Practical Speculation: Reviews


Chicago Sun-Times

June 8, 2003



I just finished reading Victor Niederhoffer's new book Practical Speculation ($29.95, Wiley & Sons), and hands down it is one of the best investing books available.

What makes the book so good is the same characteristic that is sorely lacking from most journalistic discussions of the market: empirical evidence. It is commonplace for journalists to quote sources without bothering to determine whether the opinions expressed by the sources have any basis in fact. For instance, many market participants interviewed by a journalist will talk at length about how the S&P 500 closing above a 50-day moving average is a positive signal for things to come. The reality is that academic researchers have been testing technical trading rules for decades, and have yet to discover any that consistently work.

As Niederhoffer illustrates with several examples, what is believed to be conventional wisdom and accepted to be fact by financial journalists is not supported by historical data. The book is a must read for the simple fact that it is not afraid to debunk various widely held myths about the market.


Reader Reviews on


5 out of 5 stars (Beijing, China) This book gives treasure maps, minefield maps, and road maps for the market. The treasure maps tell you how to make money by analyzing the balance sheet, (beware of inventory and accounts receivable), by buying the growth companies in the first and fourth quarter, by following after interest rates, by buying the biotech with the insider buying, by bargaining for a good price, by waiting after a bad year, by waiting until real estate is down.

The minefield maps tell you how to avoid the blowups from earnings propaganda, the heads and shoulders and all that, the low book value stuff, the short term mentality, the boastful companies, the propagandist who's always gloomy, the road maps show how to use scatter diagrams, return data from all countries, the value line, the conservation of energy, tennis, baseball and chess to provide a foundation for investing. It's all documented with dozens of original tables, also very funny, and scholarly. I think I've read every other book about investing, and this one is head and shoulders way above them. I read a review in Active Trader magazine that said this is the best trading book of this century, and that's an understatement.


5 out of 5 stars(Tucson, Arizona) Here we are in early 2003 after suffering from three straight down years in the US equity market indices. One would think that equity market participants, many saddled with portfolio losses exceeding 40%, would want to re-assess their approach to trading/investing in order to improve for the future. It is in the natural order of things that when the garden is in full bloom, like my flower garden this fine spring day of 2003 or the Nasdaq in the fall of 1999, that the system generates predators and parasites to feast on the public with their tools of mystical prediction, hype, and mumbo jumbo, as nature does have this tendency to relentlessly strive to reclaim its own excesses. But one would think that now, in the season of our market discontent after three years of down-down-down that people would begin to question the amount of mis-information provided to them on a daily basis regarding financial and speculative matters. Unfortunately I see no trend in that direction, and if anything, the predators have become even more cunning as the herd is thinned. Amazingly, despite all of this, Vic and Laurel have quietly, in their typical non-promotional way, have opened one side door to show those of us mere mortals who seek ways of improvement a way to do so - through the use of the scientific method applied to trading. If one was to summarize the theme of this book it would be to please form testable and falsifiable propositions dear reader before committing capital to ideas, and as Feynman was often quoted saying - "if a proposition can be tested then it should be tested". Therein lies the path to improvement no matter what form of analysis you employ or time horizon you trade. This book is a wonderful anti-dote to the mumbo jumbo mysticism and misinformation that pervades the financial media. Besides, the part on Abelson is alone worth the price of the book.


4 of 4 people found the following review helpful:

4 out of 5 stars Excellent myth-buster and trading guide, April 30, 2003


Reviewer: Daniel Ferris from southern Oregon, USA

Vic/Laurel and I are different types of investors. Vic is essentially a trader. I'm essentially someone in search of a good business selling at a fair price. That difference aside, this book is one of the best financial books I've picked up in a long time. Not only does it bust the myth that "the trend is your friend," it also shows you how wrong it is to be consistently bearish, how mechanical and devoid of thought most CNBCish news is, how hubris signals downfalls and the truth behind Wall Street's earnings propaganda. It's got plenty of wonderful anecdotes, excellent recommendations for further reading, and advice real traders can use to make real money. I'll be using this book as a reference, even though (or perhaps, especially since) it raises serious challenges to my value-oriented investment style. I can't afford to ignore this book, and neither can you.

5 out of 5 stars(New York, NY) As a novice seeking guidance on how to make investment decisions I was immediately attracted by the title "Practical Speculation" - seems like colliding concepts but this easy-to-read book makes it seem more like the nature of an understandable beast.

In small, easy to read bites, one can digest and reflect on the information offered. The book is peppered with clues to the content of various sections by pictograms and pithy quotes. A beneficial collection of lessons, insights, and autobiographical experience is provided, opening a window into the unorthodox life and wisdom of a practical speculator.

Perhaps most important to those of us who lost money in the past 3 years, Vic shares, with frankness, the ups and downs he has navigated through during his career. It is confidence-building to know that one may survive loss, pick oneself up and go forward without fear.

The over-reaching value of the book lies in this and in the tools provided for the ordinary person (me) to wade through the river of information out there to evaluate for myself the words of the pundits at large and the numbers they throw about - and to cull out real value.

Thanks to the book, I have better tools to test the theories, challenge the numbers and set up measurements that work for me.

I loved the reference to "Invasion of the body snatchers"... I have the movie, and it scared me to pieces when I was young.

I gifted it to 4 of my colleagues at work and to my chiropractor, and it is fast becoming a valued possession for me for ideas to test, data to collect and thoughts to ponder.


5 out of 5 starsThe most scientific stock market book I have ever read  


Reviewer: Phil McDonnell from Seattle, WA

Practical Speculation by Victor Niederhoffer and Laurel Kenner emphasizes true scientific testing as the only way to approach the market. Every money making assertion the authors make is backed up by solid statistics and thorough testing. Despite the emphasis on statistics and historical testing, each profit enhancing technique which the authors address is readily understandable by any novice. Truly a gem!

The authors show what is wrong with PE ratios as a timing tool, how to use earnings reports and analysts expectations the right way. Certain technical analysis techniques are scientifically debunked. I would contrast this with other investment books which resort to a single mumbo jumbo chart example to "prove" that some technique works all the time. This book is a rarity among investment books because it backs its recommendations with solid statistical proof.

This book is the largest single collection of proven performance enhancing techniques I have ever seen. In the Technical analysis area, the book analyzes the actual performance of trend following, head & shoulders, TRIN, candlestick chart patterns, profitability of daily and weekly price patterns and a fascinating study on the profitability of the previous year's best and worst performing stocks.

The authors don't ignore Fundamentals either but turn their witty and fun magnifying glass loose on PE's, earnings predictions, analysts recommendations, Benjamin Graham and the profitability of value investing. Niederhoffer and Kenner also review how Zacks and the Value Line services have performed and show statistically how to use them to achieve superiors returns. Niederhoffer uses his University of Chicago PhD and UC Berkeley business Professor background to analyze how to look past the earnings and shows the value of dividends, stock buybacks EBITDA, high and low corporate tax payers and how to use inventory and accounts receivable to select profitable stocks.

All in all Practical Speculation is a fun read, made more so by the spicy and undoubtedly controversial pot shots the authors take at such notables as Alan Abelson, Warren Buffet, Benjamin Graham, and Alan Greenspan.

I highly recommend this book.


Reviewer: A reader from New York, NY

This book reminds me of that great quip by Derek Bok, former president of Harvard University: "If you think education is expensive, try ignorance."

I just got this book and skimmed it cover-to-cover the first time to get the main points. It's clear I have a whole lot to learn about the stock market, especially in these dangerous times. One by one Niederhoffer and Kenner explode the conventional wisdom espoused daily by the market "pundits." I had so many forehead slapping moments reading the rigorous studies and illustrative anecdotes that I am now convinced the only people on the planet who know less about the stock market than I do are financial commentators. Next time I hear another one of their tips or explanations, I'm going to shout, "Prove it buster!" at my TV screen.

If you're looking for another 90%-successful-trades-approach, this isn't it. In fact, if there's once central lesson I learned is that there's no holy grail to investing success. I liked the rambling style; the authors show that you can find stock market insights just about any place if you're willing to dig. (Tip: if you're not a numbers person, you can skip the graphs and occasional equations, they're all explained in the text anyway.)

There's that old saying, "First time shame on them. Second time shame on you." First time shame on my broker and all the talking heads in the financial media. Next time shame on me. Well, there won't be a next time.

If you have money in the stock market, get this book. Today. Ignorance is not bliss. It is very, very expensive.

I. M. Lucubrator


Reviewer: Brett Steenbarger (see more about me) from Fayetteville, NY USA

A patient learns for the first time that her body has been invaded by disease: cancer, dementia, or multiple sclerosis. The possibility that the disease might be debilitating and even fatal suddenly assaults her consciousness. At that point, a psychologist such as myself learns a great deal about such a patient's character. Some lapse into defeat and self-pity, their spirit dying long before their body gives way. Others flee into denial, ignoring steps that could enhance their life, or frantically scurrying from one mystical cure-all to another. A few, however, rise to the occasion with magnificent stature. Confronted with their own mortality, they refuse to yield their lives or their reason. They search and re-search the treatments that will maximize the quantity and quality of life and commit themselves to making the most of their remaining days. In refusing to allow their bodies to be snatched from them by disease, they are an inspiration to those whose lives they touch.

Niederhoffer and Kenner's book Practical Speculation begins and ends with a different, but related story of body snatching. They draw upon Jack Finney's 1954 science fiction classic Invasion of the Body Snatchers to describe the current plight of traders and investors. Confronted with a three year bear market that has placed their portfolios in near-terminal status, market participants-like our patient-are all too tempted to lapse into pessimism and despair or flee to mystical, untested promises of hope. The message of Practical Speculation is straightforward: in facing adversity bravely, refusing to abandon reason, we-and our portfolios-participate in the centuries-old ascent of the markets-and human progress.

The hero of Practical Speculation is neither Niederhoffer nor Kenner, but the scientific method. In chapter after chapter, the authors lay bare the ways in which analysts, journalists, and gurus offer advice and perspective that is entirely unsupported by facts or even the effort to gather and evaluate those facts. In a wry touch, the authors introduce a group of symbols that appear throughout the book: a pencil and envelope representing the scientific evaluation of data; a magician's hat whenever mystical ideas are recounted; a pair of storks to represent spurious correlations. This is a book that both debunks and enshrines. In Part One, it savages the "mumbo-jumbo" that comprises much of contemporary financial journalism and analysis. Part Two offers the antidote: "practical speculation" based upon the empirical investigation of market patterns.

The discerning reader will recognize at once that Niederhoffer and Kenner have tackled their own version of the Finney script, snatching victory from invading adversity. Niederhoffer suffered the well-chronicled demise of his successful fund in the late 1990s. Kenner, a journalist who went outside the bounds of her trade to find market insight in everything from music to baseball, suffered the demise of her career when she refused to adopt a more conventional mien. It is no surprise that the opening quote of their book, taken from Invasion, includes the exhortation, "We shall fight them in the fields, and in the streets, we shall fight in the hills; we shall never surrender." Practical Speculation is an affirmation of the markets-and those that would tame them-in the face of an unrelenting market decline.

In the end, however, Practical Speculation is practical. Included in the book are concrete ideas for trading and investment that draw upon option volatility, bond movements, insider behavior, and company fundamentals. Even more useful are eminently readable sections that introduce the reader to statistical analysis, including scatterplots and correlations. These practical insights are drawn from diverse fields, including physics, racquet sports, chemistry, and baseball. Taken together, they model a way of thinking about markets: identifying patterns from seemingly unrelated spheres, creating hypotheses, and then subjecting these hypotheses to critical, objective scrutiny. This alone is well worth the cost of the volume.

The best thing I can say about Practical Speculation is that it will be read in the future. As inspiration and education, its lessons are timeless.


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