The Implications Of Schindler and VN

[Pa(b)st Prime]

Although I publicly broke the Niederhoffer blow up on ET well before any other media, message board or blogging source, I claim no knowledge of what's going on at Schindler Trading. I only know what I've read here. In fact outside of ET I've never heard of Schindler. While one can't help but revel in Vic's demise, if Aaron's story is true the feeling is quite the opposite. Schindler seems like a nice guy who tried hard to make his fund work. Alas, his drawdowns were massive.

The breakdown of these two fund managers has broad ranging implications. If two men of indisputable intelligence, training, education and trading experience can both come to the conclusion that mechanical systems don't work, then what to make of the backtesting crowd? Would Vic and Aaron be alive if they'd hung out with Woody? Or Jack? Subscribed to TS?

We're talking about two guys savvy enough that they have backtested everything under the sun. Yet they made a decision that selling premium was virtually the only way to cheat a negative expectancy.

All of which begs the question, are systematic results fallacious? Does any traditional indicator "system" generate profits over an infinite span? Is it even possible for such a system to exist given the constant transition between trend and chop?

 

[El OchoCinco]

The blowups seem to be a question of leverage and poor risk management and nothing to do with the "system". Plenty of premium selling funds still around and doing what they do if they observed proper risk management and did not overleverage themselves. You think 2 investors blowing up is proof of anything market wide? I doubt it. Is Roger Clemens proof that all pitchers are taking illegal drugs?

In fact Long-Term Capital Management would still be around if they did not overleverage themselves and ignore risk management. Their returns would be less but still quite impressive and they would be chugging along nicely. We would be talking about When Genius Succeeded. But simple risk management, an oxymoron sadly, is the cause of all blowups. What people do not realize is that makret shocks ARE normal so you have to plan ahead of time so you do not blow up. We all know this but ignore it time and time again.

Brains and skill are not requirements for longevity in this business, simple risk management which we all ignore to our peril.

All Vic and Aaron (though we are clueless what really happened to Aaron) prove is risk management is to be ignored at your peril. Says nothing about anyone's system or approach or style.

 

[blackchip]

But they didn't cheat negative expectancy. They failed - more than once.

Maybe they weren't as bright as their marketing team.

Quote from Pa(b)st Prime:

We're talking about two guys savvy enough that they have backtested everything under the sun. Yet they made a decision that selling premium was virtually the only way to cheat a negative expectancy.

 

[pepper_john]

Quote from Pa(b)st Prime:

Although I publicly broke the Niederhoffer blow up on ET well before any other media, message board or blogging source, I claim no knowledge of what's going on at Schindler Trading. I only know what I've read here. In fact outside of ET I've never heard of Schindler. While one can't help but revel in Vic's demise, if Aaron's story is true the feeling is quite the opposite. Schindler seems like a nice guy who tried hard to make his fund work. Alas, his drawdowns were massive.

The breakdown of these two fund managers has broad ranging implications. If two men of indisputable intelligence, training, education and trading experience can both come to the conclusion that mechanical systems don't work, then what to make of the backtesting crowd? Would Vic and Aaron be alive if they'd hung out with Woody? Or Jack? Subscribed to TS?

We're talking about two guys savvy enough that they have backtested everything under the sun. Yet they made a decision that selling premium was virtually the only way to cheat a negative expectancy.

All of which begs the question, are systematic results fallacious? Does any traditional indicator "system" generate profits over an infinite span? Is it even possible for such a system to exist given the constant transition between trend and chop?

Very good question. Especially in Aaron's case. Plus the fact that the GS Global Alpha fund, which has some of the best minds, lost more than 40% last year.

But Aaron's returns have been very volatile historically. So a large draw down is possible.

 

[nitro]

Quote from Pa(b)st Prime:

... if Aaron's story is true the feeling is quite the opposite. Schindler seems like a nice guy who tried hard to make his fund work. Alas, his drawdowns were massive.

Aaron is a genuinely nice guy.

The breakdown of these two fund managers has broad ranging implications. If two men of indisputable intelligence, training, education and trading experience can both come to the conclusion that mechanical systems don't work, ...

Your reasoning by analogy, which while a good form of thought in discovering new ideas, will lead you to erroneous conclusions if used as a form of deductive reasoning.

I can tell you unequivocally that there are automated systems that work. Problem is, there is nothing in it for me to prove it to you. Nothing good ever comes from bragging.

then what to make of the backtesting crowd? Would Vic and Aaron be alive if they'd hung out with Woody? Or Jack? Subscribed to TS?

Your universe of what you believe to be viable automated systems, by even mentioning these references, shows that you don't understand where to even start looking for viable automated systems.

We're talking about two guys savvy enough that they have backtested everything under the sun. Yet they made a decision that selling premium was virtually the only way to cheat a negative expectancy.

There are right ways to sell premium and wrong ways. You also keep alluding to how smart they are. Isaac Newton, whom perhaps has never had an intellectual equal on this planet, failed trading.

All of which begs the question, are systematic results fallacious? Does any traditional indicator "system" generate profits over an infinite span? Is it even possible for such a system to exist given the constant transition between trend and chop?

See above.

nitro

 

[Pa(b)st Prime]

Quote from optioncoach:

The blowups seem to be a question of leverage and poor risk management and nothing to do with the "system". Plenty of premium selling funds still around and doing what they do if they observed proper risk management and did not overleverage themselves.

In fact Long-Term Capital Management would still be around if they did not overleverage themselves and ignore risk management.

Brains and skill are not requirements for longevity in this business, simple risk management which we all ignore to our peril.

Aha Coach. What about this though. At what point does "proper" position sizing impede ones potential to earn? IOW's yes Ansbacher lives on but is it worth being in a short premium fund that returns less than WaMu?

In Vics case he surmised that selling puts way out was the way to go but OTM under leveraged isn't a living.

It's the same with directional systems. If I know a trend following system can go oh for a thousand in chop then what value is it to a fund manager who must reduce risk to .0001 per trade?

Premium buying/selling btw is zero sum over an infinite sample.

And as far as LTCM, spreading the current two year against an off the run 5yr has very little panache unless you leverage the f out of it.

 

[El OchoCinco]

Quote from nitro:

You also keep alluding to how smart they are. Isaac Newton, whom perhaps has never had an intellectual equal on this planet, failed trading.

Actually this is false. Isaac Newton studied under Jack Hershey for some time and did very well trading ye olde futures.

 

[El OchoCinco]

Quote from Pa(b)st Prime:

Aha Coach. What about this though. At what point does "proper" position sizing impede ones potential to earn? IOW's yes Ansbacher lives on but is it worth being in a short premium fund that returns less than WaMu?

In Vics case he surmised that selling puts way out was the way to go but OTM under leveraged isn't a living.

It's the same with directional systems. If I know a trend following system can go oh for a thousand in chop then what value is it to a fund manager who must reduce risk to .0001 per trade?

Premium buying/selling btw is zero sum over an infinite sample.

And as far as LTCM, spreading the current two year against an off the run 5yr has very little panache unless you leverage the f out of it.

No one put a gun to their heads and told them to leverage the @#$% out of anything. And anyone can trade short premium within the means of their fund if large enough and still do well.

I will not let you use greed as a mandate to justify that these people had to trade the way they did which made a blow up inevitable. And last time I cheked, WAMU was not giving me 20% a year returns.

If you want to sell PUTS way OTM then you can sell spreads way OTM and still make double digit returns over the long run as long as you are not blind to potential vol spikes. Also if you want to sell puts WOTM and you risk the entire portfolio on every trade you get what you deserve. These facts have nothing to do with the system but how risk management is applied.

As for LTCM, no one told them they needed panache, they need to make money. Leveraging the fund 100 times was not neceesary. When they became the market, little red lights should of went off as a warning. When they sold volatility on the indexes and vols kept rising they kept selling more blindly stating vols had to come down. Over leverage was not needed to the extent of 100 or 200 to 1.

Again, Vic and anyone else who blows up is a question of poor risk management. Every strategy can make money if used properly but anyone who has lasted for years will demonstrate that risk management and adaptability is the key.

Finally whether something is zero sum or not is a wonderful discussion left for academics who do not trade and ponder esoteric questions. People make money in this market the way poker players make money over time. The pool always has new entrants kicking into the kitty and the winners simply take away more than they throw in over time.

 

[nkhoi]

Quote from optioncoach:

Actually this is false. Isaac Newton studied under Jack Hershey for some time and did very well trading ye olde futures.

almost 11pm and you're a riot.

 

[El OchoCinco]

What would Isaac Newton trade anyway in the 1690's?