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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01/05/05
Meaning in a Speculators Life, by James Lackey

An example is a LETTER from a SELF MADE MERCHANT TO his SON, LORIMAR "you been in the packing business long enough to know it only takes 30 seconds for a bull to lose his hide; if you believe me when i tell you they can skin a bear just as quick on 'Change you wont have a Board of Trade Indian using your pelt for a rug during the long winter months." "Because you are the son of a pork packer you might think you know alittle more than the next fellow about paper pork. There is nothing in it. The poorest men on earth are the relations of millionaires. When I sell futures on 'Change there on hogs traveling to dry salt at the rate of one a second and if the market goes up on me Ive got solid meat to deliver, but if you lose the only part of the hog you can deliver is the squeal" pp 193-94

Many men venture into the world of speculation without the business acumen to succeed. We find a niche, seemingly prosper for a short time before disaster of loss ruins our incentive to continue. Yet the business of speculation that is taught by any a business book is not absolute speculation, but to hedge for a respectable business. It is to provide a so called, economic good. On the other side of the spectrum we have trading books written by would be speculators or brokers lined with anecdotes, of success and failure. Only after enough heuristics or testing do we come to the conclusion that speculating indeed is as honorable a profession as any. Yet, it is as equally as difficult, even more so than any man's business.

Only the ability to predict the future can overcome the friction and high costs of the machine of Wall and Broad. To surf the waves of finance takes too much energy to survive at this point. There have been times in history when men have surfed and reacted, with the edge of a sharp head or a fast machine to profit. Yet, today there is not enough energy, over all market movements to support all these men on a free ride. This is what separates all men in speculation. Many decide on providing a business plan, a definable stable risk to reward with hogs to be skinned, salted and delivered. While others, take naked risks, at great expense both to the personal and professional life to serve ones own desires. The latter, arguable is the best way to help the common good. We all know speculators are important. We provide the world when they are without. Speculation is an honorable career as any, indeed. Some seem to delve so deep into research in the markets it could be described as the wild branch, "string theory" to explain the seemingly chaotic quantum world and how gravity effects electromagnetism. Einstein chose to ignore the quantum world as it was then and even now not testable in regards to simple gravity, therefore impossible to prove. He chose to work from his General Theory of Relativity to write his theory of it all, the unified theory, time, gravity, et all, indeed unfinished before his time, even today.

We all first think of the market as simply, time and price. Every now and again we get an X-Floor broker that wishes he was still paid on volume. Yet, we all too often forget the effects of gravity, velocity, weak nuclear/strong attractions. What is most important to who, what, when and how to profit. Often I blame these things on changing cycles. However, after much reflection on 2004, my failures were incompetence, et al. Ig gravity is very important in the big density objects like the SNP 500 to round numbers or planets to stars. Yet small things, like neutrons, protons and transferring of electrons and small cap stocks gravity should be, no where near as important than strong attractions like sectors and money flows. Sometimes we forget how important we, as individual traders are in the equation. Yes we, as speculators do affect the markets. Most times it is such a subtle way we believe we have no affect on price, the market, speculation and a better world.

In the quest for a formula to unify all of money management, one must respect the differences in which seemingly different worlds in one common dimension operate. To state something that can't work when it has, even for a fraction of a cycle is correct? Even if after the fact you said it would fail and it did. That still does not explain why it worked even for the shortest amount of time. Yet, what was meant to be said is that it was untestable, unpredictable, thus not useful as we currently understand it. Please, never give up on new discovery. That is the beauty, the future of the scientific age of speculation. Like a ghost that wanders outside Trinity Church, I have many descriptions and stories of past day trades. I would state that is the Nasdaq moved 300 points a day and QCOM rose and fell 20 handles, I would not slug it out on the SNP with the most brilliant men in the world. I would indeed operate where these men find it impossible to move.

The quest to grind out above market returns after fees on a billion or two, that would not fit into a day traders law of least effort. An individual day trader would venture to where it is the least competitive to produce personal profit, with least effort and the lowest risk to a loss of personal integrity. To steal, to cheat is not ever a consideration to real speculators; there is and always will be, much easier targets, the drunkards or men of low ability on the black market in the bookless lands if one chose to be petty. That said, the current money flows into hedge funds may be a tell. The MIT invasion into finance, new regulation with its increased costs of doing business, instantaneous news flow, insider rules and a hypothesis that, the markets are "more-fair" than any time in history. That leads the seemingly small minded to look at the "business" of managing money with what must be a joke of the demanded sharp ratios and falling incentive fees to declare that only the biggest of the business or only the totally innovative will succeed in the end.

For 2005, erudite men say bonds will drop, the fed model this, dividend yield that. I am reminded of a letter from a 100 year old yen trader to me in January of 2001. He said and I take much liberty to paraphrase , "how could all the day traders survive? If the profits are really there, as you have stated, competition will soon swoop in and drive margins and profits to nil. The costs of business Vs the potential to profit are un-businesslike" Even the most brilliant men, with billions will be forced to move around the food chain. Two point bond ranges will not provide the juice to light the street. Mother nature put on a mighty show of force with a loss of 100,000 lives in minutes. Certainly in time the mistress of the markets will be jealous and many will soon lose 100's of billions. We all focus and fear the losses of these large numbers. Yet 100,000 lives are lost globally, every day in silence. With 200,000 new births, a slap on the back side and a cry a new life increases the over all potential for human growth daily, a better world. We lose one or two companies to regulation or fraud. Yet, like the pure sweet smell of baby's breath, new companies are born at the rate that humans learn, discover and provide their children for a better life.

The casket was raised to the stand. His buddies said a few words of beauty and innocence that only a 20 year old kid would be honest enough to say. The truth. He overcame adversity. Like many he shared his experience and love. He changed the lives of the 100 or so kids at attendance. Through the crowd appeared his mother. Her loss was "as painful as labor it self... how ironic" she stated. Then with out pause she said how proud she was that a young man of only 20 should have such an impact, that 100 young beautiful people would attend, passionately pay their respects with an overflow of emotion and love at a funeral. Earlier in the week a great new friend gave me a merry pep talk. He said lack, "go for it, be the best at speculation."

A week later my Aunt gave me the exact same words. After the loss of her son she said, "Life is to short. Don't worry about that crap; don't fret over the things you cant control. Take pride in the things that you can make all the difference. Do it! Take huge risks and reap the rewards. Never hold your self our your children back. Never-Ever! You wont regret it." I learned a great deal about speculation from a great loss of life. Yes, there was much sorrow at the loss of a beautiful life. Yet much optimism and meaning for the future. The young are often described as inexperienced in loss, therefore seemingly inexperienced. With the poetry of the fallen, the strength of the family, one could only walk away with greater desire to produce, with fervor, where ever our passion takes us.

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