Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

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8/3/04
Department of Connections

James Tar: Cooking and Markets

I spent the end of March and the beginning of April recuperating from back surgery. While resting, I avoided the markets and CNBC and my Bloomberg, and decided to get back in tune with one of my other passions, cooking. The Food Network (see your cable provider) is perhaps the most useful and instructional channel on television today. The range of techniques, ingredients, and genres across the programming is exceptional, and each of the shows' stars has an individual skill that stands out alone. I spent 5 or 6 hours a day resting while totally focused on the Food Network. I learned a great deal and feel that my cooking is more disciplined and creative. Despite the shows diverse programming, common themes emerge. Yes, perhaps well known, but they can not be spoken enough and they are more than applicable to our love of the markets:

1. The Importance of Fresh Ingredients - Never discount the need for accurate, fresh Data.
2. Likewise, the importance of good equipment - Having real time access and reliable systems can not be underestimated.
3. Fewer Ingredients, Tastier Foods - Multivariate systems can leave a bad taste in the mouth, and lose customers.
4. Follow the Recipe, Respect the Process. If you make a mistake early on in the cooking process, don't try to fix it, you'll end with an even greater disaster. Throw it out, and start again. Why do we hold on to bad trades with the hope that they'll turn around well after we acknowledge we are holding on to a loser? Should I add? No, take the loss and move on.
5. Boil an Egg, Don't start with Soufflés - I am reminded of the first time trader who starts off by trading options. Beginners are an important element to the professional component of the market, they are the prey, but how true it is if you can't cook, please stay out of the kitchen!

8/3/04
Kim Zussman Comments:

Speaking from the perspective of superior eating skills, notice how the presentation, company, and ambient sights sounds smells profoundly effect taste and how one would rate a dish. Oenophiles too will attest to how the experience of their favorite vintage varies with mood and accompanying foods. Not to neglect the immutable relations between hunger and attempts at procreation, recall Keynes' analogy of markets to beauty contests. How the order, shape, size, and panache of contestants flavor and bias the ratings of the subsequent. Such that if one were to run such a contest twice with same judges but a different sequence of pretties the results might be very different.*

Perhaps this relates to why markets react differently to shocks of like magnitude and are prone to negative correlation. Now where was that bottle...

^{*of course this could be rigged, but it is more fun to think of contestants as virtuous beyond carnal corruption}