What risk management mistakes did Victor Niederhoffer make to blow up a few times?

helpme_please · Aug 8, 2015

Victor Niederhoffer compounded 30% gains for 20 years. Yet, he blew up spectacularly 2 times in 1997 and 2007. He was so good that George Soros sang praises of him. Hey, we are talking about George Soros.

What are the mistakes that this great speculator made that caused him to blow up twice? I guess it is related to risk management. Any comments from elite traders?

Redneck · Aug 8, 2015

helpme_please said:
What are the mistakes that this speculator made

Internal..., faulty..., wiring

ego is a bitch..., and a trader killer

btw.., there are no great traders - simply traders who have their shit together..., and traders who don't

Mkt will always..., and ultimately - identify which category we fall into

RN

Mo06 · Aug 8, 2015

I really enjoyed Niederhoffer's book 'Education of a Speculator', a definite must read imo.

But his ego does come across as rather... well... huge...

loik · Aug 8, 2015

You're familiar with http://dailyspeculations.com/wordpress/

Scataphagos · Aug 8, 2015

helpme_please said:
Victor Niederhoffer compounded 30% gains for 20 years. Yet, he blew up spectacularly 2 times in 1997 and 2007. He was so good that George Soros sang praises of him. Hey, we are talking about George Soros.

What are the mistakes that this great speculator made that caused him to blow up twice? I guess it is related to risk management. Any comments from elite traders?

Seems I read sometime he liked to sell naked puts on high leverage. Every now and then, that will get you crushed apparently.

lawrence-lugar · Aug 8, 2015

helpme_please said:
Victor Niederhoffer compounded 30% gains for 20 years. Yet, he blew up spectacularly 2 times in 1997 and 2007.

What are the mistakes that this great speculator made that caused him to blow up twice?

When you generally aim for high returns

...you leave yourself exposed to equally bad hits -- that is a universal law of trading and life.
You can't be sexy and safe at the same time, so to speak.

I still don't understand how a fund though can go bankrupt, if one is actively managing it -- he must be asleep at the wheel.
You can make much more than 30% annually, if you have a smaller personal account. But gets slightly more difficult as the account grows in size.

VN kind of looks like, or reminds me, of actor John Turturro.

kut2k2 · Aug 8, 2015

helpme_please said:
Victor Niederhoffer compounded 30% gains for 20 years. Yet, he blew up spectacularly 2 times in 1997 and 2007. He was so good that George Soros sang praises of him. Hey, we are talking about George Soros.

What are the mistakes that this great speculator made that caused him to blow up twice? I guess it is related to risk management. Any comments from elite traders?

Clearly he was oversized. One of the most surprising things about trading to me is the realization of how even many experienced traders are very poor at position sizing. Hence why so many cling to the 2% rule like a panicked overboard sailor clinging to a life preserver. VN wasn't panicked but he clearly didn't know when he was overbetting.

marketsurfer · Aug 8, 2015

What i know about VN-- he is a personal friend--is that his fault is the same thing that makes him great.

That thing is extreme competitivness--- the obsession to be number 1 is his undoing and why he was # 1 for a number of years.

surf

marketsurfer · Aug 8, 2015

kut2k2 said:
Clearly he was oversized. One of the most surprising things about trading to me is the realization of how even many experienced traders are very poor at position sizing. Hence why so many cling to the 2% rule like a panicked overboard sailor clinging to a life preserver. VN wasn't panicked but he clearly didn't know when he was overbetting.

Most interesting is that VN had a risk management team to keep him under control. I really don't understand what happened this last time since he was well prepared and seemed to understand his issues.

My ex wife and i were out to dinner with him when bad news hit. He answered a phone, turned white/red, jumped up and ran out of the room. I thought he was having a bad health issue. It was a crazy night.

A photo just happened to be snapped of me when VN was looking down at his phone as the bad news was coming in----first time this has been made public--- he was out of the room within 15 seconds of this photo--

surf

helpme_please · Aug 8, 2015

Hi marketsurfer,

Glad to have a friend of VN here. VN fascinates me. His track record of 30% CAGR for 20 years is fascinating. What is even more fascinating that he blew up 2 times despite such an impressive, long track record. 20 years is a long time to prove a track record and a 20-year profitable trader should have been through enough ups and downs to learn about the do and don't. Furthermore, from what I read about VN, he is surely way up my superior in terms of intelligence. What takes me 2 hours to absorb probably takes him 10 minutes. Yet, he blew up twice. His high IQ intimidated his own risk management team and let him override them?

Do you think something changed in the market after 1997 that made VN more prone to blow-ups? I find it hard to believe he was lucky for the first 20 years and then, got unlucky in the next 10 years. 20 years is really a long time for luck to last that long.

Is it accurate to say he blew up because of a large, over-concentrated and leveraged position?

marketsurfer said:
Most interesting is that VN had a risk management team to keep him under control. I really don't understand what happened this last time since he was well prepared and seemed to understand his issues.

My ex wife and i were out to dinner with him when bad news hit. He answered a phone, turned white/red, jumped up and ran out of the room. I thought he was having a bad health issue. It was a crazy night.

A photo just happened to be snapped of me when VN was looking down at his phone as the bad news was coming in----first time this has been made public--- he was out of the room within 15 seconds of this photo--

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surf