The king hears about all the speculation and high prices and promptly sends his soldiers from town to town to proclaim that speculation is now a crime against the state—and that severe punishment is to befall speculators.
The new law, like oh so many laws against the free market, only compounds the problem. Soon, some towns have no wheat at all—while rumor has it that others still have ample, even excess, supplies.
The king keeps raising the penalty for speculation, while the price of wheat, if you can find any, keeps going higher and higher.
One day, the court jester approaches the king and, in an entertaining sort of way, tells the king of a plan to end the famine—and to emerge as a wise and gracious ruler.
The next day, the soldiers again ride from town to town, this time to proclaim the end of all laws against speculation—and to suggest that each town prominently post the local price for wheat at its central marketplace.
The towns take the suggestion and post the prices. At first, the prices are surprisingly high in some towns and surprisingly low in others. During the next few days, the roads between the towns become virtual rivers of wheat as speculators rush to discount the spreads. By the end of the week, the price of wheat is mostly the same everywhere and everyone has enough to eat.
The court jester, having a keen sense for his own survival, makes sure all the credit goes directly to the king.
I like this story.
The loose end, of course, is how the court jester happens to know so much about how markets work—and how he happens to know how to express what he knows in an effective way.
While we may never know the answer for sure, my personal hunch is that the court jester makes frequent visits to the royal library and reads Reminiscences of a Stock Operator by Edwin Lefevre, The Crowd by Gustav LeBon, Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, and the entire Market Wizards series by Jack Schwager.
Trading, it turns out, is the solution to most economic problems; free markets, sanctity of trading, and healthy economy are all ways to say the same thing. In this sense, our traders are champions and the men and women in Jack Schwager's books are our heroes.
Schwager's books define trading by vividly portraying traders. He finds the best examples, he makes them human and accessible, and he allows them to express, in their own ways, what they do and how they do it. He gives us a gut feel for the struggles, challenges, joys, and sorrows all of them face over their entire careers. We wind up knowing each of his subjects intimately—and also as a uniquely complete expression of repeating themes, such as: be humble; go with the flow; manage risk; do it your own way.
Schwager's books are essential reading for anyone who trades, wants to trade, or wants to pick a trader.
I go back a ways with Jack. I recall meeting him while we were both starting out as traders, long on enthusiasm and short on experience. Over the years, I watched him grow, mature, and develop his talent, evolving to become our Chronicler-General.
Schwager's contribution to the industry is enormous. His original Market Wizards inspired a whole new generation of traders, many of whom subsequently appeared in The New Market Wizards, and then, in turn, in Stock Market Wizards. Jack's Wizards series becomes the torch that traders pass from one generation to the next. Now Hedge Fund Market Wizards extends, enhances, and perfects the tradition. Traders regularly use passages and chapters from Schwager's books as a reference for their own methods and to guide their own trading. His work is an inseparable part of the consciousness and language of trading itself.
Some 30 years ago, Jack reads Reminiscences of a Stock Operator and notices its meaningfulness and relevance, even 60 years after its publication. He adopts that standard for his own writing.
I notice that books that actually meet that standard tend to wind up in the libraries of traders and court jesters alike, on the same shelf with Reminiscences, The Crowd, and Extraordinary Popular Delusions and the Madness of Crowds.
That's exactly where you find Jack's books in my library.
Ed Seykota
Bastrop, Texas
February 25, 2012
This foreword was originally published in Market Wizards by Jack Schwager
