Back on top: The fall, and rise, of a manager By Deepak Gopinath Bloomberg News THURSDAY, JUNE 1, 2006 NEW YORK One evening in April, Victor Niederhoffer went to a party at the St. Regis Hotel in New York. Niederhoffer was once one of the most prominent hedge fund managers in the U.S. He made a fortune during the 1980s and '90s, trading out of his New York office and chalet-style mansion in Weston, Connecticut. Then Niederhoffer lost it all - his $130 million fund and most of his own savings - when his bets on the markets went wrong. Niederhoffer's life collapsed beneath him. He closed his firm. He mortgaged his house and sold his cherished collection of antique silver. But as he walked beneath the gilt chandeliers of the St. Regis that April night, sporting a lavender blazer, Niederhoffer was back on top. He was being honored at a fête for some of the country's top money managers. Since 2002, Niederhoffer has parlayed $2 million into a new, $346 million hedge fund, Matador Fund. Last year, he posted a 56 percent return, for an average annual return of 41 percent. "I appreciate the difficulty and the courage it took to give me an award, since I once went under," Niederhoffer told the crowd of 300 money managers. It has been a long journey back for Niederhoffer, a Wall Street iconoclast who celebrated his early achievements in a memoir titled "The Education of a Speculator" in 1996. No sooner had the book been published than Niederhoffer's unhedged trades in U.S. stock options and Thai equities blew up. Niederhoffer was wiped out, as a chain reaction of devaluations in Asia rocked world markets. Niederhoffer became a Wall Street pariah, the butt of black humor and gossip. Niederhoffer said that he has emerged from the ashes a changed man. His failure has taught him humility, he said. A Harvard College graduate with a Ph.D. in finance from the University of Chicago and, colleagues say, a preternatural tolerance for risk, Niederhoffer says he no longer believes he can master all markets. He refuses to chase profit in faraway places like Thailand, where he once lost $50 million. Instead, he focuses almost exclusively on the $130 billion-a-day market in futures and options on the Standard & Poor's 500 index. "I try not to reach for the stars," Niederhoffer said. Niederhoffer has not lost his appetite for risk, however. As he was during the 1990s, Niederhoffer is a bull. In the argot of Wall Street, he is long-biased. He tries to make money from short-term movements in the S&P 500. To do that, he buys and sells various futures and options contracts on the index as many as two dozen times a day. He typically holds each position for one to five days. To stoke returns, he employs a tool common to hedge funds, one that accelerated his undoing nine years ago: leverage. Niederhoffer buys on margin, or with borrowed money. The value of the positions he holds far outstrips the amount of money he actually has. And because Niederhoffer is a bull, he is vulnerable to market declines. He has lost as much as 30 percent in a month. Sol Waksman, founder of Barclay Group, a firm based in Fairfield, Iowa, that tracks hedge fund performance, said that he lost some of his own money - he will not say how much - when Niederhoffer went under in 1997. He said that he does not have the stomach to invest with him again. "I never thought in my wildest dreams that it would go to zero," Waksman said of his investment. On a sunny, late-January afternoon, Niederhoffer and his nine researchers/ traders are at work in the second-floor trading rooms of his 20,000-square- foot, or 1,858-square-meter, Connecticut mansion. Niederhoffer has stocked his library with more than 15,000 books. He owns a first edition of "The Wealth of Nations" by Adam Smith and a sketch of the light bulb by Thomas Edison. On the second floor, Niederhoffer and his team sit at wooden desks in two rooms connected by a door and an open window. Niederhoffer sits in one room. A few feet away is Steve "Mr. Wiz" Wisdom, Niederhoffer's right- hand man. Only Niederhoffer and Wisdom trade with investors' money. The rest of the team tests ideas by trading with the $50 million house account, part of Niederhoffer's personal fortune, which he has replenished through profitable investments. No one wears shoes. No one speaks. Though they sit just desks away from each other, everyone communicates via e-mail. A stereo softly plays songs from "Show Boat" and other Broadway musicals. Now in his seventh decade, Niederhoffer said that he was determined to show the world he was not a failure. He said that his crash cost him more than money; it cost him his reputation. It hurts to be branded as a loser, he said. "The ridiculous thing, in all candor, is that I think I've had the greatest run of success in the history of speculation," Niederhoffer said. NEW YORK One evening in April, Victor Niederhoffer went to a party at the St. Regis Hotel in New York. Niederhoffer was once one of the most prominent hedge fund managers in the U.S. He made a fortune during the 1980s and '90s, trading out of his New York office and chalet-style mansion in Weston, Connecticut. Then Niederhoffer lost it all - his $130 million fund and most of his own savings - when his bets on the markets went wrong. Niederhoffer's life collapsed beneath him. He closed his firm. He mortgaged his house and sold his cherished collection of antique silver. But as he walked beneath the gilt chandeliers of the St. Regis that April night, sporting a lavender blazer, Niederhoffer was back on top. He was being honored at a fête for some of the country's top money managers. Since 2002, Niederhoffer has parlayed $2 million into a new, $346 million hedge fund, Matador Fund. Last year, he posted a 56 percent return, for an average annual return of 41 percent. "I appreciate the difficulty and the courage it took to give me an award, since I once went under," Niederhoffer told the crowd of 300 money managers. It has been a long journey back for Niederhoffer, a Wall Street iconoclast who celebrated his early achievements in a memoir titled "The Education of a Speculator" in 1996. No sooner had the book been published than Niederhoffer's unhedged trades in U.S. stock options and Thai equities blew up. Niederhoffer was wiped out, as a chain reaction of devaluations in Asia rocked world markets. Niederhoffer became a Wall Street pariah, the butt of black humor and gossip. Niederhoffer said that he has emerged from the ashes a changed man. His failure has taught him humility, he said. A Harvard College graduate with a Ph.D. in finance from the University of Chicago and, colleagues say, a preternatural tolerance for risk, Niederhoffer says he no longer believes he can master all markets. He refuses to chase profit in faraway places like Thailand, where he once lost $50 million. Instead, he focuses almost exclusively on the $130 billion-a-day market in futures and options on the Standard & Poor's 500 index. "I try not to reach for the stars," Niederhoffer said. Niederhoffer has not lost his appetite for risk, however. As he was during the 1990s, Niederhoffer is a bull. In the argot of Wall Street, he is long-biased. He tries to make money from short-term movements in the S&P 500. To do that, he buys and sells various futures and options contracts on the index as many as two dozen times a day. He typically holds each position for one to five days. To stoke returns, he employs a tool common to hedge funds, one that accelerated his undoing nine years ago: leverage. Niederhoffer buys on margin, or with borrowed money. The value of the positions he holds far outstrips the amount of money he actually has. And because Niederhoffer is a bull, he is vulnerable to market declines. He has lost as much as 30 percent in a month. Sol Waksman, founder of Barclay Group, a firm based in Fairfield, Iowa, that tracks hedge fund performance, said that he lost some of his own money - he will not say how much - when Niederhoffer went under in 1997. He said that he does not have the stomach to invest with him again. "I never thought in my wildest dreams that it would go to zero," Waksman said of his investment. On a sunny, late-January afternoon, Niederhoffer and his nine researchers/ traders are at work in the second-floor trading rooms of his 20,000-square- foot, or 1,858-square-meter, Connecticut mansion. Niederhoffer has stocked his library with more than 15,000 books. He owns a first edition of "The Wealth of Nations" by Adam Smith and a sketch of the light bulb by Thomas Edison. On the second floor, Niederhoffer and his team sit at wooden desks in two rooms connected by a door and an open window. Niederhoffer sits in one room. A few feet away is Steve "Mr. Wiz" Wisdom, Niederhoffer's right- hand man. Only Niederhoffer and Wisdom trade with investors' money. The rest of the team tests ideas by trading with the $50 million house account, part of Niederhoffer's personal fortune, which he has replenished through profitable investments. No one wears shoes. No one speaks. Though they sit just desks away from each other, everyone communicates via e-mail. A stereo softly plays songs from "Show Boat" and other Broadway musicals. Now in his seventh decade, Niederhoffer said that he was determined to show the world he was not a failure. He said that his crash cost him more than money; it cost him his reputation. It hurts to be branded as a loser, he said. "The ridiculous thing, in all candor, is that I think I've had the greatest run of success in the history of speculation," Niederhoffer said.
I could never give that guy money. It's not the fact that he blew up his last fund. It's not the ugly jacket. It's not the barefeet...it's show tunes playing all day!
Wait a minute... trades several dozen times a day and average holding time is one to five days? This is the first time I have ever read this about Vic's strategy.
True.... The article is dated today (June 1, 2006) but references events in April. I call that poor journalism, the article should have ben updated given recent market activity. Nonetheless, it delights me that Vic is back. I still think his book is a classic, one of the best on the markets, it teaches you both things to do and NOT TO DO. I have a soft spot for him as he does seem to be a genuinely nice guy, despite his various idiosyncrasies and I wish him as I wish all people abundant success!
Man, talk about never say die.... this guy just grabs life by the nuts and never lets go! He keeps blowing up but won't give up. That's the lesson. I had some friends who worked for victor back in the 80's & went to the 57th street offices to pick them up for drinks one night. The place was downright hippie, with kids running around... but, if I recall, still no shoes. Wonder whatever happened to his son Roy. A likeable schlump, like myself.
I enjoyed the book and think the guy's got something special - bust once or not. So, does anyone know how he handled this little May bounce?
roy niederhoffer is vic's brother. he runs a very succesful fund in NYC. http://niederhoffer.com/NDF/General/Index.php best, surfer