Market Wizards: Interviews with Top Traders

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Michael Marcus

Blighting Never Strikes Twice

Michael Marcus began his career as a commodity research analyst for a major brokerage house. His near-compulsive attraction to trading led him to abandon his salaried position to pursue full-time trading. After a brief, almost comical, stint as a floor trader, he went to work for Commodities Corporation, a firm that hired professional traders to trade the company's own funds. Marcus became one of their most successful traders. In a number of years, his profits exceeded the combined total profit of all the other traders. Over a ten-year period, he multiplied his company account by an incredible 2,500-fold!

I first met Marcus the day I joined Reynolds Securities as a futures research analyst. Marcus had accepted a similar job at a competing firm, and I was assuming the position he had just vacated. In those early years in both our careers, we met regularly. Although I usually found my own analysis more persuasive when we disagreed, Marcus ultimately proved right about the direction of the market. Eventually, Marcus accepted a job as a trader, became very successful, and moved out to the West Coast.

When I first conceived the idea for this book, Marcus was high on my list of interview candidates. Marcus' initial response to my request was agreeable, but not firm. Several weeks later, he declined, as his desire to maintain anonymity dominated his natural inclination to participate in an endeavor he found appealing. (Marcus knew and respected many of the other traders I was interviewing.) I was very disappointed because Marcus is one of the finest traders I have been privileged to know.Fortunately, some additional persuasion by a mutual friend helped change his mind.

When I met Marcus for this interview, it had been seven years since we had last seen each other. The interview was conducted in Marcus' home, a two-house complex set on a cliff overlooking a private beach in Southern California. You enter the complex through a massive gate ("amazing gate" as described by an assistant who provided me with driving directions) that would probably have a good chance of holding up through a panzer division attack.

On first greeting, Marcus seemed aloof, almost withdrawn. This quiet side of Marcus' personality makes his description of his short-lived attempt to be a floor trader particularly striking. He became animated, however, as soon as he began talking about his trading experiences. Our conversation focused on his early "roller coaster" years, which he considered to be the most interesting of his career.

How did you first get interested in trading futures?

I was something of a scholar. In 1969, I graduated from Johns Hopkins, Phi Beta Kappa, near the top of my class. I had a Ph.D. fellowship in psychology at Clark University, and fully expected to live the life of a professor. Through a mutual friend, I met this fellow named John, who claimed he could double my money every two weeks, like cock-work. That sounded very appealing [he laughs]. I don't think I even asked John how he could do it. It was such an attractive idea that I didn't want to spoil things by finding out too many facts. I was afraid I would get cold feet.

Weren't you skeptical? Didn't he sound too much like a used car salesman?

No, I had never invested in anything, and I was very naive. I hired John, who was a junior at my school, to be my commodity trading advisor at $30 a week. Occasionally, I threw in free potato chips and soda. He had a theory that you could subsist on that diet.

That's all you paid him? Weren't there any profit incentives -- extra potato chips if he did well?

No.

How much money did you allot for trading?

About $1,000 that I had saved up.

Then what happened?

My first trip to a brokerage house was very, very exciting. I got dressed up, putting on my only suit, and we went to the Reynolds Securities office in Baltimore. It was a big, posh office, suggesting a lot of old money. There was mahogany all over the place and a hushed, reverential tone permeated the office. It was all very impressive.

The focal point was a big commodity board at the front of the office, the kind that clicked the old-fashioned way. It was really exciting to hear the click, click, click. They had a gallery from which the traders could watch the board, but it was so far away that we had to use binoculars to see the prices. That was also very exciting, because it was just like watching a horse race.

My first realization that things might become a little scary was when a voice came over the loudspeaker recommending the purchase of soybean meal. I looked at John, expecting to see an expression of confidence and assurance on his face. Instead, he looked at me and asked, "Do you think we should do it?" [he laughs]. It quickly dawned on me that John didn't know anything at all.

I remember soybean meal was trading quietly: 78.30,78.40,78.30, 78.40. We put the order in, and as soon as we got the confirmation back, almost mystically, the prices started clicking down. As soon as it knew that I was in, the market took that as a signal to start descending. I guess I had good instincts even then, because I immediately said to John, 44 We're not doing too well, let's get out!" We lost about $100 on that trade.

The next trade was in corn, and the same thing happened. John asked me whether we should do the trade. I said, "Well all right, let's try corn." The outcome was the same.Did you know anything at all about what you were doing? Had you read anything about commodities or trading?

No, nothing.

Did you even know the contract sizes?

No, we didn't.

Did you know how much it was costing you per tick?

Yes.

Apparently, that was about the only thing you knew.

Right. Our next trade, in wheat, didn't work either. After that, we went back to corn and that trade worked out better-, it took us three days to lose our money. We were measuring success by the number of days it took us to lose...