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Victor Niederhoffer



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Lessons and Stories from a NY City Policeman, from Victor Niederhoffer

Whenever I meet or read about someone extremely effective at his day-to-day activities, I try to consider how it throws light on markets and what the lessons for specinvestors are. Yesterday, Laurel and I had dinner with Bill McCarthy, one of the most effective policeman in history, a man who rivals the Palindrome himself in range of experiences and survival and successes in navigating them. Bill is also the best storyteller I've ever met and I hasten to share a few of his lessons and stories with my readers.

First a word about Bill's background. Bill is a principal of Threat Research, Inc., an international security management consulting firm, and a professor of Criminal Justice and Sociology, State University of New York. He was a police officer for 21 years in the New York City Police Department, serving as commander of both the Bomb Squad and the Vice Squad.

A Patented Method:

Bill had a patented method for overcoming resistance to an arrest. He participated in more than 4,000 arrests during his career and executed over 1,400 search warrants. When he entered a bar or other dangerous place and was physically threatened by a perp, he would start punching himself in the stomach and face, and butt his head against the wall. The poor criminals in the bar would see that he was willing to fight, and ready to take no prisoners without a brawl, and they would immediately give up. In the market, a similar strategy is a show of tremendous volume on one side. The poor weak sinners on the other side see that in order for the market to go in their favor, it would take an incredible show of force. And thus they immediately capitulate.


Bill often had to make arrests under violent conditions. One of the things he feared most was having a partner who had no experience in taking a punch a two. Certain non-Irish groups were particularly vulnerable to such lack of training in their youth, mine among them. I hate to get beaten up. And when someone takes a punch at me, I often lose my head. Regrettably, some policeman are like that also. But that can create unpredictable difficulties and escalate the situation such that guns might be pulled and someone seriously hurt. Bill, on the other hand, had been involved in innumerable fistfights in the neighborhood starting at age five, and frankly enjoyed it when someone attempted to exchange blows. He could admire the quality of the punch, the deception of it, and predict the next moves. The situation was quickly resolved in a harmonious arrest with one of his patented techniques, to everyone's ultimate benefit.

I don't have much experience in physical harm. Indeed, I once lost a million bucks when a policeman gave me a one-second Indian burn for talking at a public meeting for longer than three minutes, and I sued for false arrest and interference with my freedom of speech. That's another story. But I am quite experienced at taking tremendous financial harm in the markets. Not only do I not panic in such situations, but I am likely to take out my cane and buy when the light at the end of the tunnel is darkest. Such training in experiencing losses and violence, especially among violent stock market declines, is a great aid to the experienced police officer or specinvestor.

Naive Rookie:

When Bill was a rookie working in Harlem, he would often be assigned the undesirable job of chauffeuring a Division Lieutenant. This Division Lieutenant would often order Bill to drive around to street dice games. They'd pull up in their unmarked but obvious police car to these games and the players would immediately run away, leaving their money there in the process so as not to be caught with evidence, and Bill would chase them. Once he caught a few of them and brought them back in handcuffed to the car. The Lieutenant would looked at him with fire in the eyes, "who told you to catch them?" Bill was so naive as a rookie that he didn't understand what the Lieutenant really intended. The Lieutenant just wanted the money for himself! The situation reminds me of many of the announcements by corporations that they have been notified of a routine query by a regulatory agency and have hired an independent law firm to conduct an investigation of the matter. Such announcements often serve merely to create the semblance of fair play.

Millie and Morse:

Bill's wife Millie's favorite play is The Fantasticks, which she's seen at least a dozen times. One day, five years after he retired from the force, he was walking down Sullivan street to pick her up. All the sudden every social club on the block closed down and emptied out, and the block became deserted. The lookouts had immediately recognized him from five years ago and had concluded that a raid would soon ensue, as this had been the norm all the time when he had been on the job as head of the organized crime squad.

The scene was so reminiscent of the bull forays of Anthony Morse, 100 years ago and a mile south at the NYSE, that I could not refrain from recounting the story. From "The Last Scene in Morse's Career," from Worthington Fowler's 10 Years in Wall Street (1870):

Morse's end spoke to all like a warning voice. He departed from the arena, a stripped, penniless, heartstricken man. Out of the troop of wealthy friends which but lately clustered about him, only one or two still clung to him. He had now only the shadow of a great name. [Vic's note: Why does it hurt so much to recount this?] He was pointed out in the streets as the man who had once set the market in a blaze [in 1996?], but capitalists shrank from him as if he had the leprosy. His attenuated face now and then flitted past the streaming throng in Broadway [always taking care to avoid coming within a square block of even a Th#i restaurant?]. One day, more than a year after his failure, he was seen on the street, and Fort Wayne rose 5 percent. His name still spread alarm among the bears and inspired the bulls with new courage. Then came disease. No longer blithe and gay of mien, but morose and irritable. The vast burden of his debts and losses wore upon him. A gaunt, pallid face, in a notorious gambling hell in 24th Street. Alas, how changed from the Morse who but the the year before had led his dashing ranks to the summits of the market.

Yes, the market, like the crocodile, remembers all the greats who bulled it up, all the ways that easy money was made and is ready to think it will happen again. But for those who believe that repetition and imitation will carry the day again, the crocodile or the gambling house will get them. Fortunately, Bill survived his 4,000 arrests and his undercover career to write one of the best true crime books of all time, Vice Cop, and to head up one of the premier security companies of our day. Those who believe unduly in past glories, whether they be capos or soldiers, speculators or stadium builders, are doomed to failure.

Surveillance Secrets:

When conducting a surveillance one of the common mistakes of a rookie is thinking that you have to hide and not be seen by the subject of the surveillance. And if seen the rookie assumes that he has been made (identified as a police officer). Bill call the syndrome made-itis. An accomplished surveillant is prepared to provide an innocent visual explanation or distraction for his presence to the subject, if his presence comes into question. Talking to yourself, scratching, coughing, walking a dog or minding a child are quite effective. He used his son on several occasions.

Often a company will announce a stock split, or a buyback, or a dividend increase, in conjunction with insider trading or a meeting before a key brokerage house, well before an important product or earnings release. To a highly inordinate extent, the next earnings are going to be a very pleasant surprise.

Ken Smith replies:

The story many folks like to hear would be about the lieutenant without morals who ripped off the dice players. The story about good cops doesn't attract as much interest. I had one cop steal a box of mechanic's tools from me. Yet, other encounters with cops were positive experiences. A state trooper found me in a wayside rest stop locked out of my car with a fierce wind blowing ice cold on a mountain top in winter. He put me in the passenger seat of his vehicle and turned the heat full on and left me there while he went to my car and used a tool to open the door. I was saved from freezing. I had only a dress shirt and slacks to protect me from the elements. I have a couple more stories like that. But my point is made. Cops are good guys.

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