), The New Market Wizards (1992), Stock Market Wizards (2001), Hedge Fund Market Wizards (2012), and The Little Book of Market Wizards (2014). His other books include Market Sense and Nonsense (2012), a compendium of investment misconceptions, and the three-volume series, Schwager on Futures, consisting of Fundamental Analysis (1995), Technical Analysis (1996), and Managed Trading (1996). He is also the author of Getting Started in Technical Analysis (1999), part of John Wiley’s popular Getting Started series.

E Tavares: Jack it is a pleasure and an honor to be speaking with you today. You are a reference, even sort of like a guru for us in the futures / commodities industry. Throughout your work – and we read much of it – you seem to have a slight preference for trading futures over stocks and bonds. Is that right, and if so why?

J Schwager: That’s absolutely true. First of all, I got into the industry as a commodities analyst. There were no financial futures, which now dominate the markets, in those days. Two years as an analyst then 22 years as director of futures research for several firms, with several years designing trading systems along the way. Much of that continues in different shapes and forms, so the bulk of my professional career has been in futures. That’s the primary reason for me.

The stock trading that I do has been sporadic. It’s very different from my futures trading, which basically consists of trades with stops to control risk. In stocks I will be much more contrarian, looking to buy things when they have been out of favor, at low or pummeled prices. Not because I know much about the underlying fundamentals, just that it’s a type of business where I believe the long-term downside is very limited irrespective of the technical/price chart patterns, and there is much more upside than downside.

For example, in late 2008 I had no idea when the whole collapse in the equity markets would end but it seemed to be the classic panic. So I looked to buy very long-term out of the money LEAPS (call options) in things that were totally crushed, like FXI (China ETF) or XME (Metals & Mining ETF). They were trading so low that it was unlikely they would lose much more value from there. I did not have any stops even if the whole thing went to zero so it is quite a different way of trading from futures.

In fact it’s a complete 180 degrees different. For me futures is more like trading and stocks is more contrarian, long-term investing…

ET: … like value investing?

JS: Sort of, although I don’t do all the related fundamental work. That’s not my forte. But I look at things like prices hitting fifteen, twenty years lows, it’s a pure panic, commodities will not go out of favor, China and India will continue to grow, and so forth. So it makes sense to buy now and put it away for a few years. And if it goes to zero it goes to zero.

If XME goes from 50 to 12, it can go anywhere but I figure that at 12 it probably will not go much lower, but not because I have done any fundamental work.

ET: You just published a new edition of A Complete Guide to the Futures Market, which we can’t recommend enough. The first edition came out in 1984 and was already considered to be a seminal book on the subject. What prompted you to write a second edition more than thirty years later? Is it because the markets have fundamentally changed and as such the materials needed an update?

JS: No, the catalyst was the publisher! They bugged me throughout the 1990s to do an update and I finally balked once they threatened to get somebody else to do it. Once I got started I ended up turning it into three volumes and 1800 pages.

Then they wanted another update but just in a single volume. I finally agreed but at that point started working with a co-author that I respect a great deal, and just went over his revisions. The original 1984 book was still relevant; in fact without wanting to sound immodest it was very good. I thought I did a good job the first time around. However, today nobody is going to read a book that is over 30 years old. I thought it was a shame to let it go by the wayside when ninety percent of it was still pertinent and the rest could be easily updated.

There were no real meaningful changes to the first edition other than market updates, expansions in some topics and contractions in others. There were no analytical approaches that I thought were wrong now. Actually, hardly anything of substance needed to change.

So the book was still pertinent, it just needed to be revised and updated and a new edition was necessary to bring it to the attention of a new readership.