Niederhoffer new book

jem · Apr 13, 2003

Pabst I recognize your posts in the past as having good trading insight but my question to you is this? Are there not ways to trade that will have good returns untill you blow up. Isn't that what LTCM did. Isn't that the way of selling premium when it is pumped up. Isn't that what VN did. That is not good trading it is gambling. Now if he had discipline and took his losses after certain points-- and he was able to do that and make money-- you might call him a trader but from what I read he was a gambler and got nailed at least twice and maybe again.

So you have this fund you recognise a statistical anomaly you make money. Then it stops working you sell premium when it is pumped up- probably in the same intrument that is moving outside your statistcal norms. Wow market snaps back you are a genius untill the time it does not snap back. Trader or gambler?

Now add in the fact you are trusted with other people money. What type of person are you now when you understand the game you are playing. You hold yourself out as a statiscal genius but if you really understood statistics you would heed the advice of soros or your buddy who wrote the book Fooled by Randomness. Instead you blow up again. and again maybe?

Pabst his record supports the academics who argue for the efficient market hypothesis, not for being a good trader.

Also Pabst if the point of being skilled vs blowing up is tenuous than we have very different opinions of what makes a trader vs a gambler.

BlueHorseshoe · Apr 13, 2003

Quote from marketsurfer:

he blew out--- only because he was trying to stay number one, and to surpass his funds high water mark ...

Well, putting it that way makes all the sense in the world. Guess I'd go for broke on OPM to stay #1 too .....

Sure his investors were completely understanding as well. His ego was, after all, at stake.

Use your delusion pal. Better yet, mail him some $$$ to manage. :eek:

Pabst · Apr 13, 2003

Quote from jem:

Pabst I recognize your posts in the past as having good trading insight but my question to you is this? Are there not ways to trade that will have good returns untill you blow up. Isn't that what LTCM did. Isn't that the way of selling premium when it is pumped up. Isn't that what VN did. That is not good trading it is gambling. Now if he had discipline and took his losses after certain points-- and he was able to do that and make money-- you might call him a trader but from what I read he was a gambler and got nailed at least twice and maybe again.

So you have this fund you recognise a statistical anomaly you make money. Then it stops working you sell premium when it is pumped up- probably in the same intrument that is moving outside your statistcal norms. Wow market snaps back you are a genius untill the time it does not snap back. Trader or gambler?

Now add in the fact you are trusted with other people money. What type of person are you now when you understand the game you are playing. You hold yourself out as a statiscal genius but if you really understood statistics you would heed the advice of soros or your buddy who wrote the book Fooled by Randomness. Instead you blow up again. and again maybe?

Pabst his record supports the academics who argue for the efficient market hypothesis, not for being a good trader.

Also Pabst if the point of being skilled vs blowing up is tenuous than we have very different opinions of what makes a trader vs a gambler.

Jem,

Good points, and you're certainly not someone that I was inferring does not know this game. You will notice I never said Victor was a good trader. Risk management is clearly as integral to trading as is the ability to make timing or directional calls. However from an analytical point of view the guy does have some great thoughts. That being said, yes, some of the most talented "seers" that I know are flat broke. While that is clearly a negative result of their risk tolerance or lack of adherence to proper position sizing, it doesn't diminish their knowledge of probabilities or conditions. It just means that the human frailties in trading are not limited to those less insightful.

Babak · Apr 13, 2003

Quote from marketsurfer:

babak,

could you please elaborate on the "errors in critical thinking" that it contains ?

surfer

Well, here are some thoughts:

1] They isolate one characteristic of the financial markets (debt/equity issuance) and from it project future returns.

2] They ignore hybrid securities like conv bonds

3] They ignore interest rates and their effect in motivating debt vs. equity issuance (today companies can lock in long term rates at historic lows--- why wouldn't they?)

4] They ignore valuation criteria (for example the 1932 bottom had a valuation level far, far from todays)

5] They ignore sentiment (which has a tremendous effect on prices most often trumping valuation and 'shoulds')

6] They ignore other technical criteria (such as insider selling/buying, mutual funds cash levels, strategists stock allocations, etc.)

In summary, what the two authors do in this article is endemic of most of their work, which is to take one idea which simply can not be quantified and should not be quantified but instead barrel ahead and come up with an aseptic formula which gives them a clean and neat result. A declaration that this year the market will be up 19% !!

If you remember, this is exactly the course they followexd when they announced another 'researcher' from academia who had pronounced that head and shoulder formations simply do not work (http://moneycentral.msn.com/content/p27221.asp).

In that article, they simply and conveniently ignored that one can not objectively quantify a head and shoulder formation and therefore by starting with a false premise all that follows is hollow.

And regarding VN's trading. I have yet to read of one specific trade with a walkthrough. In the recent magazine cover story he was specifically asked to name one and refused. As well, you can read a review of the book where they do cite other smaller but numerous errors in the book.

Again, this is just my opinion and I have nothing personal against VN or those that like him or think highly of him. I hope that we can keep this dialogue civil and constructive.

gdtrader · Apr 13, 2003

I admire his courage but I am not happy with his trading methodology. I have the book email me if you want to buy it low price.

ktm · Apr 13, 2003

Quote from jem:

So you have this fund you recognise a statistical anomaly you make money. Then it stops working you sell premium when it is pumped up- probably in the same intrument that is moving outside your statistcal norms. Wow market snaps back you are a genius untill the time it does not snap back. Trader or gambler?

Also Pabst if the point of being skilled vs blowing up is tenuous than we have very different opinions of what makes a trader vs a gambler.

Is not all trading gambling? The difference between blowing up and not is risk mgmt - repairing that which has gone awry before it's too far gone. VN's style was very similar to playing poker well. There were known chances of given events happening and he took appropriate bets/trades. Like many (humans) with long successful runs, he got ahead of himself and started messing around with things he knew less about. Even after reading balance sheets, visiting companies, talking to suppliers and tons of additional DD, every stock I buy is still gambling. However, my odds are greatly improved because of my efforts.

The same people win poker tourneys repeatedly because of their risk management. Trading is the same way but I believe it is nearly the same game.

Pabst · Apr 13, 2003

Quote from Babak:

Well, here are some thoughts:

1] They isolate one characteristic of the financial markets (debt/equity issuance) and from it project future returns.

2] They ignore hybrid securities like conv bonds

3] They ignore interest rates and their effect in motivating debt vs. equity issuance (today companies can lock in long term rates at historic lows--- why wouldn't they?)

4] They ignore valuation criteria (for example the 1932 bottom had a valuation level far, far from todays)

5] They ignore sentiment (which has a tremendous effect on prices most often trumping valuation and 'shoulds')

6] They ignore other technical criteria (such as insider selling/buying, mutual funds cash levels, strategists stock allocations, etc.)

Babak,

After reading VH's article summarizing that study I second your rebuttal. Simply in a late 90's environment.. high interest rates/high share prices, corporations wisely chose to dilute equity than expand debt. Conversely, in the present rates vs. stock price climate, borrowing seems more advantageous. However I would love to see a similar study of Japanese stocks. In Japan rates have always been low, even during the bubble. Yet Japanese investors certainly don't seem to have a "chase yield" mindset like Americans. Have Japanese firms had to continue equity issuance since the nation's banking problems make it difficult to borrow, or have Japanese corporations been heavy borrowers without seeing an appreciation in "scarce" shares.
My guess is this is just another case of academia overthinking and drawing a correlation between seemingly like events that actually have little in common. Like you point out the comparisons between 29-32 and now are negligible until we have the same level of bloodletting we saw then.

marketsurfer · Apr 13, 2003

Quote from BlueHorseshoe:

Well, putting it that way makes all the sense in the world. Guess I'd go for broke on OPM to stay #1 too ..... Sure his investors were completely understanding as well. His ego was, after all, at stake.

Use your delusion pal. Better yet, mail him some $$$ to manage. :eek:

when you are managing 100's of millions of dollars and are the number one ranked manager---perhaps you will understand.

best,

surfer

Babak · Apr 13, 2003

Here is another article from their archives:

http://moneycentral.msn.com/content/p24708.asp

According to the waver at the bottom they owned WCOM, CHTR, VTSS, ITWO, CTXS, SANM, NVDA on or around June 13 2002. I don't know if they held or sold. But I understand from the article that this is not a short term flip type of trade. So if they did hold till today, their returns would be:

WCOM: total loss of position
CHTR: -75%
VTSS: -30%
ITWO: -70%
CTXS: a bit more than +40%
SANM: -50%
NVDA: appx -57%

With the exception of Citrix, the positions were absolutely horrendous; going underwater from day one and staying there. The average return (assuming equal positions) is a loss of -48.6%

As well, they cite the 'depressed' state of the general investor and the market as a primary reason why they are scooping up these shares. However a cursory glance at AAII data shows during that week 32% bulls, 33% bears and the following week (June 20th 2002) 46% bulls and 26% bears.

Hardly what can be characterized as a sea of depressed sentiment on Wall Street.

freealways · Apr 14, 2003

Babak, with all due respect, you (and others) appear to be acting like ghouls, taking a delight out of rubbishing Niederhoffer's book by anywhichway means.

It reminds me of the saying : 'The best shippers are ashore.'
Or should that be 'The best drivers are the backseat drivers' ?

I am unaware of the trading skills of any of you though from the posts by Surfer which I have read it appears as if he IS a professional trader, so I will just have to take my chances and rely on his opnion and proceed to buy the book despite the widespread bagging (the more so as I was quite impressed by the first book).

Decisions, decisions.

I did actually place an order for the book a few weeks ago with my friendly Australian book retailer so I won't bother to cancel it.

freealways