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The Chairman
Victor Niederhoffer

4/6/2005
ASK the CHAIR!

Q: Dear Vic,

I have had a series of misadventures in buying common stocks over a lifetime that is almost too sad and disastrous to think about, let alone write about., but you seem to be an accepting and sapient sort, so maybe you can help me.

In a nutshell, I've lost more money in more ways in stocks than seems conceivable. Let's start eight years ago, when I gave up on U.S. equities (something that has happened about 10 times in my life, each time after disastrous losses). A friend told me that he had made 100-fold by buying a Thai construction company, and then I read that the emerging tigers were bigger and growing five times as fast as Europe and I knew that an Arab sheik had just made a fortune by buying Citibank when it went to 8 on the theory that big banks always turn around -- they have to. So I bought Krung Thai Bank at 50 after it had dropped from 200.You see, not only did it have the "guaranteed to turn around" good thing, but the Thai government itself owned 90% of it. So it was doubly -- nay, quadruply -- less likely to continue to swoon.

Oh my gosh. I got forced to sell out at 5 and that precipitated a contagious string of events that brought me to the knees if not the belly up.

Next thing after giving up, I gave my money to a biotech genius who had turned 50 cents into a million dollars. He turned a few million into about $50,000 for me in such stocks as  gene company whose main product was a cure for lupus that led to exactly the same proportion of deaths and recurrences as the disease itself. Finally, a friend asked me what evidence I had that he had actually turned 50 cents into a million since he had to borrow money from me to fly from Florida to Michigan to attend a biotech conference.

We laughed a little about this and I turned my stocks over to a great expert, a man who combined his stolidity as a great weight-lifter and engineer with a dash of imaginative futurism that only the scientific young could possess. His specialty was the tech stocks, especially the tried and true like Sun and Lucent and Cisco that were paying dividends and once had been as high as Krung Thai and were sure to bounce. I lost about 80% on 7 figures before the master mind pulled the plug and went to another firm to trade futures with the techniques I taught him instead of individual stocks.

Before that, there had been an interlude where a physicist in my employ used specially designed electromicroscopy techniques to buy stocks that had runs of longest losing days among peers -- a system which, tested over 20 years, had not only worked every year, but had turned a dollar into $10,000. On paper. The only problem was that when we tried it in actuality, it turned my seven figures into five.

After a series of misadventures with such things as stocks recommended by friends who had Russian portals valued at 1/100 the comparable Yahoos and Googles in the US, ready to be underwritten at 20 times my purchase price, all of which went down by 95% in the year after I bought them, I went back in myself. I worked out a system of buying biotechs applying for new drugs when the insiders were buying . It couldn't lose, because the insiders knew exactly what was going on with the regulatory  process, and no way would they buy if they didn't know that the FDA was going to grant them approval for a blockbuster. On paper, this system made 75%-100% a year. Unfortunately, when we tried it, it lost 50% a year before we threw in the towel.

Next, I figured I would buy distressed things that had spillover declines from unrelated disaster stories in companies that really did have problems. Sort of like buying Allstate when AIG has trouble. But I chose to buy Pfizer when Merck announced that it was pulling Vioxx.. I bought Pfizer at 30, down from 35 a few days before and 50 the year before. Not only did I know that Pfizer's product Celebrex had nothing in common with Vioxx, but I also as a statistician could tell that the excess heart diseases that the Cox 2's apparently caused were mere statistical artifacts caused by faulty adjustments for multiple comparisons, and that these drugs had many benefits infinitely greater than the 1 or 2 percentage point-a-year extra heart attack risk that the data-mined, propagandistic studies falsely pointed to.

Well, it was like a deluge. I got visited with every affliction of the Big Pharma industry. First another study was dusted off that implicated Celebrex, next I had to face declining government and insurer payments for products, next patents that were expiring, next a challenge to its main product that the experts all said was about 50-50 to succeed, next a study by a co-payer that said they shouldn't have to pay for the product because it didn't work in their group, then television programs every minute urging viewers to join the class action suit for redress, next news that the product under question had less than half the prescriptions written for it than previously.

Finally, when they announced that their sales and earnings were going to be down drastically this year but that they were going to spend $5 billion to save $8 billion over the next four years, and that they were going to reduce the number of sales reps calling on doctors with exactly the same product to three, I threw up my hands and took a 10% loss, on the one day it seemed to have risen since I bought it six months ago.

Well, Vic, I could go on. but I think you get the drift. The rest of the story is too sad to tell. What in the name of Joe should I do? I feel like Willie Sutton, that ardent Dodgers fan, who shortly after escaping from prison was listening to the 1951 playoff game with the Giants. And when he heard, "I don't believe it! I don't believe it! I don't believe it! The Giants win the pennant! The Giants win the pennant! The Giants win the pennant!" about Bobby Thomson's homer, he just wanted to go right over to police headquarters and turn himself in.

Please tell me what to do.

-- Vic

A: Go down to police headquarters without wasting any time and turn yourself in! -- Daily Speculations

A: Go surfing. -- Jim Sogi

A: He should turn his screen upside down. -- "Bruno"

A: I've tried turning the screen upside down - it doesn't work. -- Philip J. McDonnell

A: Confess all to your dog. Then take him out for a run or walk. The stress release of the exercise will clear your head of yesterdays wounds. Sharing the joy of running with a dog will teach you to live for the moment. And with increased blood flow to the brain you might get some creative ideas for tomorrows battles.-- Russell Sears

A: Tell your "friend" there is always hope. Story in Traders monthly magazine about Chinese trader who lost money consistently for 20 years and now gets $180,000 for 1 DAY seminar on his methods because he allegedly is up last couple of years. Your friend could make pretty decent living off seminars and wouldn't even have to trade. -- Thomas Miller

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