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

[Butterball]

1. Vic Niederhoffer‏@VicNiederhoffer 19h19 hours ago
   i dont sell puts anymore. and havent for last 10 years. the reason is that the bd asked spreads are 50% and the liquidity is nil,.only a few
   
   0 replies7 retweets21 likes
   

That's the irony of financial markets. A blindly speculating put seller gets blown out of the market twice during major market dislocations in 1998 and 2007. Then swears off selling puts for 10 years because its "too risky". In hindsight that turned out to be the BEST 10 year period period to be selling puts.

In in a similar vein, Niederhoffer said "Trendfollowing funds will be completely gone in 10 years" in 2004 "because they don't offer any edge". Yet here in 2017 they have five times as much in assets under management compared to when Niederhoffer predicted their demise. He is now blown out of the market and retired after arrogance got the best of him.

 

[piezoe]

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.

Leverage! Way too much that is! Same reason exactly that LTCM went under. Too much leverage. Then when things turn South you'll find yourself trapped. That's why those whose number one concern is safety of principal will use, if they know what they are doing, little to no leverage. Leverage multiples losses. It's not that things turn sour quickly, though that can cause big losses, it is the leverage! Small amounts of leverage turn small losses into big losses, big leverage turns big losses into huge, fatal losses. Both Niederhoffer and LTCM used big leverage. Both went under because of it. No one has yet found a legal way to get around the relationship of risk to reward.

 

[i960]

Niederhoffer == gamma + leverage => death. Sprinkle a bit of AFC and Thai bank stocks in there too.

 

[marketsurfer]

That's the irony of financial markets. A blindly speculating put seller gets blown out of the market twice during major market dislocations in 1998 and 2007. Then swears off selling puts for 10 years because its "too risky". In hindsight that turned out to be the BEST 10 year period period to be selling puts.

In in a similar vein, Niederhoffer said "Trendfollowing funds will be completely gone in 10 years" in 2004 "because they don't offer any edge". Yet here in 2017 they have five times as much in assets under management compared to when Niederhoffer predicted their demise. He is now blown out of the market and retired after arrogance got the best of him.

Blindly speculating? Are you out of your mind, or just another playa hata wannabe trend follower?

 

[marketsurfer]

Niederhoffer == gamma + leverage => death. Sprinkle a bit of AFC and Thai bank stocks in there too.

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Yes, but we also need to remember it was his fiercely competitive drive that finally did his funds in. In my opinion, His demon is the urge to be the top dog which required more and more risk until the inevitable happened. Despite being surrounded by some of the smartest and best traders/ people on the planet.

In addition, he earned far more for his investors over time than lost. Guy was ranked # 1 manager in the world for years.

surf

 

[justrading]

Niederhoffer == gamma + leverage => death. Sprinkle a bit of AFC and Thai bank stocks in there too.

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True what Taleb says. In purely practical terms, I learnt that trading various duration calendar spreads. Takes daily work, but the interplay between daily price of the underlying and the movement of the two options is probably the most fascinating experience I've had in options.

 

[justrading]

Yes, but we also need to remember it was his fiercely competitive drive that finally did his funds in. In my opinion, His demon is the urge to be the top dog which required more and more risk until the inevitable happened. Despite being surrounded by some of the smartest and best traders/ people on the planet.

In addition, he earned far more for his investors over time than lost. Guy was ranked # 1 manager in the world for years.

surf

I'm sure all those who lost money must have been very comforted that it was his fiercely competitive nature that did his funds in.

Your statement that he earned far more for his investors than he lost presupposes they were there all along. Reality is people jump in over time, and more than a few would have come in late and just taken losses. The early birds would merely have suffered diminished returns. You are speaking in terms of on average, and that is very misleading.

I appreciate your gratitude and loyalty, they are good qualities and speak well of your character. We shouldn't however be blind to reality.

 

[piezoe]

No one has yet found a legal way to get around the relationship of risk to reward.

On second though, I want to take this statement back . I think the HFT folks have found a way to legally eliminate most risk. The SEC may be looking into this. And when they finally figure out what's really going on and how and why the HFT traders are able to jump ahead of you in the queue even though your order arrived at the exchange first, they may do something. I doubt they will stop queue jumping however. Probably as far as they will go is to require full disclosure (on page 100 in very small type) how your order is really handled and how queue position is really determined.)

 

[marketsurfer]

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

Eom

 

[RRY16]

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