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12/08/2005
Some Lessons From a Trading Story

When I was 11, I read a book that seemed good at the time on how to win at poker. The book recommended that you play only low hands because you could win either way with them, in hi-lo games, and that in hi limit games you should only play when your hand was the highest and best showing. I followed this advice and beat my neighbor who was a tenant in my grandmother's apartment out of his rent money which was $20 for the month. I heard his wife beat him up, screaming at him all the while, that he was a no-good gambler and had ruined their life. Shortly thereafter my grandmother told my father of what I had done and he demanded that I never play cards again with the tenant or anyone else for that matter as all gamblers die broke.

The first thing I learned from that is there is a tendency to lose everything when you gamble. And when I made $20 million on $100,000 in about six months in my first foray into commodity speculation in 1979, and then lost $15 million of it, I remembered the wife screaming at him next door. I stopped before I went under and have always tried to keep that lesson in mind since. It worked many times since that time but didn't in 1997 but that's another story. I hope I learned from that.

Someone else learned something from that also. It was the boy wonder, Shawn Andrews. He is in with all the big casino owners in Vegas and is invited to the celebratory dinners for the world champions of poker. When the conversation dies down, he tells my story and says "Vic's father says all gamblers die broke, and they're lucky if they don't end up as degenerates like all the system boys he had to carry to the morgue from the Bowery." At first there is great disbelief and disapproval. When no counterexamples are forthcoming, brooding ensues. The next day he invariably gets a few calls, and he has a few new customers.

I used this story at the recent fund-of-funds conference I spoke at. I told them they should pay me to speak at all their conferences because they could use me as an example of why diversification and vetting and the bear side were necessary. To emphasize the emotional content of the message in a way that mere words can't, I was accompanied by two outstanding musicians playing the piano and singing. My message was a great hit, and I was offered several jobs after the show by risk management firms. I like to make fun of myself because it keeps me humble and helps me to avoid the fate of my next door neighbor.

 

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