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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A Great Man, by Victor Niederhoffer

I met with a great man, Carl ----, who formerly made markets in options, but now makes markets in undervalued companies. He asked me so many good questions about my business that eventually I had to throw up my hands and tell him to stop asking so many good questions. I just didn’t know the answers. Finally he asked me, “Are you sure you got it all figured out?” And I was reminded of when I confidently answered my dad that I did have it figured out. Then he told me about all the bodies he had to transfer to the morgue from the Bowery. All of them had more numbers and stats than I did. And when he inventoried their belongings, they had nothing except their collection of stock tables from the Morning Telegraph. I told ---- the story and gave up.

Mr. ---- said he likes to gamble and that's why he owns a few casinos – so that they let him play baccarat for up to $120,000 a bet. He uses the Martingale system of always betting to win a few thou. Then he quits. It’s only a 5% edge, he explained, so he cant lose as long as he has sufficient money. “Same thing with your options,” he added.

I said, “Well, that doesn’t work, because you only make a little most of time, but lose big. The houses love you.”

“That’s right,” he said. “I lost $X million in two minutes last year, and that took back all my winnings over the previous three years.”

One thing was missing from his discussion: the mechanic, the crossroader, the adroit dealer who is not averse to dissimilitude. My gosh. that overwhelms all the others.

I will correct a common error about being cheated. If you go somewhere and the other side wasn’t expecting it, then you often feel that you don’t have to worry about being cheated. For example, the U.S. president doesn’t announce his schedule and can walk into a restaurant pretty readily if no one's around who knew he was going to do it. Sort of like Saddam Hussein appearing on the streets after the bombing. That’s a variant of the tendency to talk to strangers freely on a train or boat and reveal things and be partial much more than ordinarily (female travelers take note). The point is that many crooks and others who would get the edge are quite opportunistic and will take the opportunity to con you even when you're not expecting it. Consider how Gallo was killed at Umberto's when a casual acquaintance of a rival clan noted he was dining there and immediately alerted his superior. And how so many motorists whose cars break down are victimized by mashers.

Two concluding thoughts:

The $X million that ---- lost, and the money that many others lose, most likely was lost because of dishonesty. And the advice of mothers to daughters, "Never talk to a stranger on a train (or boat)" should also be remembered.