Trader Vic - Methods of a Wall Street Master
Author: Victor Sperando (with T Sullivan Brown)
Distributed in India by India Book Distributors (Bombay) Ltd

This is the first of two books on the subject of trading in the financial markets that Victor Sperando has written. He focuses on the requirements and attributes of a trader/speculator as much as he does on building enabling skills for trading. The ideas that he seeks to communicate are informative as well as utilitarian. In that sense it is not a book of do's and dont's; but is rather a more practical application of the ideas brought out in earlier works by eminent authors such as Bernard Baruch and Robert Koppel.

The book does not only focus on the inner make up of a trader though it lays a very great emphasis on it; but also draws a blue-print for employing techniques of finding relevant markets to trade in, searching for and tracking information regarding markets and instruments traded in those markets, definingstrategies to be used in exploiting the information accquired and finally detailing the discipline required in entering, executing and managing transactions. As a ready reckoner to the entire process he puts forward a number of rules which a trader/speculator must follow in order to attain some degree of sucess.

Like books written by all good traders here too we are treated to a delightful exposition on risk management. Though his techniques utilise the fundamental priciples of risk management he also details some methods developed by his own trading experiences. In his own words "I have developed a unique approach that integrates knowledge of odds, the markets and their instruments, technical analysis, statistical probability, economics, politics and human psychology. I combine all of them assessing risk/reward from every possible dimension to keep the odds in my favour." He boils down his techniques of risk management to a system of bookmakers odds; whereby he seeks a minimum ratio before accepting atrade. In principle, looking for minimum odds while trading is much like a value investor seeking a margin of safety by buying below intrinsic value.

He links his business philosophy to three basic principles which he calls "thinking in essentials" (it must be pointed out that the author has been greatly influenced by the unbridled laissez-faire capitalist thinking of Ayn Rand). These three principles involve dealing with trading in financial markets not simply as a source for profits but rather as an approach to money management and are preservation of capital, consistent profitability and superior returns.

Even though he does not profess to be a technical trader (he refers to technical analysis as an important auxillary tool) he postulates the importance of being aware of its principles. To that end he even basis his primary risk/reward tools on the tenets of Dow Theory; and on the results produced by the application of the theory to daily trading. He also displays a very clear understanding of DowTheory and is careful in marking out what prospective traders should be looking at as far as using technical analysis goes. But he also warns traders and speculators that Dow Theory alone is by no means a comprehensive way to forecast market behaviour but at the same time it is a body of knowledge that no prudent speculator should ignore. He observes that traders who rely solely on charts for identifying trades do not have a very consistent track record.

His views on the economic boom and bust cycles are very fundamental to the process of speculating and he relates the thinking of Ludwig Von Mises on the eventual debiliating effects of constant credit expansion and subsequent contractions to modern day economic thinking and his strategy for surviving in the financial markets calls for estimating the level of central bank (read government) intervention in determining interest rates, credit flows and the consequent effect on asset prices.

But at a micro level Sperando feels that decision making and buildinga discipline to stick with that decision is crucial to trading in the financial markets. He talks of the will to execute knowledge as the key to successful trading. He says that acquiring a certain or even a competent level of knowledge is relatively easy but putting that knowledge into action in a consistent manner is the hard part. Citing an analogy, he points out that there is lot of literature available on weight loss but no more than 12 out of 100 people who enroll in a course for weight loss will actually lose some and then only 2 out of those twelve will maintain that weight loss for a year. He dwells at great length on the psychology of a trader and through those views he sketches the personal attributes required to build a successful career as a trader and he has rightly emphasised the need for independent thinking as one very critical attribute.