How a Trading Wizard Got His Start This week on How I Got My Start in Finance, Mark Ritchie, investor and market wizard joins his son, Mark Ritchie the second, to talk about his introduction to the world of finance. Starting in the Chicago commodities pits, Ritchie tells a story of his excitement of the first time he heard an opening bell. It is a crazy business. I guess everybody knows that. Your Real Vision's people ought to know that. If they don't know that by now, they're beginners. I spent part of my childhood in the Jim Crow South. Another part of my childhood trading kites and pigeons in the streets of the Bazaars of Kabul, Afghanistan. Then another part of my childhood messing around here in the US. Well, by the time you're done with all of that, you're ready for some crazy stuff. So by the time I got to this business, I had a method of thinking differently. Real Vision is thinking differently if they put a trader in here to interview his father about what it was like back in the antique days when they had to yell and scream. So one thing on that note is we're prone, as the Richie's, to go on tangents from time and time. That was a- You just heard one. Yeah, that was a good one to get us started. So take things then from willing to try different things to the Chicago Board of Trade, yelling and screaming and pits. Some may have read either one of your books or I get constant questions as if you're still doing what you are doing in market wizards that you've interviewed before 30 plus years ago. Talk me through that transition. Maybe when you first saw it. How did you realize this was a playground for you, this was the kind of crazy you could get into. My brother and I went to the Board of Trade to visit one time. We were standing in the visitor's gallery overlooking the floor. We'd heard legends about how wild the place was. Didn't look that wild to us. A lot of noise, a lot of noise going on but it just didn't look all that wild. All of a sudden, a great big dong went off. A bell like we hadn't heard before and the pit went crazy. So it hadn't been trading when you were watching? We didn't know there were just passing out orders getting ready for the opening. We were standing above the soybean pit and the traders went up the side and down the outside, back down and over the other side. It happened to be an exceptionally wild opening. We both looked at each other and said, "This the place for us". It was pretty clear. What year was that? That was '75. Consequently, was that the jump off point then? Pretty much, yes. It would it be accurate to say that you probably haven't had a salary since that jump off point? Well, my my brother Joe was hired actually by another company to come from Los Angeles and almost no one from outside the financial industries ever was successful invading them. He was hired to come and check this thing out. So he comes sees me. He says, "I don't have a suit. You've gotta suit." He put on one of my suits and I put on a suit and we went into some of these people at the Chicago Board of Trade. We said, "How could we get a membership of this Chicago Board of trade?" The guy just took one look at us when he came at the door. He said, "You boys have got to be at the wrong place." What was it about what you guys were doing on the floors and what's started from what I understand is just yelling and screaming like everybody else to figure things out then wound up becoming developing into a pretty large trading enterprise? We did, we yelled and screamed like everybody else but we brought to it a mentality of trying to do some different. A willingness to do something different, not follow the crowd. I don't know how many viewers here tune into this station to look for who's buying what. Well, I got nothing against that. But if you're just following the guys who I happened to be long goal right now, you want to use that to develop your own strategy. The cliche that's come around right now is the quote from Einstein, the definition of insanity, "Doing the same thing over and over and expecting a different result." Okay, fine. Most people who quote these geniuses don't know what they were talking about. If they're geniuses or don't know what they're talking about it. In our business, we do the same thing over and over and we do expect a different result and we get it every time too. Sometimes. Right. So we went into the pit with the strategies. We were arbitraging silver between New York and Chicago. But we brought every different idea we could possibly think of to the game. To do that more creatively. Right. To do it as creatively as we possibly could. Then later went into soybeans. There was an interesting, almost illegal thing going on here in the states at that time and that was the marketing of options on commodities and we had options on stock but we didn't have any options on commodities. So there were people who bought them retail in London and marketed them retail here in the US. So you were sure making a ridiculous spread on that. Yes. It was the kind of thing that's only legal because reasonable minds didn't realize what was happening. But it was about as improper as possible and it got closed down. But it did result in eventually in the options maybe becoming regulated here and we were prime to take advantage of that. At one point, the biggest option pit was the bond option pit. At one point, there were days in which our firm took as much as 50 percent of the trades. Open interests. In the option pit. It wouldn't have actually been open interest because you're always going someplace [inaudible]. We were as market neutral as anybody could ever be. By taking a lot of the volume. Right. If I understand too, the claim to fame from even your trading CRT was, let's hit as many more or less base hits as possible, versus swimming for the fences. Yeah. If you want to use the baseball, then it was get hit by the pitch as much as possible or get go for a walks.Yeah. Absolutely. Joe once described it as picking up dimes in front of a bulldozer. One of the rules is never add to a loser. That was probably my biggest strategy, adding to losers. Don't do what I say. Use what I say to try to come up with your own strategies. So that raises a really good question in transition point on just the idea of losses and risk management. The question I often get from people is, what did your dad teach you and usually they are assuming this idea that you have handed me some type of secret sauce and I often jokingly say the crystal ball that my dad had in the '70s and '80s is broken because I don't have it. But what I do say that you taught, certainly directly and indirectly is this idea of taking losses and managing risk. So when you say I was adding to losers, you had a [inaudible] point, for lack of a better word, where it was time to throw in the towel. So could you talk about the importance of risk management, how you think about taking losses and just why that's so essential and why you're still around as any form of a speculator, whether it's trader, investor, long-term investor. Okay. There's a sense in which everything we've said so far and everything we'll say after this. Everything we've said so far is warm up to this topic and everything we say after it is warm down from the topic. Is icing. Yes. Because there's only one topic I want to talk about, and that's losing. I might be a lousy loser but I know how to loose. You've got to be a pro to lose. If you can't lose, you can't play this game. I know we have a joke. How do you make a million dollars trade in commodities? You start with 2 million. But it ain't no joke. It ain't no joke. I mean, I sat across the table from a guy who his accounts we're in trouble and he wanted me to help him. I said, "I can make you a million dollars." I did make him a million dollars but you're going to think you'd lost a million. He did, I made him to two million. He lost a million. Got mad, took his money and left. Exactly what I told him was going to happen. Got furious and left. You even know about one relative. I got him to do a deal. I said, "I guarantee you will not lose money on this thing. We'll both do it, we'll take profits, I'll tell you where to take profits and if you lose money, I'll write you a check. Don't worry about nothing." You know that story. I'm going to tell the story anyway because people need hear the story. I took profits. I took my profits. I told him where to take the profits. Take your profits there. He calls me back in six months when he's turned his profit into a loser and says, "Are you still going to write me a check?" That's how ignorant. That's how ignorant. He's never spoken to me again. Not only did he lose money, he also lost friendship. He lost money on that trade. He made money on all the other trades. He made plenty of money with me. He never spoke to me again. Mad at me. Got out. Wouldn't take the profits where I told him to take the profits. To make money you got to make two trades. You got to get in and you got to get out. From arbitraging silver and copper to learning about how to lose, Mark Ritchie's experience, enthusiasm, and his commitment to thinking differently have served them well. For Real Vision, I'm Justine Underhill.