niederhoffer on the biggest market con games http://www.dailyspeculations.com/vic/goodboy_interview.html legendary speculator, market philosopher, gamesman, and racquet sport champion. He worked directly with George Soros and was ranked the number one hedge fund manager in the world for several years then disaster struck. In 1997, an overly expansive speculation in the Thai stock market caused spectacular losses in his accounts. Due to extensive leverage, his losses were magnified over and above his 50% loss in Thailand, and spillover effects from that debacle caused his fund to be well over its head in U.S. equities when they closed down limit on Oct. 27,1997. In short, a combined sequence of events � huge declines in individual Thai stocks,losses in the Thai currency and the closing of the U.S. stock market and extensive up moves in the prices of options the fund was short; all came together in one day, in a short and disastrous coincidence. The loss, over and above profits made and withdrawals from the fund, totaled approximately $50 million. In addition to the losses in the funds, Victor had invested heavily in his own trading. To cover his debts and living expenses, after much soul-searching, he took out a mortgage on his house at an interest rate of 18% a year and sold his liquid assets, including his entire silver collection and his holdings in private and publicly held companies. He started again from the bottom. He scraped together a small trading stake and started plying his trade, slowly building back what was lost, determined never ever to allow the same mistake to happen twice. In a true example of the human spirit and his will to be a champion again, he is back in the game at a top level. Since inception in February 2002, Vic�s current fund, �Matador, � had a three-year annualized return of 31%, placing it among the top five offshore funds. In 2004, Matador had a 50% return, the best of all offshore funds with more than $45 million in assets, according to the TASS rankings. Here�s a gentlemen who came from materially meager beginnings, rose to the top academically, athletically, and financially---lost it all, and is now back on top. He is truly someone we can all learn valuable market and life lessons from, since he has been and suceeded on the front lines in all capacities and levels . Most investors and traders don�t realize the extent of the subterfuge, con games and outright deceit that occur daily in the financial markets. Victor and Laurel have extensively studied, researched and tested the commonly held beliefs of market participants. As described in their recent book �Practical Speculation�, they have discovered that many of these beliefs simply do not stand up to rigorous testing and are merely delusions that result in losses. In this interview, we will examine the biggest market con games and how you can profit from these popular delusions. Dave: Welcome, Victor and Laurel, to Real World Trading. Victor: Thank you for having us. Dave: Let�s start off by talking about what first perked your interest in �stock market cons�. Victor: Laurel and I have been working together on the philosophy of markets over the last 8 years. The ideas I will present are our joint work and some of them are touched on in our book, �Practical Speculation�. Laurel, would you please enlighten Dave as to the genesis of our research into the �Invasion of the Body Snatchers� concept. Dave: Invasion of the body snatchers!? Isn�t that a sci-fi movie from the 1950�s? Laurel : Yes, It�s a Jack Finney film from 1954. We believe it�s the perfect allegory for an introduction to the big market con. The film is about invaders from outer space that take over people�s bodies, making them hopeless and listless, ready to accept whatever propaganda they hear. It�s a perfect analogy of how investors are misled by market cons Dave: I see. You believe that the public has been duped by the market�s propaganda machine, so to speak? Victor: Part of the backdrop to our research was the concern about financial reporting and the corruption of corporate executives, as well as the normal issues with the economy like interest rates and international affairs. But there is always something wrong with the backdrop of the market, the economy and individual companies. The problem is, the public is generally mistaken in its enthusiasm for determining whether factors are bullish or bearish Dave: Are you saying that it�s impossible to tell how the market will interpret various factors as positive or negative? Victor: Yes. Retrospectively, after the market has gone down, it�s generally assumed that we are in a bear market and conditions are terrible. This causes the public to lose hope and refuse to take on risk. Dave: Do bear markets even exist? http://www.dailyspeculations.com/vic/goodboy_interview.html
Absolutely superb....some life lessons are in there. Thanks Surf ! For a moment, I thought she had written an entire book, but there's no "Comeback Kid" on Amazon.
I totally agree. I will never forget that email he sent me when I asked him about an opinion of using a mechanical trading system to trade options. His response: "How erudite". The English word erudite is first recorded in a work possibly written before 1425 with the senses "instructed, learned." Erudite meaning "learned" is supposed to have become rare except in sarcastic use during the latter part of the 19th century, but the word now seems to have been restored to favor. Of course old Vic WAS being sarcastic. I think I still have the email...let me try to dig it up.
Sorry Surf, but I disagree. Had it not been sarcastic, he would have made some more commentary. But he did not. Also, the email date just before his first "blow-up", so old Vic was just "full of himself" at that point in time.
No. I don't know the man but I've read both of his books. I'd say he was condescending in his remark.
yes He lost so much money that the clearing firm had to liquidate his positions. He does not mention how much he was really short at the time of the liquidation and cuts a deal to only pay back 2 million. What do you think of that arrangement surf? Do you think he really made good on his entire debt - or did he negotiate his way out of it? Note we also saw the same excuse you see most retail traders make after blowing up. If they gave me more time the positions would have come back. Is that the remark of a stand up professional trader with an over the top preppy jacket? Or is the remark of someone who is posing as a standup professional trader with a fake preppy backdrop? I have no animosity here - I just hate seeing b.s. statement after b.s. statement. The guy was great squash player and went to harvard. Bravo. (I say that sincerely.) He sucked as a trader. He apparently sold premium while pretending to be a genius trader.
To me VN is sort of the poster child for the trillions wall street just cost us. The old guys were greedy bastards but they new when to stop. The specialists on the NYSE wanted something to pass on through the family. The guys in Greenwich wanted their partnership to be lucrative forever. These new guys put all the words out there - but when you examine them it is all bullshit. The purple jacket looks preppy on a 20 year old. On 50 years old is reeks of poser. Wall steet and Greewich have been hollowed out by posers and they have nearly destoyed our countries financial future. Real traders make money. Stand up guys pay back their what the lost. They don't point to agreements - say I exchanged my assets for loses and pretend they are stand up guys. What was the mark to market. What assets did you exhange. You went to Harvard, you posses a powerful vocabulary - you can't figure out how much money you lost. Give me break from the bullshit.
Sorry Dude, how can that be given his pre-blowup track record ? His only fault was not converting those naked put positions to credit spreads. That would have capped his losses to a great degree.
This has been turned over many times. As you sell more and more premium you can look very profitable til you blow up. LTCM was apparently selling premium til they blew up. From what I read and the timing of the drawdowns and blow ups it seems VN followed the same business model. Sell premium promote your track record take out large management fees and hope the blow comes later rather than sooner. All this was not so bad.... but then Wall street took that "business" con game model and put it on growth hormone. They the started selling the 2nd 20 percent to make 100 percent mortgages, Eventually option arms to anyone with a pluse. Selling mortgages particular 2nd mortgages is the exact same concept as selling premium. Works great and you can take out billions in bonuses until the underlying goes down in value. Wall street was selling puts on real estate to the tune of trillions and trillions. if you think it was a sincere mistake consider that Mortgages in California and some other western states are sometimes non recourse mortgages. Those mortgages were puts plain and simple. The fed had statistics that show that when property goes down in value approximately 20 percent you have mass walkaways. And those stats were compiled when most people had to put 20 percent down. I suppose even that would have been fine if they just blew up their shareholders money and their companies. But the bankers have destroyed america's future and sucked the tax payers dry. Selling premium is fine with your own money. But blow up others while you pretend you are profitable and take out millions, billions and trillions is immoral in my opinion. In many cases it should be prosecuted as fraud. Using the tax payers money is even more immoral. Holding out premium sellers who pretend they could not see their blowup coming is pathetic. Allowing wall street to pretend they are run by the best and brightest is something that must be stopped. many of the recent dirtballs from wall street are parasites, Unfortunately they made so much money while running their scam they have purchased our government and many of the others. There was a recent article which pointed out that in the old days Goldman Sachs had a motto of long run greedy. Long run greedy probably worked for america. They new model seems to be destroy america for large bonus.