Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

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8/5/04
Department of Connections

James Sogi: Surfing and Markets, Life and Death

I just got back from a surf trip on an ancient Hawaiian outrigger sailing canoe to deserted remote inaccessible valley. The valley is uninhabited, and there are ancient ruins from Hawaiian Civilization 300 years ago. 500 hundred foot waterfalls cascade down the steep cliffs sheer to the ocean and a rising mud filled river ran floodwater down the center. As we approached the valley in the gathering darkness the sea was building and the sky darkening. The surf was rising and crashing on the rocky shore making landing the canoe impossible. We had to swim our gear in. That night, the rains poured and the surf was rising. In the morning, the canoe was still there, but the surf was rising. After surfing large overhead waves, the surf continued to increase to dangerous levels. The canoe was in danger. We had to make a decision. If we stayed, we risked being caught by an increasing storm and risk destruction of the canoe, our only escape vehicle. The weather forecasts are as reliable as the stock forecast at CNN. The sea was dark and rising and breakers were forming in the open ocean. After much hand wringing we decided to cut our long planned trip to try return with deteriorating conditions at the valley, but worried the launching beach would also be closed due to rising surf closing off our return route. The seas had built to dangerous breaking waves cresting in random patterns. Large breaking seas filled the canoe several times nearly resulting in disaster. With fond thoughts of the List (even in the ocean) and lessons on randomness, I tried to steer the canoe to the place where the last wave had broken, on the assumption, hope and prayer that the next wave was least likely to break in the same spot twice at random. At the launching beach, we timed the breaking waves, and came in between the breakers to a safe landing to our great relief and the amazement of a crowd gathered on shore..

Reviewing the trip, we decided we had made the right decision, at that time, even though as it turned out, the storm had peaked during our trip and all would have been fine. But at the time of the danger, had the conditions worsened, disaster would have been sure. Making an important choice, with limited in formation, which borders on life or death, is, putting it mildly, tough. There are several outcomes, and one must take the situation with the best odds, lowest risk, given the incomplete and erroneous information, even if it later turns out wrong.

For example, when caught in a trade that is going bad, it can get worse. At the time, it is hard to choose. Take a loss, miss a potentially epic trade, or bail out for safety and another trade, another trip, another time. One must make the decision, quickly, while under pressure to hold or fold and act energentically to implement the choice. If one makes the wrong decision, and the situation worsens, disaster looms. Another interesting note is that the weather lured us into the worst of the conditions at the worst time. On hindsight, it would bave been better to stay, enjoy the big waves, and watch to see if it got bigger. The risk would have been greater and had it gotten worse, we would not have made it, as it was, we barely made it back. This is the same type of mental gymnastics that causes one to exit the bad trade at the bottom tick. Still one must choose the odds for greatest survival even in the all knowing wisdom of hindsight. More ironically, after we had made the analysis, in examining the canoe, we discovered a crack in the bow float that would have broken off in several more hours of rough water swamping the canoe, which had it occurred, would have been the end of the canoe and the brave but aging adventurers. I respect the pros, like true water men and seafarers, who have the courage, the skill, the foundation and strength to ride out the rough weather and take a winning trade out of a tough spot.