Mar

21

Always play tennis with a proThe recent moves by central banks around the world to spend and add trillions of dollars to their balance sheet leads one to revisit the great coup when an investment firm speculated that a foreign currency was too high, took a short position against the currency, and was so powerful and correct that the central bank succumbed and devalued thereby leading to a 10 figure profit for the investment firm. I knew and spent considerable time in both business and personal activities with the head of that investment firm before he severed his connection with me, and thought that it might be apt to reconsider what I should have learned from him so that I and others might learn from his wisdom for the future.

1. Play sports every day, but not golf, and always use two cans of balls, and hire a pro as a doubles partner, so that you don't waste time chasing the balls around. There is a high opportunity cost to your time, and don't distract yourself with mundane activities like changing diapers or knowing where the refrigerator is, or make trivial investments that would distract you from the main chance.

2. Make your entire persona and investment approach consistent with the idea that has the world in its grip, i.e., the purpose of life is to do good for the needy. Like Lady Gaga, be the kind of person who should be a frequent visitor to the Oval.

3. Never marry a woman you wouldn't wish to divorce, i.e., never get into a position you couldn't get out of with ease, and think of this before you make the commitment. I would add that the selfish wife or selfish price or selfish dog should never marry a man that will leave her in oblivion if things don't work out. Imagine the great harm that the selfish dog did itself by killing a human. Now they're all likely to be rounded up.

4. Never trust anyone. And especially the more they talk about their honesty, the faster and more closely you should count your silver.

5. Foster above all relations with lenders so that you will have enough collateral and staying power at all times as the banks.

6. Be sure that you can play the float that unrealized liabilities provides.

7. Develop economical habits so that you can apply them in the business. Demand a discount on all transactions even if you are going to donate a million times that much to charity at the end.

8. Never waste your time with old ties and loyalties if they that don't have an immediate short term benefit, i.e, "what can you do for me tomorrow and today." Be careful you don't get roped into going to too many funerals and choose your acquaintances accordingly.

9. Never admit to having made a profit, but always emphasize your losses.

10. Surround yourself with big and powerful players so that your positions will be with the forces when you disseminate or implement them.

11. Have a loyal and very tight friend, preferably a retired accountant who vets all your deals with family and only invest in them pari passu with your friend if he invests in it on his own. Be sure that your lawyer is your best friend, and run everything by him at an early stage.

12. Always be humble and admit that your future looks bleak, that you yourself couldn't understand your own thesis, and surround yourself with people that you know are much smarter than yourself.

13. Stay away from attractive women aside from your wife as they can be too expensive and distracting, but feel free to admire them from a distance.

14. Develop a few flow hobbies like chess or music that can take your mind temporarily away from the business.

The most important lesson of all is that survival is the key. Never allow yourself to be expunged from the game or life. If something life-threatening is in the air, get out — whatever the cost.

Addendum:

Always hire a pro to second you when you are playing tennis or investing. The pro makes you look good and can always win his serve and two or three points on the return of serve. It's important not to make a fool of yourself when doing something you're not so good at, as people mistakenly think your abilities in one thing are related to your abilities in another. (People, including myself, have mistakenly made that mistake about me, thinking that because I was so good at hardball squash I might be almost as good at something else). Having a pro besides you for your investments in a field is something I first learned about when I met a friend of the head of the investment firm under consideration and he told me that he was in charge of his investments in Bora Bora or some such which had a population of 136, and I realized that similar pros were handling investments in every other country with population above 50 around the world. Since then I have been amazed at the quality of the pros that the head of the investment firm under consideration has hired or partnered with to lead him to victory.

Also, never wear an overcoat to a restaurant. When you're as rich as Gino or the aforementioned, the hat check people will hate you if you leave too little, and if you leave too much you'll ruin it for the other people who aren't that rich. The investor I refer to was a very economical tipper, and always said that he adhered to this abstemiousness because he didn't want to ruin it for others that couldn't afford it like him. This had the virtue of maintaining the economical habits so essential for business, as well as the benevolent affect on those less fortunate in the investment battle.

More important, what are the lessons that you have learned from persons almost as, equal to, or even more influential and helpful in your life than The Pal was in mine before he sagaciously severed his connections with me?

Tom Marks adds:

 To make it an even baker's dozen to the 12 of those original 10 while perhaps being more idealistically precise, any truly estimable sort would also have found a way to convey the following precept.

In matters of rooting for other people, and with everything else being genuinely equal, always have one's heart wager unabashedly on the underdog as determined by society and convention's Vegas. Maybe it's the temporal variation on Pascal's Wager, as the potential payoff joys dwarf the ante of possible disappoint. Besides, even if the sporting sort loses, which they oftentimes do, they still earned karma dividends simply by rooting for another in the first place. It's win/win. I take that shot every time. Why not, it's amazing how many loses of that type one can endure while still being spiritually solvent. 

Jim Sogi writes:

What I have learned is that it is the wave from within that swamps the canoe. All problems come from within. Most mistakenly blame external sources for their woes. This is called denial. The world is basically beautiful. We are all defective in some way. Learning how to accommodate these various intrinsic human, and particular peculiarities is the road to self realization. It's a long hard trail. 

An anonymous commenter adds:

1. Invest in stuff you do not understand. The Complexity Premium will carry you for awhile, see Enron and Alphabet Soup of securitization for proof. In the mean time people will think you are really smart and that is why you out perform in the short term.

2. Never let someone go over your long term results. Focus on what you just bought in any analysis or comparison.

4. Blow up only when the economy stinks, that way you have a good excuse. Many decent years followed by one excusable bad year. The opposite of course can apply to hedge fund guys. Only have one spectacular year, and everybody will think you out smarted the optimist.

5. If someone models your risks and says it is too high, call the models garbage. After all nobody could model the stuff you bought.

6. Buy everything complex from your friend you played on the same intramural team in college. After all he has a McMansion and would never hurt a friend. He has great contacts, and loves being the middle man and controlling what you and your boss sees. Besides he will then take you to all the greatest golf courses when you are in town.

7. Call being in front of the herd, "herd following" and "group thinking". But bottom selling and top ticking is simply an irrational market and bad economy. If you are in front and something goes wrong, you simply look stupid. But if you get caught at the tail, nobody could have seen it coming, because everybody was doing the same thing.

8. Always be quick with a joke, but make sure it is at somebody Else's expense, not your own.

9. The better people are, the more you need to dig to find their weakness. Once it is found, make sure to define them by this problem.

10. Never win at golf, but prove your expertise in the clubhouse by knowing your liquor. Be sure to always be in the "power" group when you play and drink.

11. Make sure you are friends with your bosses mistress…you never know when you will need to call in a favor and have someone fired.

12. Control the minutes of every investment meeting, nobody reads them anyway, but it is a great way to not have to do something you do not want to, but those in charge want you too.

OK, so this was a conglomeration of several poor guys I've known. 

Tom Marks adds:

One recalls that the stock market last topped out with Scott Browns'
 election. And this weekend may in fact mark the passage of Obamacare.

If the markets rally despite Obamacare, might this be an example of the "busted hypothesis" of which a certain famous speculator wrote?


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18 Comments so far

  1. Richard E Barsom on March 15, 2010 10:24 am

    Very good. I have not followed some of those and I can tell you those were some of the biggest mistakes I have ever made both in trading and life.

  2. Alexander Peschkoff on March 15, 2010 11:11 am

    No.11 (”Have a loyal and very tight friend”) contradicts No.4 (”Never trust anyone”). The same, to a lesser degree, applies to No.3 (”Never marry a woman you wouldn’t wish to divorce”) and No.13 (”Stay away from attractive women”).

    Hm, is Niederhoffer THAT bad?!.. ;)

  3. Rod Clifton on March 15, 2010 11:33 am

    Re: #1. "…don't distract yourself with mundane activities like changing diapers…". I disagree, as I never felt changing my daughter's diapers was a mundane activity at all; in fact I found it quite a bonding experience with her. Quite humbling to see your #12 although it made me feel my future was anything but bleak with her around.

  4. Trader64 on March 15, 2010 12:07 pm

    @Alex Peschkoff
    Allow me to explain anecdote No.11. The main point is that our friend did not trust anyone. This distrust took many forms, one was that he required all proposals from friends and associates to be carefully checked by a retired accountant friend. You might say: “Ha! So he did trust someone, he trusted the accountant!”. Strictly speaking you are right, but it still seems evidence of low trust when someone has only one person whom he trusts and uses them as intermediary in dealing with all other “friends”.

  5. Nigel Davies on March 15, 2010 3:21 pm

    Re trust etc. When one understands that there are degrees of trust (and other things), ‘never trust anyone’ becomes entirely compatable with ‘have a very loyal and tight friend’. What is missing is the word ‘completely’.

  6. Daily Blogwatch: 14 Mind-Blowing Facts About the Federal Debt and Should Microsoft Employees Use iPhones? | cars burner on March 16, 2010 9:32 am

    […] Uber-trader Victor Niederhoffer shares ten things he learned while trading for George Soros. ___________ […]

  7. Drew on March 16, 2010 10:10 am

    i dont understand half of the s__t you guys are saying but i would like to make some money. can any of you guys help me out a little? i need a new breitling.

  8. Tom Marks on March 16, 2010 11:34 am

    Alexander Peschkoff wrote:

    >No.11 (”Have a loyal and very tight friend”) contradicts No.4 (”Never trust anyone”). Hm, is Niederhoffer THAT bad?!..

    Maybe he understands set theory and Russell's Paradox.

    To wit, everybody is somebody, right? Thus it would logically follow that the more defined "somebody" has to by definition belong to the comprehensive set "anybody", right? So how can one trust "somebody" when they don't trust "anybody"?

    This is how:

    "…In the foundations of mathematics, Russell's paradox (also known as Russell's antinomy), discovered by Bertrand Russell in 1901, showed that the naive set theory of Frege leads to a contradiction.

    "It might be assumed that, for any formal criterion, a set exists whose members are those objects (and only those objects) that satisfy the criterion; but this assumption is disproved by a set containing exactly the sets that are not members of themselves. If such a set qualifies as a member of itself, it would contradict its own definition as a set containing sets that are not members of themselves. On the other hand, if such a set is not a member of itself, it would qualify as a member of itself by the same definition. This contradiction is Russell's paradox…"
    http://en.wikipedia.org/wiki/Russell's_paradox

  9. Steve Leslie on March 17, 2010 8:28 am

    To all you nattering nabobs: This is the Chair's list. Rather than critique it make up your own list if you don't like his. Some of you people would b!tch if they hung you with a new rope. He is sharing ideas and concepts here.

    Not every word that the Chair writes is genius, he is not the Oracle at Delphi, and he can be a bit verbose and over-the-top but some of it can save your life literally, metaphorically, financially and emotionally.

    Number 13 alone is absolutely profound in its simplicity. Ask Woods that one. This one lesson alone could have saved him 100 Million or so.

  10. Tom Marks on March 17, 2010 9:17 am

    Well, Mr. Steve, consistent with my set theory explanation of how Dr. Niederhoffer could — seemingly — contradict himself with an all inclusive statement and then an exception, it's the "all" in your "…all you nattering nabobs…" comprehensive set that I don't really want nor deserve to be a part of.

    I was merely trying to provide some well accepted theoretical underpinnings as to how he could at once embrace points 4 and 11. Both very valid, mind you, no matter how — seemingly — contradictory 11 may be of 4.

    With that said, best wishes for a Happy St. Patrick's Day.

  11. Duncan Coker on March 17, 2010 11:31 am

    A couple come to mind,many under the premise there are so many way to trade profitable and so few to profit

    Don't try to get even.
    Don't hope for your position
    Avoid a hoodoo, I think there are hoodoo trades too
    Be willing to stay in a winning trade for a decent profit
    Watch out for the switches
    The markets will always be there
    The crocs will be there if you repeat things exactly
    Be original and think differently

    I was lucky to have a great mentor.

    Dunc

  12. vic on March 17, 2010 7:27 pm

    One would add to M. Allen's excellent enumeration that an allusion and reputation to your career in the military where you single handedly rushed 10 gunners of the enemy to save your comrade or commander is always good when the negotiations get tough. Also important is irrefutable but unverifiable reputation as a competitor of the Junior Olympics where you won the silver medal in some obscure sport in a distant country, or a prize winning essay you wrote for a famous professor that so impressed him that he asked you to join him as a partner in his firm or take over his class. When a friend asks you for a loan and you can't say no without ruining the whole bag of wax say "I'll give you half — that way we'll both lose half." Also helpful is to tell many perfect stories that put you in a somewhat negative light as they tend to distract from the big horse you are trying to trade. And always be kind to underlings, children and dogs in public as this is a signal of your good heartedness. Pretend that Cokes and burgers are your favorite food. Hire a influential reporter as trustee of your estate. Be sure that you never reveal anything to anyone that could possibly be detrimental to you if that person turns against you or has to be fired. And never be "briefed" on anything that is not according to Hoyle. For example, if you are a casino and you can fix the wheel when it's a million dollar trade, don't let anyone know or better yet don't know about it except for those who have a high contingent pay in the future. Don't give away ownership of any of your big holdings. Make sure that you have two separate attorneys to handle any delicate matters so that neither one will ever have the complete pair of pants on you. One hastens to add that these are not things learned directly from the investor under consideration but are things that all who aspire to 10 figure fortunes do as a matter of course, even in the farming States.

  13. Andrew Kunian on March 18, 2010 9:05 am

    Obviously they are talking about G____e S*r*s

    [Ed.: Perhaps. But don't tell George or Google]

  14. Mark Johnson on March 18, 2010 11:40 am

    As a losing retail trader working very hard to get into the win column, I am interested to know. Was that an all in wager, where if it went against would his fortunes have been completely lost? Many times I read of really successful people who had at one juncture of there life made all in wagers such as this. #10 is something I try to emulate, however it is difficult to locate the stock before the move and hang on during the move and to sell when they sell. seemingly using the chair's book and bacons' i get into a good position go all in but don't have the staying power because if it goes against for me is life threatening. And if you diversify you won't be able to make a worthy profit. The vig is a killer and seemingly so many ways to lose. Thank you for posting this information, it helps small timers like me to work my way to the w column.

  15. Tristram Waye on March 18, 2010 11:52 am

    The book: The 48 Laws of Power, may provide some excellent additions to this discussion.

  16. vic on March 18, 2010 4:21 pm

    Mr. Johnson's worthy humility suggests that one should wait until you would have been squeezed out, but do so with no position, and then go all in when you would have been begging for mercy if you had a position. Be careful that you don't do so before a 400 points decline like occurred in a few weeks in Sep 2008, however. Ha. vic

  17. Jack Damn on March 19, 2010 7:32 pm

    Every time a read a list from Victor I feel like such a small fish in life. Lawyer? Don't even know one. Chess? Does Sudoku count? Sports? Does walking four miles a day count?

    Meh. Humility isn't my problem. Success is. Failure is easy. Success is hard.

  18. » 10 Things I Learned From…, from Victor Niederhoffer : Daily Speculations on March 23, 2010 9:39 am

    […] 10 Things I Learned From…, from Victor Niederhoffer : Daily Speculations. […]

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