Aug

9

Amateurism in the Market, from Victor Niederhoffer

August 9, 2012 |

3 Comments so far

1. Wade on August 9, 2012 10:17 pm

   Vic, thinking that, process-wise, there is no truth, only interpretations. What distinguishes professionals from amateurs is whether the realized outcomes were positive or negative. Judging from the appalling equity volume over the past four days, it may suggest that most of the amateurs have already left. Ditto for the housing market, popularity contests, elections and any other “market” for where there are only a low percentage of long-term winners.

2. PB on August 10, 2012 5:35 am

   It is worth noting that amateurs can win in the market as long as they do not fool themselves that they are pros. For amateurs, taking long term bullish bets, should bring about a good retirement in 30 years.

   Pros of course always try to lure amateurs into sitting down at the high rollers table, encourage them to have a complimentary drink and relieve them of their savings.

   Listening to people like Bill Gross who tells you bonds are the only reasonable investment even at 0% interest is the way to the poor house. Of course an amateur loves to appear to be a pro, loves watching CNBC, and changing their opinion every 5 minutes.

   If you recognise where you fit in the eco-system, you can avoid being a meal for a bigger player.

3. drdimick on August 11, 2012 12:45 pm

   Handsome is as Handsome Does

   Amateur… French amateur “lover of”, from Old French and ultimately from Latin amatorem nom. amator, “lover”…

   http://en.wikipedia.org/wiki/Amateur

   As an amateur of the markets and investment in general and specifically with regard to program trading architecture, one may come to see two central precepts distinguishing us from the professionals.

   First, licensing and OPM (other peoples’ money) enable the professional to operate with proscribed civil and criminal liabilities – minimal downside.

   Second, there are distinct community — political as well as social-economic — dynamics, ones perhaps best summarized (ibid.)…

   “The stigmatization of amateurs as fools for contributing to society simply for the love of it can be explained by the amateur’s non-conformity to the ideological structure of consumption (Goffman, 1963; Stebbins, 1992). Amateurs are serious about the work they do, providing outstanding examples of contributions to society (Stebbins, 1992). But whereas professionals obtain licenses as their “measurability of the excellence of service provided” (Stebbins, 1992, p. 21), amateurs break taboos by loving their work and not passing standardized tests. From here, it can be argued that, to the extent amateurs threaten the professional industry by providing free services, the professional industry has an interest in making its counterpart amateur activity shameful.”

   With an account at Tradestation since 2003 and a frequenter of the TS member forums, I find that how an amateur distinguishes markets from professionals usually revolves around the difference in approach to challenges and issues. The amateur may view the world from a generalist perspective centered on metis, outis, and the gods (or skill, craft, and timing), whereas the professional relies upon specialized knowledge and relationships.

   After the Olympics allowed professionals to compete in the 1970’s, the Games appeared to take on new and expanded (sub)sets within sports communities, uniquely per country. Professional leagues and associations as well as governments then seemed to pursue more (in)direct involvement with the Games.

   Aside… Who were the primary beneficiaries, professionals or amateurs?

   Regardless, consider how “opening up” the Olympics may be similar to how the technology revolution has transformed the markets – Tradestation being an example.

   Designing an order execution component, I recently researched (online) professional trading courses and seminars. Repeatedly, I would hear how firm/fund/bank traders view price action from a predatory perspective; they are the whales looking to eat fish smaller than themselves. Understanding the playbook of how and why one is “stopped out” or “head-faked” were two common examples.

   Accordingly, perhaps central to the Chair’s question here concerns abuse of the system a la the relative degrees of fairness and recourse ensured – not just available or possible if one can afford a lawyer – to protect the amateur, often referred to as “the little guy.”

   A market professional (50 years) recently forwarded to me an article on HFTs…

   http://www.zerohedge.com/news/interview-high-frequency-trader

   I was reminded of Madoff – not in a criminal sense per se but relative to fairness — because of the NBBO, Phantom Indexes, rebates, and server location issues. All examples, it appears to me as an amateur, of exclusivity promoting abuse when not rule-breaking schemes that endangers our “fair and orderly” touchstone — the one so often touted by the professionals… just before they scalp some group of amateurs.

   During his time, Nixon referred to such operators within the markets and those of a similar ilk – namely market professionals — as “those Wall Street bastards.” From all that we have witnessed in our time (or the post-WWII Nuclear Age) and with 2008 providing the most recent example, one may become easily resigned to concurr with our former president — who knew all the tricks in the book, even when the books were cooked.

   What to do?

   Perhaps all the more reason to remain an amateur…

   dr