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

[EPrado]

Sure the people who got in and were smart enough to see how reckless he was as far as risk management got out and did well. Those who just happened to be around ? That's comical. It's not just those who happened to invest who got obliterated....it's everybody. People who were in from day 1 who stuck around (which I would bet was a large portion of his fund) lost everything. Since he was doing so well before the blow up I would think he didn't have many redemptions at all before that.

How you can continually defend his performance is mind blowing. Especially after the story you told about what happened when you blew out your own fund.

I went down to The Hard Rock Casino Sat night. Was at a blackjack table that was on fire. For about an hour we all crushed the table. Then it started going south. I left and went to grab a drink and hang out. Came back 30 minutes later and two of the dudes who were up a ton were wiped out. Rest of the table was empty. These guys while crushing it for a while left with nothing. Similar to VN's funds....both times. At the end of the day what the hell good is it if you end up with nothing?

 

[Mtrader]

Remember, soohisticated investors often take their money out of strategies to reinvest annually or whatever -- yes, those who just happened to invest just around the drawdown times took a hit---- but you also need to remember that VN was likely less than 10% of anyone's total hedge fund allocation.

I remember some daytraders talked about their performance and got the following reaction from you and your friends: you should own the whole world.
The answer from some of these daytraders was that they traded limited amounts of money, and didn't reinvest all their profits in their daytrading, so the calculation of compounded intrest was not a correct way to calculate. But nevertheless the argument was continuously used to ridiculize these daytraders.
And now you use EXACTLY THE SAME argument to reduce the losses for Viktor's clients, "they took out money and invested less than 10% of their total investments". So now it is a valid argument! I am disgusted by people who cannot have an honest discussion. Arguments are not valid for the opposition, they are only valid for MS and company. Arguments are adapted to serve the cause.

I know I am hard for Viktor, but it is on purpose. Just to show how you can ridiculize anybody, and I used at least honest logic, not like you. To me you have no respect for people who don't share your opinion and use therefore tactics that are not "kosher" most of the time.

To go back to the sample of the daytrader. If the daytrader would say: I can double my money in 1 year, then there are 2 different calculations:

1. The daytrader's calculation is: $10,000 becomes $20,000. He explicitly told that he does not reinvest his profits, and he trades LIMITED amounts of money. Remember what Viktor's clients did: Viktor's clients, they took out money and invested less than 10% of their total investments. So this is exactly the same.
2. Marketsurfer's calculation: $10,000*(1+return)to power 30 equals $10,737,418,240,000.

If you want to ridiculize the daytrader harder you will start not with $10,000, but with $ 1,000,000 which will grow the compounded amount to astronomical levels. Just to proof that the daytrader is making an impossible statement. Pure manipulation.

What is funny to me is that now in fact you tell that performance is not important. For some it was good, for others it was a total loss. The fact that only 10% of client's money was invested in this fund does not change anything about the performance. It is clear that the total performance over the entire period of Viktor's trading is dramatic. Investor's should just gamble when to get in and out between the blowups. That's what you say. So maybe daytraders are not the gamblers, but maybe Viktor and his clients are the gamblers. This is confirmed by what happened. Some won in this lottery, and most lost everything they invested in this lottery.

 

[marketsurfer]

I remember some daytraders talked about their performance and got the following reaction from you and your friends: you should own the whole world.
The answer from some of these daytraders was that they traded limited amounts of money, and didn't reinvest all their profits in their daytrading, so the calculation of compounded intrest was not a correct way to calculate. But nevertheless the argument was continuously used to ridiculize these daytraders.
And now you use EXACTLY THE SAME argument to reduce the losses for Viktor's clients, they took out money and invested less than 10% of their total investments. So now it is a valid argument! I am disgusted by people who cannot have an honest discussion. Arguments are not valid for the opposition, they are only valid for MS and company. Arguments are adapted to serve the cause.

I know I am hard for Viktor, but it is on purpose. Just to show how you can ridiculize anybody, and I used at least honest logic, not like you. To me you have no respect for people who don't share your opinion and use therefore tactics that are not "kosher" most of the time.

To go back to the sample of the daytrader. If the daytrader would say: I can double my money in 1 year, then there are 2 different calculations:

1. The daytrader's calculations is: $10,000 becomes $20,000. He does not reinvest his profits. He explicitly told that. And he trades LIMITED amounts of money. Remember what Viktor's clients did: Viktor's clients, they took out money and invested less than 10% of their total investments.
2. Marketsurfer's calculation: 10,000*(1+return)to power 30 equals $10,737,418,240,000.

If you want to ridiculize the daytrader harder you will start not with $10,000, but with $ 1,000,000 which will grow the compounded amount to astronomical levels. Just tp proof that the daytrader is making un impossible statement. Pure manipulation.

What is funny to me is that now in fact you tell that performance is not important. For some it was good, for others it was a total loss. The fact that only 10% of client's money was invested in this fund does not change anything about the performance. It is clear that the total performance over the entire period of Viktor's trading is dramatic. Investor's should just gamble to get in and out at the right time just between blowups. That's what you say. So maybe daytraders are not the gamblers, but maybe Viktor and his clients are the gamblers. This is confirmed by what happened. Some won in this lottery, and some lost everything they invested in this lottery.

I was a little harsh on the daytraders. I admit it

peace. surf

 

[Mtrader]

I was a little harsh on the daytraders. I admit it

peace. surf

I have no problem with discussions, but BOTH parties should stay honest. That's many times a big problem on ET. And that's a pity.

 

[marketsurfer]

Sure the people who got in and were smart enough to see how reckless he was as far as risk management got out and did well. Those who just happened to be around ? That's comical. It's not just those who happened to invest who got obliterated....it's everybody. People who were in from day 1 who stuck around (which I would bet was a large portion of his fund) lost everything. Since he was doing so well before the blow up I would think he didn't have many redemptions at all before that.

How you can continually defend his performance is mind blowing. Especially after the story you told about what happened when you blew out your own fund.

I went down to The Hard Rock Casino Sat night. Was at a blackjack table that was on fire. For about an hour we all crushed the table. Then it started going south. I left and went to grab a drink and hang out. Came back 30 minutes later and two of the dudes who were up a ton were wiped out. Rest of the table was empty. These guys while crushing it for a while left with nothing. Similar to VN's funds....both times. At the end of the day what the hell good is it if you end up with nothing?

Remember people have all different reasons for investing in strategies. Knowing who invested in VN, suffice to say they are very high level investors. Obviously, they understood the risk and were willing to take it.

 

[RabidTrader]

You are forgetting the important people in your idea-- the investors. VN's investors made far more than they lost overtime by investing with him. Remember, sophisticated investors often take their money out of strategies to reinvest annually or whatever -- yes, those who just happened to invest just around the drawdown times took a hit---- but you also need to remember that VN was likely less than 10% of anyone's total hedge fund allocation. We are not talking about folks with just the minimum million or whatever here. surf

Thank you Market-Surfer for doubling something I've been writing about since VN blew-up in 1998 on Yahoo's Message Boards. I bought his first book "The Education of a Speculator" and fell in love with VN and all his cool anecdotes about life, his father and swimming." I am a long distance swimmer, wannabee chess player and Squash and Tennis player(use to be a A rated tennis player, a once 2190 chess player who never made it to Master because I spent too much time obsessed with Markets.).


M-trader paid his respects to VN acknowledging very few of us could ever do what VN did over periods of time where the Economy was insane. In your views don't you think the Markets were more crazier, 25 years before 1997 or did his gains benefit from our wild Economy? Did V.N. slipped up? He was use to more wild and Markets and because of his genius allowed things to slip because he figured out how Markets work like Benjamin Graham did? I think that a few of the top traders on Elite and some who are still hanging out enjoying the game have been able to take $3k or $5k and turned it in to $250k to $2 million. I took one of my IRAs of $3000 when Online Broker's margin screwed up and gave me unlimited buying power(on a cash-account, remember T+3) and turned this IRA in one year from $3k over $200k+, was this stupid luck or skill? I took that same account down to $75k after ducking around with Stock Options by gambling with products I knew nothing about. How stupid was I for leaving trading what worked well in to wanting instant wealth gambling with stock-options?

 

[RabidTrader]

Sure the people who got in and were smart enough to see how reckless he was as far as risk management got out and did well. Those who just happened to be around ? That's comical. It's not just those who happened to invest who got obliterated....it's everybody. People who were in from day 1 who stuck around (which I would bet was a large portion of his fund) lost everything. Since he was doing so well before the blow up I would think he didn't have many redemptions at all before that.

How you can continually defend his performance is mind blowing. Especially after the story you told about what happened when you blew out your own fund.

I went down to The Hard Rock Casino Sat night. Was at a blackjack table that was on fire. For about an hour we all crushed the table. Then it started going south. I left and went to grab a drink and hang out. Came back 30 minutes later and two of the dudes who were up a ton were wiped out. Rest of the table was empty. These guys while crushing it for a while left with nothing. Similar to VN's funds....both times. At the end of the day what the hell good is it if you end up with nothing?

Prado, VN returned their capital many times over throughout the years instead of trying to manage something too big like the Fidelity Magellan Mutual Fund that had over $100 Billion during its height. How badly the Magellan performed is on record because of its size it moved big stocks when accumulating positions via FMRs 30 different Brokers and Clearing Houses. I know how FMR bought stocks under stealth methods, VN was wise enough to realize what his limits were and how much capital was right for him to manage. My friend learned he got tired trying to make 15%+ for a bunch of never happy rich people and dumped them all. He made more money today selling his Oil and Refinery stocks and does not have to share any gains with ungrateful people. I think VN should have only traded his money once he became wealthy, why have the headache?



Can you imagine trying to manage a Sovereign Wealth Fund, is that done by many Hedge Funds and a giant 300 employee entity? If everything I read about VN is truth(I believe he's a decent man, he payed by crappy Refco and got screwed by Refco and the CME(was exonerated in a civil settlement and paid those fund back to his former shareholders-fund holders)



There are people on several Elite Trader members who have declined to manage money for different many times, continually decline because they know how ungrateful people are and refuse to get health problems worrying over their money instead of those whose job it is to worry. I respect and admire Traders who make good money and refuse to manage money for a pack of hyenas or jackals, would you manage funds for people who call everyday asking "How's are fund doing today? Did you buy some Apple or MBLY, were you long the Refineries?" Do people attack Jesse Livermore as being the "Blow Up Artist" or is there some mythical essence that has every trader read all his old books? His books are timeless and so are Dr. Neiderhoffer, I would love to take him to dinner and enjoy his time more than Warren Buffet any day!

 

[EPrado]

Remember people have all different reasons for investing in strategies. Knowing who invested in VN, suffice to say they are very high level investors. Obviously, they understood the risk and were willing to take it.

Man you are the master of ducking questions and cherry picking. This other guy's post is spot on. You have very little consistency in what you say. You can bash one thing if it's coming out of someones camp you like, but basically trash the same thing if it comes out of another one's.

 

[EPrado]

Prado, VN returned their capital many times over throughout the years instead of trying to manage something too big like the Fidelity Magellan Mutual Fund that had over $100 Billion during its height. How badly the Magellan performed is on record because of its size it moved big stocks when accumulating positions via FMRs 30 different Brokers and Clearing Houses. I know how FMR bought stocks under stealth methods, VN was wise enough to realize what his limits were and how much capital was right for him to manage. My friend learned he got tired trying to make 15%+ for a bunch of never happy rich people and dumped them all. He made more money today selling his Oil and Refinery stocks and does not have to share any gains with ungrateful people. I think VN should have only traded his money once he became wealthy, why have the headache?



Can you imagine trying to manage a Sovereign Wealth Fund, is that done by many Hedge Funds and a giant 300 employee entity? If everything I read about VN is truth(I believe he's a decent man, he payed by crappy Refco and got screwed by Refco and the CME(was exonerated in a civil settlement and paid those fund back to his former shareholders-fund holders)



There are people on several Elite Trader members who have declined to manage money for different many times, continually decline because they know how ungrateful people are and refuse to get health problems worrying over their money instead of those whose job it is to worry. I respect and admire Traders who make good money and refuse to manage money for a pack of hyenas or jackals, would you manage funds for people who call everyday asking "How's are fund doing today? Did you buy some Apple or MBLY, were you long the Refineries?" Do people attack Jesse Livermore as being the "Blow Up Artist" or is there some mythical essence that has every trader read all his old books? His books are timeless and so are Dr. Neiderhoffer, I would love to take him to dinner and enjoy his time more than Warren Buffet any day!

Thank god he returned the capital or he would have blown that up as well. You make it seem like he was responsible ??? That's a hoot. Wise enough to know his limits ? You should be on The Comedy Channel with this stuff. The guy traded well beyond his limits with the leverage he used. He lost everything. You are basically saying he's a good guy for only blowing out X instead of 5X. He obviously couldn't even handle the amount he had.

I agree he should have just traded for himself. Then he wouldn't have burned so many friends/family.

I agree on people who don't want to trade OPM because investors can be a major pain in the ass calling up 3 times a day for updates or complaining why didn't the fund own CMG because it's up 18% one day......bitching about draw downs. Who needs it. I respect them as well.

The difference between people taking exception with VN versus Livermore is VN comes out and trashes other methods after he has failed in an epic way.....twice. The guy loses everything twice but tells others they have no clue. That's why people are give him shit. He's got a giant ego for really no reason.

 

[Mtrader]

There are people on several Elite Trader members who have declined to manage money for different many times, continually decline because they know how ungrateful people are and refuse to get health problems worrying over their money instead of those whose job it is to worry. I respect and admire Traders who make good money and refuse to manage money for a pack of hyenas or jackals, would you manage funds for people who call everyday asking "How's are fund doing today? Did you buy some Apple or MBLY, were you long the Refineries?"

When I read this it is like reading the story of my personal experience. Some anecdotes:

• I had one client who called me several times a day to ask what I did, why I did that, why I did not do something else too.... At one day police came to me because the man apparently committed suicide. It appeared that he promised high returns to people, took their money, gave it to me and kept a big part of the profits. He did this with a few traders. I made profit, but the total picture from all traders was a loss of about 7 million$. I got out this case without problems, but it took me a very long time before I was sure it was over.
• A second one came back from holiday and called me. I told him we lost a few % (don't remember anymore how much) while he was on holiday. He became angry and said: what? We lost X%?. I answered him that for the year we were still up about 72%. His reaction was: what we did before his holiday was past and didn't count anymore. I closed his account the next day and wired him his capital and the 72% profit but deducted my commissions.
• Another one asked me to make a trade for him with a huge leverage. He wanted to make one big strike to make up for losses he had in his personal trading.

After less then one year I closed all accounts from clients and traded alone my own account. It was the best decision ever.