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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06/04/2004
James Sogi: Things I Love About the Market

Anonymity. It's great not to have to deal with inter-personal issues. It's one thing to yell and cuss at your screen, it will still be there tomorrow. So will the market. It's another thing to cuss out your secretary, your boss, your spouse, your best customer, your partner...you just can't do it. They (or you) might not be there tomorrow if you do. The market doesn't need flowers or get taken out to dinner. The market doesn't need health insurance. You don't have to fill out a pile of paperwork for every trade, an electronic accountant tallies your tabs for you. No one snickers when you make a fool of yourself by buying top tick, or leave an order lying around by mistake or sneak out of the house with a measly tuna fish sandwich. When you make a mistake, you may lose some money, but you don't end up in the morgue.

Diversity. It involves scandal, international intrigue, politics, big business, philosophy, economics, math, statistics. There are so many different markets to trade or invest, so many styles. You can customize it to meet your needs. Its the greatest show on earth.

Flexibility. Your soldiers can work for you while you sleep or eat, hopefully, and not be sleeping and eating your food like some employees. If you need you can take a long lunch. The market closes at 10 am here so there's time to do other things, like go surfing. You can pick your battles at the time and place of your choosing. You can live in St. Croix, or Hawaii and have the same up to date information as Wall Street. I remember a few years back when we would rely on the Wall Street Journal arriving a day late to try figure out the market. No way. New information technology made this possible.

Impartiality. Though the judgment of the market is final and its execution swift, it is the considered balanced judgment of the best and worst minds in the world . One is not subject to the quirks of the prejudiced, the incompetent, the biased or predisposed or politically influenced. It is impartial. If something goes wrong, you have only yourself to blame.

Easy financing. A sole operator can participate effectively. With a good strategy, the sole operator can leverage his own efforts beyond the strength of his own back with easy financing. Even with bad credit, you can get a good margin loan on good credit terms and get into it with a minimum of capital. Try to get a loan from the bank for a small business. You can go short. Where else can you short a market?

Liquidity. With such a broad market with liquidity it is relatively easy for a smooth operator to get in an out at a time and place of your choosing without having to engage in too much marketing, negotiating, haggling, lawyers, bankers, accountants, counterparty credit risk. Try sell a small business, or real estate in a falling market.

No Bureaucrats. You don't have to pay that awful repressive 4% general excise tax on gross receipts or deal with armies of nattering bureaucratic internuncio's and nabobs telling you can't do this can't do that.

The Spec List. We have the Spec List to keep us out of trouble, identify the scams and the hoodoo's, provide more education than college, more news than CNN, better analysis than WSJ, better book reviews than the NYT, better barbeque than Martha Stewart, interesting debates and above all critical thinking at speeds faster than a speeding bullet. Truth, Justice, and the American Way!

06/05/2004
Kim Zussman comments:

Counsel's post inspires some exceptional thinking of the kind which, though unexceptional in process, finds exceptions.

The strengths of trading markets, like the double edged sword, cut both ways. Especially in the last decade, liquidity, simultaneity, transparency, and access for all bring to the ring not only the fittest of the fleet thinkers, but countless wannabes to lube the grinder. Here there are few barriers to impede the dalliances of gamblers, mathematicians, politicians, economists, and dreamers. Oddly, one of the important fundamentals of a stock company is whether their market contains barriers to competition-of which trading markets has little.

A new neighbor, a retired contractor in his 60's, toils in the sun with his crew extensively remodeling the house across the street. Evidently he is another enterprising Californian who made it in real estate and now plans to retire here. Every day, jackhammers, shovels, saws, painters.

Real estate has many barriers to entry which filter on locals with money, contracting skills (doing or supervising), and tolerance for landlording. The skills and stomach required to locate property with potential, obtain financing, renovate, and landlord are uncommon and in any case the opportunities are local rather than global.

These hearty entrepreneurs learn to survive and manipulate planning commissions, and manage to navigate the legal system. Further, property's illiquidity and opacity of value might help avoid that all-too-frequent urge to sell early.

It is pleasant to imagine that success in trading securities markets preferentially rewards intellectual capital, as opposed to more banal attributes. How has this endeavor changed since the internet eliminated barriers, such as existed in the days of Livermore and Keynes, to give wide access to millions of minds connected by computer with the goal of profits? Perhaps there are easier ways, but unless a carpenter at heart, not many as fun.

06/06/2004
Victor Niederhoffer comments:

The market will always be there when you get back. That's another good thing about the market to add to Sogi's great list. It was a favorite aphorism of Irving Redel, the former chairman of Comex and a great trader, as to why when you're fearful or sick you should always get out. I have found it very valuable in retrospect and wish I had paid more attention to it.

It is most disrespectful of all to trade during life-threatening days vis-a-vis one's family. And I have found that the market seems to know when you're doing this and always gives you a tremendous loss when such happens. Jim Cramer has noted a similar phenomenon.

I believe this is the only thing that he and I agree on except that his wife is a far better trader than him.