The New Market Wizards: Conversations with America's Top Traders (63 page)

^*
The Elliott Wave Principle, as it is formally called, was originally developed by R. N. Elliott, an accountant turned market student. Elliott’s definitive work on the subject was published in 1946, only two years before his death, under the rather immodest title:
Nature’s Law—The Secret of the Universe
. The application of the theory is unavoidably subjective, with numerous interpretations appearing in scores of volumes. (SOURCE: John J. Murphy,
Technical Analysis of the Futures Markets
, New York Institute of Finance, 1986.)

^*
This interview was conducted several months prior to the government bond-buying scandal that rocked Salomon. Following this development, I asked Lipschutz if he still wished to maintain the terms
honesty
and
integrity
in his description of Salomon, as the words now had an ironic ring in light of the latest revelations. Lipschutz, however, felt strongly about maintaining his original description, as he believed it reflected his true feelings. Queried about how he reconciled this image of integrity with the apparent ethical lapses in the bidding procedures at several government bond auctions, he replied, “I believe it was more a matter of ego on the part of a single individual, which ran counter to the qualities embodied by Gutfreund and the firm.”

^*
As proposed by Ed Seykota in
Market Wizards.

^*
Technically speaking, there would be a slight variation because the risk-free return (e.g., T-bill rate) would also enter into the calculation.

Note: For a few sections of this interview, a basic understanding of option terminology would be very helpful. Readers totally unfamiliar with options may wish first to read the primer provided in the Appendix.

Note: This chapter was adapted from Jack Schwager,
Market Wizards
(New York: New York Institute of Finance, 1989).

Note: Readers unfamiliar with options may wish to read the Appendix in order to understand the trading-related references in this chapter.

Note: Readers unfamiliar with options may wish to read the Appendix in order to understand the trading-related references in this chapter.

^*
Hull is referring to the hook
Security Analysis
by Graham and Dodd, which is considered by many to be the bible of fundamental analysis in the stock market.

^*
The object of blackjack is to get a total card count greater than the dealer, but not higher than twenty-one. Each card has a point value equal to its face, except for picture cards, which each have a value of ten, and aces, which can be counted as either one or eleven at the option of the player. A blackjack is a two-card hand consisting of an ace and a ten-card. If a player is dealt a blackjack. he wins one and one-half times his bet, unless the dealer draws the same hand, in which case the result is a tie. If the dealer alone draws a blackjack, all players lose automatically. A player may draw as many cards as he wants as long as his total remains under twenty-one. If his total exceeds twenty-one, he loses automatically. The more concentrated tens and aces are in the deck, the better the odds for the player.

Note: Readers unfamiliar with options may wish to read the Appendix in order to understand the trading-related references in this chapter.

Note: In several instances in this interview, where I thought it would help clarify or expand the information, I supplemented Faulkner’s responses with adapted excerpts from the Nightingale-Conant tape series NLP: The New Technology of Achievement NLP, for which Faulkner was the program designer and principal coauthor.

Note: This Appendix was adapted from Jack D. Schwager,
A Complete Guide to the Futures Market
(New York: John Wiley & Sons, 1984).