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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2/10/2005
Victor Niederhoffer: The Big Con

Part of the Big Con that has the market in its grip is that every book that makes you trade too often, and that  sounds sensible, will be accepted as a divine dispensation to the investment community. Such is the case with all the books that advise buying the market when the P/E is low and selling when it is high, like the work of the chronic pessimists. And such is the case with the book that many say is the best book they've ever read, the Zurich Axioms by Max Gunther. The book has 12 major axioms and 16 minor axioms. Not one is tested. Almost all contradict others. And all will give you a false sense of confidence when you're doing the wrong thing and channel you away from doing the right thing, while at the same time causing you to overtrade, and have a false sense of confidence. The basic premise of the book is that Mr. Gunther's father, a successful banker from the mountains, had some great techniques of making money that only his Alpine friends knew. And that the son started to ask sharp questions about them, and systematized them in a book that makes you rich.

Some examples of axioms:

  1. Always take your profits too soon.
  2. When the ship starts sinking, jump.
  3. Accept small losses cheerfully, but expect to experience several while awaiting a large gain.

Will someone please tell me how to take your profits too soon and at the same time hold for that large gain that offsets the small losses ? On the occult: if astrology worked, they would be rich. But a superstition can be enjoyed, provided it is kept in place. Will someone please tell me how to strike the proper balance between reason and superstition. Until further notice, I'll insist on things like evidence, refutability, verification, repeatability and principles of analysis.

Like all such books, there are no economic principles or data to back up rules that could be subjected to actual tests in different markets. Nor any understanding of the principle of ever changing cycles that makes all fixed systems losers on average when you have enough confidence to try them.

One of the worst rules which one tests here often is "if it doesn't work the first time, forget it.". On the contrary, even the fixed rule players know that the losers are to to loved as a prelude to better times.

Needless to say, the book is given unanimous 5 star ratings by all reviewers. Why is this guaranteed to happen and why does the public have to lose so much more than they should? Where is the archaeological libertarian trader when we need him?