Feb

8

A Commenter writes:

Vic, this being a public forum you probably wont reply, but have you ever thought YOUR method is mumbo jumbo and you were just smart enough to stay your whole career on the right side of the drift, with humongous leverage? Think about it. Your junkyard-boeing analogy doesn't hold water. Soros way works. Munger way works. Icahn way works. Even Buffett way works. Time tested. To the $ billions. Yours didn't stand the test of time, not once, but multiple times and this is the most robust stat test. Maybe you were just lucky to skim enough OPM residuals to provide a comfortable life for your family, and more power to you, but otherwise to an outsider, this looks like a huge waste of one's abilities.

Victor Niederhoffer replies:

Yes, I often feel my methods are mumbo jumbo. And I am always trying to improve based on that supposition. I have had enough pitfalls and debacles so that if I didn't doubt my methods, I would be even more of a useless idiot than you think I am. My self skepticism is compounded by the fact that I am pretty much the founder of the field of using statistical interactions to predict markets, and my former employees who I have taught are legion, and use vast financial and human resources that dwarf me by many thousand fold in their extent and erudition. I try to learn from people like Soros and Munger and Icahn, most of whom I have worked for or studied in one way or another. What I learn from them is mainly that they are one with the idea that has the world in its grip, i.e. they profess a line of keeping man small while rising above the tide through clever use of the service and public attachment to the forces of agrarianism to deflect competition and attrition. Luck and the path has much to do with it also. My family and I are quite cognizant of your criticism, and are never hesitant to deflate my exuberance with sobering warnings and critiques such as yours. 


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9 Comments so far

  1. Rod Horton on February 9, 2015 8:04 am

    Am I the only person in America who loves both Niederhoffer and Buffet, Munger, et al Surely there are others?

  2. anand on February 9, 2015 9:07 am

    I wonder why people are so eager to criticise someone who actually promotes testing of their trading ideas, while nobody seems that eager to criticise technical analysis or even (traditional) fundamental analysis? V Strange.

    On another note, the Chairman blowing up a few times isn’t really proof that his ideas and methods don’t work for the following reasons:

    a) Was the Chairman actually following his own rules at the time? One e.g. his own account suggests that in the Asian crisis debacle he used ‘qualitative’ judgements on a bounce back in Thai stocks (apparently the Chairman had seen Soros complete this manoeuvre to good effect several times so thought he’d give it a shot .. on related note I blew myself up several years ago after reading that Soros didn’t believe in formal risk management which was a license in my own head to trade a huge % of my overall capital .. note to one self: do not try and channel Soros)

    b)Ever changing cycles mean that the Chairman could have been applying a duff strategy after it fell apart ..

    c)The P&L made by the Chairman in between blowing up is not statistically insignificant either (ok so he blew up a few times along the way .. give him a break).

  3. student on February 9, 2015 10:41 am

    Victor,

    Would you set stop losses now? If yes, at what percentage of equity? I’ve been working on my tiny system for over 7 years now (2 years documented; equity curve in the website link). In January, I blew up my account for the 3rd time as I rarely have stops. I’ve dabbled in stops in early trading but observed they’re usually taken out.

    Student

  4. gpc on February 9, 2015 12:16 pm

    Trading is an inherently insecure profession. The ability to perform is different than it is in other fields. In sports, you might know perfectly well what to do, but fail to execute due to age or physical limitations. Losing your fastball doesn’t cause your knowledge of the game to disappear. A plumber or craftsman rests secure on a solid body of know-how: accumulated wisdom often survives a decline in technique. Doctors have to keep up with new advances, but even the newest breakthroughs rarely invalidate entire fields.

    Trading makes you question whether you really know anything at all.

  5. Ralph Di Fiore on February 9, 2015 2:03 pm

    Sure you’ve taken your licks Victor but what makes you admirable is that you keep coming back. You have never thrown in the proverbial towel and admitted defeat. This can’t be said of other legendary speculators such as Jesse Livermore whose ignominious end is known to all on this site.

  6. Rob Ivanoff on February 9, 2015 10:50 pm

    Victor, we have a snowstorm in Milton MA. The setting is very calm. Outside it is snowing. I reach out to hear what you have to write tonight. I saw this letter. Kept re-reading your last sentece. Your last sentence. Here was everything. Here is how we stand. This is what you taught us, between the lines. And what a great feeling for those who see. For those who seek and are curious. to always find inspiraton, in you humanity and never ceasing search for reason. And you matter to me. This matters. It was a grand being. Grand. Look forward to this site, it is rare and beatiful, smart and real. It is for us. It is for those who search. it is for those who dare. Your truly, Rob.

  7. drdimick on February 10, 2015 1:49 am

    When it Rains, It’s Ayn?

    Interesting… “”I think it was a fair way of dealing with it,” said Steen Blaafalk, Saxo’s chief financial and risk officer told The Wall Street Journal. “Clients that lost money can blame us, or they can blame themselves.” Or they can blame Ayn Rand.”

    See… http://finance.yahoo.com/news/danish-bank-isnt-bailing-crushed-150922140.html

    Appears the Commenter is referencing “Niederhoffering” (or gaming) a la comments originating from students back in Victor’s Haavard days…?

    What one might explore here is Saxo’s response with customers to its Swiss franc losses. After 8 years in China, moi would observe that an actor’s methods and abilities cannot be measured by mere statistical or numeric outcomes/results; there is a condition precedent that must be answered before a judgement may be rendered…

    What if any set(s) of rules were applied or enforced during a performance period that may then allow one to vote whether there was “a huge waste of one’s abilities”?

    Victor got tagged “The Blowup King” as a result of two divergent market events, right?

    Was he not “gaming” markets during those periods based on a set of statistically-biased rules (or assumptions)?

    If so, then the issue comes down to how Victor would answer (or own up to his investors who either made or lost money or did both) to his own, self-professed maker (AR)…

    Did his work (and does his good offices here at daspec) espouse those ideals of “objectivism,” to the idea that there is a reality which exists independent on human consciousness?

    The are many avenues from which to approach this conversation, discussion, debate… I call one’s attention to the work of Thomas Barnett; he drew up the new world map for the Pentagon…

    https://www.youtube.com/watch?v=d3xlb6_0OEs

    and then watch his series…

    https://www.youtube.com/watch?v=mDVOP0lEECk

    First, one must note that his charting of flows of people, money, and energy disposes of AR’s notions of the human condition as a overriding methodology.

    Second, his snapshot of globalization dispenses with how Victor’s notion of a speculator — unless we are talking gaming casinos and gambling-like propositions one can find in modern markets.

    That said…

    We are in a transpacific era now. I know Victor understands this reality — he and I had a lovely dinner together in Shanghai… my one and only chance so far to meet him in person.

    What he as well as a reported 90% of western CEO’s have failed to process relative to their daily endeavors is one of rules-based (not mathematical per se) processing. Note: Chinese communists control their percentages to profit by structuring social-economic as well as political regimes based not on numbers but rules predicated systematic outcomes.

    In short… The Commenter might first ask: What was or is Victor’s underlying methodology… an articulation of such in plain English?

    Moreover, if and how has such evolved?

    Is there an objectivism within his statistical-impressionistic independent consciousness (as may or may not be so consistent with Ayn Rand)… and what has all that got to do with the realities of those human constructs, which we refer to as markets?

    To answer such, perhaps family can be left out of this conversation… in the name of objectivism?

    dr

  8. Nigel on February 10, 2015 3:46 am

    Victor,
    Commenting as a spectator to finance, foreigner and frequent visitor of your website. That you openly accept criticism on YOUR website, and replying with the humility of a student of the game; forget the score, you’re a gentleman. Keep up the great work!

  9. The commenter on February 11, 2015 8:49 pm

    Vic, thanks for the honest reply.

    Your analysis of the landscape fitness is flawed. The insider trading and the tax arb and all that came much later in the game for the names mentioned. Prob > $1bn. But in order to get there, they didnt rely on them. Because they couldnt.

    Judging only by the quality of the other comments, this is a cult that ought to be faded though. The critique was not whether vic is a good person or not. Hes generous and I learned much from him myself. But whether the method works. And to the cult followers out there, 0 x anything = 0. If you dont understand this simple concept, maybe better to stick to your day jobs.

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