Daily Speculations

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The Chairman
Victor Niederhoffer

4/9/2005
Briefly Speaking, by Victor Niederhoffer

1. It seems that 99% of the professionals in the investment business have forgotten that higher prices lead to lower demand in the short term, and a increasing quantity supplied at each price in the long term .This is covered in most courses on microeconomics (my favorite book on the subject being Heyne's "The Economic Way of Thinking") except those taught by the communitarians at the Massachusetts-based schools. Failure to understand this phenomenon and the related idea that incentives matter has been the chief source of long-term loss that I've seem in speculation in markets. Most recently I saw massive same in the grains, and I expect to see it in the oils and commodity-based funds.

2. The autobiography of Mark Twain has some nice comparisons of prices expressed in dollars per pound and bushel in 1840 and 1900 for commodities in Missouri and Connecticut, and they support our previous calculations based on CRB date, and case studies based on street life in London that stocks have gone up in all relevant periods since the industrial revolution by about 100 times per century as much as commodities. What a opportunity for speculation that those investing in hot commodities disagree with these conclusions and don't read such books.

3 A certain famous former money manager from Fidelity has always struck me as one of those ignoramuses proud of the fact that he's never read a book and was raised in the school of hard knocks with insights about equal to those of the Beardstown Ladies. Recently in Fortune he stated he's made a fortune by buying companies when they move from crappy to less crappy. It has that ring of brawling, foul-speaking, Red-Soxian semidrunken in-your-faceness so typical of his pronouncements -- but the query, "Uh, have you tested that?" would seem apropos and the answers might be interesting.

4. A beautiful article in Fortune reveals the inside working of the 7 a.m. Saturday meetings at Wal-Mart's Bentonville headquarters, and their related Thursday and Friday meetings and merchandising meetings, and the 15-minute change-of-shift meetings at each of the company's stores. In this manner, information from all regions flows up to headquarters about what's selling and what displays are working and what the customers are doing, and often within 10 minutes they have fine-tuned their marketing from catfish to poker chip throughout the operation. There's no doubt that their motto, "The Customer Is King," has been very much responsible for their success and almost every other great retailer's success. The question of how to run a good meeting, and what feedback connections are ideal for same throughout an operation seems a very apt one for all entities.

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