They can? Ok, give it a shot and see how you come out. You are horribly oversimplifying the skill involved in making hundreds of millions of dollars for your investors consistently, and then blowing out once every five years. Try it! I do understand what you are saying. Where you suggest that his blowouts nullify his previous consistent gains, I claim that even with the blowouts, the results are incredible. You don't get that. Try duplicating the results yourself. Take $25,000, and try returning $25,000 year after year. According to you, you will blow out once by using the style of trading he does, and you will make $25,000 five years in a row. Seems like free money to me if all you have to do is buy the dips mindlessly. See above.
Read my post again. You are "horribly oversimplifying" what I wrote. If enough people take flyers, a few will succeed. It's just a statistical thing and not an indicator of competence. It is the much longer term consistency that separates the wheat from the chaff. VN made money because be overleveraged and floored the accelerator, completely disregarding the risk he was incurring. And, not surprisingly, he crashed and burned at the turn. What skill. Want me to give it a try? Give me your money. P.S. You've read Taleb's Fooled By Randomness, right? And you know that he was talking about VN, don't you?
Of course that is true. But we are not talking about "enough people." We are talking about one person. Hence, your your reference to the Central Limit theorem is a misuse of statistics, because you are not making a statement about a population. Also, you make a statement about existance, when you should be making a statement about frequency. To say that there will always be someone that has amazing results is meaningless. To say that in a population of x number of observations you expect to see y number of traders with a frequency distribution of outsized returns is what matters. What you should be asking is not whether a VN type result can exist (of course it can, obviously), but rather given some number of traders (observations) what is the probability of seeing outsized returns from some such a sample returns from a trader. In other words, can you tell skill from random luck? I claim VN results are a fat tail, and I further claim that successful traders don't fall under gaussian statistics. Note, I have not done the study, but I trade in a room full of maybe 100 traders, and I can attest to the diffculty of what he did. That is false and shows again a lack of mathematical maturity, although I admit to having made the mistake as well. Statistics and probability are related, but their point of attack are nearly opposite. Their point of intersection is subtle. In probability the variables and the initial conditions are known, and the goal is to predict the most likely outcome. In statistics conversely, the outcome is known but the past causes are uncertain. In the statement above, you make a statistical statement to say that VN results are within a normal cuve and hence not necessarily representative of skill (you don't say that explictly, but it is clearly implicit in your statement), and then use the statisticl argument then to say that the probability of seeing a VN type result is gaussian. LMAO! Sorry, but that is funny. This is like saying that three = 3. Of course if you assume that VN results are described by a normal curve you can then point to the point on that curve and read off a probabilty! What you should be reading off is the number of people you expect to see having those sorts of results, and then backing out the distribution it comes from. Yes I have read the Taleb books, and while I find them interesting, the whole premise is silly. How can you make a statistical argument about one thing? You can't as you saw above. Perhaps you have heard the joke, A man has his head in the freezer and his legs in the furnace, so on average he is very comfortable. You can however make a probabilistical statement about one thing, but only after you have worked out the distribution. Talebs "distribution" is "waving his hands in the air" (that may be a bit unfair as he has also been around a large number of traders in his life). Where is the data in the book? Where is the link to the data on the internet? This is not math, it is philosophy. You have an affliction that most retail if not all unprofitable retail traders have. You cannot fathom that skill may be involved in making money consistantly from the markets, and still blow up, because you have never seen it with your own two eyes. So naturally you seek theories that fit your experience. That is normal. What is not normal is that people repeatedly tell you on this website that oversized returns from tading markets are seen all the time, and that given the sample, it is indicative of skill. If you believed that assertion a posteriori, and you wanted to continue to be rigorous (which you appear to want to be) you should stop and think how this knowledge affects your belief system.
So what you are saying Nitro, is Neiderhoffer alone sample of his returns show a fat tail because of how much he played and won, compared to how much he played and lose? The probabilty of Neiderhoffer to win is proved, and that is his skill?
And you have an assumption affliction. I won't pretend to understand either advanced statistics or advanced math. You seem to revel in it, perhaps for its own sake, and that's fine. However, the point you seem to be trying to finesse away from is that VN took disproportionate risk in relation to whatever "edge" he supposedly had. Had he leveraged less in order to trade and survive the eventual setbacks, then his returns would have been far more pedestrian. There have been other traders who posted similar or better returns over a longer period and have managed to sidestep multiple blowups. VN is not in their league however he may wish it to be so. He tried to be, and assumed unmanageable risk in an effort to do so. I did not suggest that VN has absolutely no trading acumen. I am merely suggesting that his skill is relatively less than enviable, and nowhere near the level of other traders who have made names for themselves. He is not appreciably more competent than the "traders" who rose with the various bubbles and then crashed at their conclusion. As Buffett once noted, "When the tide goes out, you can see who isn't wearing a bathing suit." That's what it comes down to. Everything else is just sophistry.
I think VN got complacent. Clearly the man is intelligent and skilled, or he wouldn't have been able to make it in the first place, and yet apparently his judgement was so compromised that he didn't see or perhaps didn't believe that events could overtake him. I have heard people (more knowledgeable than I) say that there was no way for him to properly hedge his risk on that most recent position. If thats so, I wonder why he chose to "roll the dice". I guess its easier to gamble with someone else's money, although I thought he had his own money in the game as well. From my point of view there are a lot of unanswered questions. I might give the man a buck if I saw him on the street.
What is intersting is studies that show brain impulses in top Korean internet gamers bypass the thinking parts of the brain and go straight to the motor circuits. Also I think that pattern recognition is innate or it os not there.
tdog, you have a serious issue regarding the concept of risk. you believe, by your own words, risk is evil or at the very least immoral in some way. investors paid VN to TAKE RISK. VN took risks, returning many fold what he lost to his investors even when you include the blow ups. regardless, he was to paid to risk the investors money, they could have risked it themselves, but decided to allow someone else to do so. why do you consider the lost side of risk immoral, while the win side is moral? you have deep seated biases, likely installed as a child. You may wish to analyse your motivations. surf
You miss the point entirely. Read my last post again. It is you who are reading your own biases into my post. Have Anna explain it to you.