Thanks for the insight... while I think it's possible to be a genius AND an egomaniac at the same time, I think it's also quite possible that I've misjudged Niederhoffer from afar. Far better to be pompous in a book and down to earth in person than the other way round.
Well I will always leave room to believe in real life VN is a good guy and like I said in previous posts I really respect the fact he was a squash champion (Just about every good squash player I ever met was a hard ass but a good guy.) But If I have the following facts correct one could never really respect his business side or trading ablities. We know he had a good run as manager. We know he is a smart guy. We know he was having drawdowns and sold massive amounts of premium after the markets made large moves. My thesis- you trade, you make money. You take your fees from your clients. You trade you have draw down you sell premium, you take your fees. You do this again till you blow up. Do you see the ethics problem here. (By the way I also suspect this was the business model of the bright guys at LTCM). Sell premium and lots of it until the big inevitable event wipes you out--- and say-- oh this was not predicted in my models. Please correct me if I am wrong. I really would prefer to be wrong.
Please correct me if I am wrong. I really would prefer to be wrong. It takes more guts if you are right, doesn't it?
I would like to further refine my statement as I was just attempting create systems. State your are great at stats. Create systems where you trade for reversion to the mean. Add to your losers. When you have really adverse moves sell premium. It is the perfect system until you blow up.
âFrom what I understand of that situation, the difference between me and Victor Niederhoffer is pretty simple,â he announces. âIn 1997, Niederhoffer had already lost half of his money betting on the Thai baht. All the clients that could leave him already had. But Niederhoffer had other clients under a lock-up agreement where they could only leave his fund at year-end. He needed to make back a great deal of money in a short period of time or risk the rest of his clients fleeing. Selling S&P put options was effectively a double or nothing way to try to make himself whole by year-end. He knew exactly what he was doing, and he just kept selling more options on the way down because he knew the game was effectively over anyway, unless the market came roaring back.â It did, of course, but a tad too late for old Vic. http://ansbacherusa.com/der.html I copied this from another spread. I hope that one of VNs friends would refute this indictment. It is even worse than I surmised if this is true.
Just from the reply... It seems like worth reading a few several pages... arghhh... Reading things on the screen is painful...
If it was only Vic it wouldn't be a debate, the problem is that "modern" quants (especially Fama & so like of Chicago Business School) which dominate today the schools of economics since 30 years think so but this was not always the case see below so as posted in another thread A summary of EMH by economists http://cepa.newschool.edu/het/schools/finance.htm homepage of the "HISTORY OF ECONOMIC THOUGHT" http://cepa.newschool.edu/het/schools/aea.htm http://www.elitetrader.com/vb/showthread.php?s=&threadid=25863 "The Working-Cowles-Kendall empirical findings were greeted with horror and disbelief by economists. If prices are determined by the "forces of supply and demand", then price changes should move in particular direction towards market clearing and not randomly. Not everyone was displeased with these results, however. Many viewed them as proof that the "fundamentalist" theory was incorrect, i.e. that financial markets really were wild casinos and that finance was thus not a legitimate object of economic concern. Yet others crowed that it proved the failure of traditional "statistical" methods to illuminate much of anything. High-powered time series methods were used by Clive Granger and Oskar Morgenstern (1963) and Eugene F. Fama (1965, 1970), but they came up with the same randomness result." So whoever doesn't agree with this school of thought at least without heavy arguments would be easily dismissed (I don't agree with them and have such heavy arguments but it requires much subtilities to understand) and I remind you that CFTC even used the quants arguments to say that TA is FRAUDULENT ! http://www.elitetrader.com/vb/showthread.php?s=&threadid=18551&highlight=CFTC "Technical analysts . . . first make a deterministic (one might say spiritual) leap of faith that non-random price patterns exist. They then illogically posit that these patterns, once revealed to the few (or indeed -- through marketing -- to the many), may be successfully exploited in trading. To accomplish this, of course, the 'pattern' must remain undetected by others (otherwise the increased market activity defeats the 'pattern' by driving the price to a point where speculation is no longer profitable). See Marshall (1989) at 263-264. Public policy presumes that markets are not so witless. 'The presumption is [] supported by common sense and probability [as] recent empirical studies have tended to confirm Congress' premise that the market price of shares traded on well-developed markets reflects all publicly available information . . . ' Basic, 485 U.S. at 246." (note 75, page 41)" "[A]ny marketer's claim of increased profitability or reduced risk through the use of these systems is likely to be fraudulent". (note 75, page 41)
One argument (it's just one among others and it is enough alone but is already a strong one) against Fama, Vic and all "pure" quants is this: "Normal distributions are not the norm." http://www.elitetrader.com/vb/showthread.php?s=&threadid=25943 http://www.pyzdek.com/non-normal.htm Non-Normal Distributions in the Real World "After nearly two decades of research involving thousands of real-world manufacturing and nonmanufacturing operations, I have an announcement to make: Normal distributions are not the norm. You can easily prove this by collecting data from live processes and evaluating it with an open mind. <font color=green>In fact, the early quality pioneers (such as Walter A. Shewhart) were fully aware of the scarcity of normally distributed data</font>. Today, the prevailing wisdom seems to say, âIf it ainât normal, somethingâs wrong.â Thatâs just not so." (Read the whole story directly on the site it's funny) So if you knew the philosophy of Walter Shewart you would find that all the debates about Normal Law is ridiculous because it is normal that Normal Law is not so normal . That's why I said that I will expose the point of view of Walter Shewart http://www.elitetrader.com/vb/showthread.php?s=&threadid=25033&perpage=6&pagenumber=1 Re: Stock movement, standard deviation and psychology I am preparing an article for my site in 3 parts : Part I - Understanding variation (volatility) concept in general Part II - Applying variation concept in industrial activities - from the viewpoint of Walter Shewart (the father of Statistical Process Control and Quality Engineering) Part III - Adapting the above framework to Stock Market