INTRO
Michael Marcus is another successful US trader who made millions trading commodities. He also happens to be Ed Seykota’s student, another millionaire trader that pioneered trading systems. However, starting out he would consistently lose his money and was stuck in the cycle of borrowing and losing. How did this man turn his life around and meet his mentor? Let’s find out.
Background
Marcus was one of the smartest in his class when he graduated in 1969 from John Hopkins University. He was on his path to become a professor when he ran into a mutual friend called John that got him interested in trading. He said that he can double his money every two weeks “like clockwork”. This sounded like an opportunity that he could not miss despite knowing nothing about the topic at the time. Attracted by the possibility of getting rich quick, he decided to start trading with his friend. The irony is that even though it was John who introduced him to trading, he hasn’t traded before either so they were both going in blind.
Early Failures
Marcus faced big losses early on. Allocating $1000 of his savings on his first trade, he started with commodities such as soybeans and corn. Losing $100 on the soybean trade, he moved on to corn. Unfortunately, this caused $500 in losses in only 3 days. This is when Marcus decided to educate himself instead of blindly trading losing him lots of money.
Success, Finally
In his third attempt, Marcus used his $3000 life insurance money to use on his trading account which he received when his father died in his teen years. He found a lot of success using a scaling out strategy. Marcus eventually reached $30,000 in his account from 3 contracts on corn in the summer of 1970 along with additional trades on wheat and soybeans.
Corn & Wheat Contracts
In hopes of taking advantage of a trading opportunity, he created a $50,000 trading account. $30,000 of which was his own money while $20,000 came for his mum. Marcus bet everything on this trade due to an article he read “More Blight on the Floor Of The Chicago Board of Trade Than In Midwest Cornfields.” by the Wall Street Journal. He believed that there would be a short supply of corn due to the disease. This did not turn out to be the case however. Corn’s value fell instead of rising and when he closed his position, he lost a total of $42,000. Marcus did acknowledge this stating that “Basically, I had no real grasp of trading principles; I was doing everything wrong.”
Meeting Ed Seykota
October 1971 was when Marcus met Seykota. He worked in the same firm Reynolds Security as him as an analyst. Seykota acted as a mentor for Marcus and this is where he learned two important tips from him. These are being patient and riding a trend until it changes. These tips helped Marcus in his trading efforts as he was not a patient trader. The bullish commodities markets in the 1970s, greatly benefitted those that followed a trend follower strategy.
Plywood Trade
While working at the firm, he earned around $12,500 a year. Saving $700, and a friend contributing $700 to help him trade, Marcus looked at plywood and how the government price ceiling is broken at $110. He speculated that it should be higher. Using a scaling in strategy he first bought one contract. Then when the price increased, he gradually bought more and more contracts. This grew his initial $1,400 position to $12,000. Marcus thought that in addition to plywood, lumber should be growing as well. He bought lumber at $130. This did not last long however. When the government found out about this, they cracked down on it quickly. Both the plywood and lumber market crashed and Marcus’s account went from $12,000 to $4,000. This shocking incident affected him initially but then he remembered about the lessons Ed Seykota told him about being patient. Riding through the market crash, it grew to $64,000 as the market recovered.
$30,000 to $80 Million
In 1974, Marcus was hired by Commodities Corporation, an eventual subsidiary of Goldman Sachs. He started as their trader with a $30,000 trading account. His successful trading was largely down to his strategy of cutting losing positions early and letting winning positions run by following trends. The corporation allowed another $100,000 to Marcus’s account which in 10 years he grew to $80 Million. This happens to be a 2500 times increase. His best trade was in 1979. This was when gold was on a bullish trend due to the Soviet-Afghanistan Invasion and he bought 2000 contracts of gold. He rode the rising position and benefited from it immensely. The profits that he raised for the company exceeded most of the other traders combined.
Michael Marcus’s Trading Philosophy
Marcus emphasizes that patience is the most important factor in trading which he learned from Ed Seykota. If you look for fast money, you would most likely fail.
Idea 1:
“I will continue to lose money and lose all, if I am lack of patience, so as to ignore the trading principle, and rushed into the market without waiting until the main trend become clear.”
Idea 2:
“Nowadays, there are fewer and fewer profitable trading opportunities, so you have to be patient. Whenever the market moves completely against my prediction, I will say: I was hoping to make a big profit on this volatility, but the market does not move as expected, so I will simply exit.”
Idea 3:
“You must hold on to your good CARDS and quit your bad ones. If you cannot keep holding on to the good cards in hand, how to make up for the loss that bad card place causes? There are a lot of really good traders who end up giving up all their money because they are unwilling to stop trading when they lose money.
When I’m losing money, I say to myself: you can’t keep trading. And when you get a good card, it should be patient to hold. Otherwise, you can’t make up for the money you lost when you got a bad card.” (CPT Markets 2019)
Important Investing Quotes by Michael Marcus
“Being a successful trader also takes courage: the courage to try, the courage to fail, the courage to succeed, and the courage to keep on going when the going gets tough.”
“Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don’t stay with your winners, you are not going to be able to pay for the losers.”
“Every trader has strengths and weaknesses. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.”
“I think the leading cause of financial disablement is the belief that you can rely on the experts to help you. Investing requires an intense personal involvement.”
(AZ Quotes)