The Summer and Jim Lorie, by Victor Niederhoffer
The summer is always a good time to philosophize about the warp and woof of markets and how I found my niche therein. My philosophy is much increased these days as it's the first time in recollection I've spent an evening or two without family, collaborator, or business partners. A particularly poignant starting point is that the market is at a 4 1/2 year high at the same time my 82 year old mentor Jim Lorie is at a low in his physical health.
But for Jim, I'd be in a completely different arena. He guided me through graduate school, arranged for my scholarship to continue, beat back all those who would not have allowed me to get my degree, provided for my financial well-being, got me my first job. I can hear him now saying "You left out that I carried you in our squash tournaments."
Even more important than the meals for a day he provided, which were essential to my survival then, were the meals for a lifetime he provided, setting me on a path for prosperity in the future, and providing a foundation for my current position. Most important were his studies that showed that in almost all periods of seven years or more with a reasonably diversified basket of 10 or more stocks, you were likely to end up with a 10 percent per year return. He supported this view with a complete enumeration of every NYSE stock's performance since 1926. And he attributed the return to the balance between the requirement that entrepreneurs needed to start good businesses, and the intrinsic rate of return from entrepreneurial effort.
It was hard to maintain that view during the 1970s when books and articles bubbled over with doomsday projections, and the misery index broke 20% a year. But Jim kept saying that there had been bad times before and there would be bad times again, but nothing had changed the balance. He served as the director of many funds, brokers, and companies during that period. And to them all, whenever they'd say such things as "we’re in a bear market; we have to lighten", Jim always had the same answer. "There's no such thing as a bear market except for one that's gone down a lot in the past, and that's the best time to buy". I provided a similar rudder for others through the "bear market of 2002" with my many hundreds of articles, and books, always espousing a buy and hold strategy and holding up to ridicule the Abelsons and Sages of the world who saw the end of the Dow as an immanency.
Another plank in Jim's philosophy was the importance of incentives. "Give a person a chance to make a profit and keep it, and the next thing you know there will be a benevolent circle of material and personal well being. Stay away from those areas where the system is rigged so that the only systematic way to allow incentives to work is through government intervention". I have found that extensions of that idea, as it relates to dollar investments or alternative investments, is a chief plank for any success I have had, and more important, for those occasions when I have been able to maintain the fruits of same.
The returns that Joe McNay achieved for Yale in the 1980s by following a strategy based on Jim's studies, i.e. bringing some $1 million into $100 million over a 20 year period by investing in growth stocks, proved Jim's wisdom. Jim's own performance during the almost 50 years I have known him, a period during which he has been fully invested on margin almost throughout, is certainly of the same order of magnitude as McNay's. Alas, Jim is not more than 100 percent invested at the present time, as he is battling a tough illness and needs all his energy to fight back.
Jim has been a mentor for many, and I represent the endless chain of such students and youngsters that Jim and his counterparts have set on the right path over the years. I strive to provide a similar bulwark to others out of a benevolent gratitude and my own self interest in making the world a better place for good people.
A natural outgrowth of such thinking is the importance for youngsters to surround themselves with the Jim Lories of the world who will guide them on a path that has success along the way.