The Blow-Up Artist: Can Niederhoffer survive another market crisis ?

Good read about Victor Niederhoffer, a man who's made and lost several fortunes in trading:

"...He is mainly a short-term operator—he bets on how prices will move in the subsequent few minutes, hours, or days—and most of his knowledge of current events comes from Bloomberg. (He doesn’t read newspapers or watch television.)...

...At the end of the previous week, the yield on ten-year Treasury bonds had surged to almost five per cent, prompting Niederhoffer to turn uncharacteristically bearish on stocks. Once the bond yield reached five per cent, he had reasoned, some investors would move their money from stocks to bonds, which would depress stock prices. Accordingly, he had sold short more than a billion dollars’ worth of stock futures.

Even by Niederhoffer’s generous standards, going short a billion dollars of stock futures was a large bet, but it worked out well. Not long after the markets reopened on Monday, the bond yield climbed to five per cent, and stocks and stock futures tumbled. On Wednesday, the morning of my visit, shortly after the opening bell sounded on Wall Street, Niederhoffer repurchased the futures he had sold, making more than five million dollars..."

Full article:

http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy?currentPage=1

wowsers. wish I had that amount of money to go long or short. :cheesy:

This here on page 6 is even more wowsers

"...Niederhoffer began investing seriously in the stock market when Galt and Katie were young. In 1979, using money he had saved, he started trading more or less full time and opened an office in midtown. “I got lucky,” he told me. “In eighteen months, I ran fifty thousand dollars up to twenty million dollars. I had an idea that there was going to be inflation, so I kept selling Treasury bonds and buying gold and silver. For a long time, it worked very well. Then one day I was playing racquetball in Staten Island with a guy who subsequently became the U.S. champion. After the first game, I called the office to see where the market was. The price of gold had fallen from eight hundred and fifty dollars to six hundred dollars in an hour. My net worth had gone down to ten million dollars...."


This is where he stands today with the funds he started after the 1997 blow-up:


"...(Victor's) three hedge funds are relatively small by current standards. At the end of June, the funds’ collective value was about three hundred and fifty million dollars, of which about half belonged to Niederhoffer and Wisdom. In 2003 and 2004, the funds increased in value by more than forty per cent each year, and in 2005 the value of the largest fund, Matador, rose fifty-six per cent—a performance that earned Niederhoffer an industry award. Last year, his funds were flat. But in the first six months of 2007 they were up again, by between thirty and forty per cent.
Niederhoffer acknowledges that his aggressive investing style and his reliance on borrowed money increase the volatility of his returns and the likelihood that he will suffer a calamity. In May, 2006, Matador lost about thirty per cent of its value, and in February of this year it suffered another big fall. Many hedge funds claim that they can generate high returns with little risk. Niederhoffer tells friends who want to invest money with him that it is too risky. (Most of his clients are multimillionaires and financial institutions.) “The idea that you can make a lot of wealth in a steady, unspectacular fashion, with no great gyrations, is a canard,” he said to me. “If you are going to try and make forty or fifty per cent a year, tremendous variations are inevitable.”"...

Niederhoffers risk taking seems closer to gambling than good trading.

donaldduke said:

Niederhoffers risk taking seems closer to gambling than good trading.

Click to expand...

A search on ET is probably needed but I believe they're saying he's blown his fund again with the sub-prime crisis.

Yeah, Page 12 suggests he's in a bit of a pickle.

he used to post on elite trader a while back. he was under the name profturf or proturf

Bit of the there are old traders, there are bold traders, but no old & bold traders thing then, what.

I remember this FORTUNE magazine article about T. Boone Pickens, who featured as TRADER DAILY's 2005 top earning trader with an income of $1.5 Billion plus, and was in their top ten for 2006 again, with an income of between 1 to 1.5 Billion.

His beginnings were quite a bit more humble though, when he started out with his hedge fund he seeded that with $35 million in 1997, most of which was from the first fortune he'd earned doing leveraged buyouts, and the rest came from close friends and family. That part's not humble at all, but what followed was pretty humble, namely when he then promptly proceeded, and within one year at that, to decimate his fund to $4 million...

Not bad going, what ?

1999 was more or less flat.

But what's he do in 2000 ?

What's he do then ?

He lets fly an exponential equity curve growth that turns the $4 million into $252, all through profits, ie not through additional fund inflows

2001 sees additional profits of $148 million, so all said and done he's turned the original 35 million into 400 million by the end of the article.

I'm firmly in the risk no more than one to max three % per trade camp, but I also think that the only way to get really rich is to either trade lot's of other peoples money and then keep the equity curve volatility really low to retain the clients, not that that is failsafe either obviously, or trade mainly your own money and be willing to endure some pretty volatile returns. Risk and reward being correlated and there not being anything much one can do to get around that the only other alternative I can come up with is, umm, downsizing the objectives.

Not sure that that's necessarily the best idea though ;-)

Here's an interesting article on the guy - seems to confirm his latest matador fund closed down with 75% losses...

http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy?printable=true

Here's the story on T. Boone Pickens, TraderDailies Nr. 1 earner in 2005 with $1,5 billion, and in the top ten in 2006 with again $1 billion to $1,5 billion, great read:

"...He has always been a great speculator. I remember traveling with Boone in the 1980s, watching in amazement as he bet big on cattle futures, pork bellies, you name it. Eventually he abandoned those markets to concentrate on natural gas and crude oil futures. He may have been wrong about the long-term price of natural gas, but when it came to betting on short-term trends, he had few peers. Between the mid-1980s and the mid-1990s, Boone actually covered Mesa's $15 million annual administrative overhead by playing the futures market. "He used to do it out of his back pocket," marvels Stillwell. "He'd spend 15 minutes a day on it."

So it was hardly a surprise when, after exiting Mesa, Boone decided to set up a small commodities fund that would concentrate on natural gas futures. He gathered a small team of loyalists to staff it and rounded up the usual suspects to help fund it, including Ace Greenberg and Fayez Sarofim. The BP Capital Energy fund opened for business in May 1997 with $36 million in capital.

In his office one day Boone showed me a chart of the fund's five-year performance record. It goes up a little at first before making a long, steep descent; by the end of 1998, the fund is down almost 90%, to less than $4 million. It recovers a little in 1999, and suddenly, with the arrival of 2000, it leaps straight up. By the end of 2000, the fund is up to $252 million for an eye-popping gain of 5,400%. The following year--last year, that is--it's up another $148 million.

"What Boone did in 2000 constitutes one of the greatest individual trading runs of all time," says Tassin. My own view is that his performance last year was even more impressive. After all, in 2000 gas prices finally went up, just as Boone had been predicting. But in 2001, they fell--from $10 per thousand cubic feet to around $3--and Boone still made buckets of money. Yet as I looked at the chart, I couldn't help noticing something else. It may be just a coincidence, but its fall and eventual rise almost perfectly mirror Boone's emotional state during those years...."

http://money.cnn.com/magazines/fortune/fortune_archive/2002/05/27/323668/index.htm

lol, this is priceless:

"Morgan Stanley, the world's second- biggest securities firm, said its quantitative strategy traders lost $390 million during a single day in August as their computer models failed to account for ``widespread'' investor selling."
http://www.bloomberg.com/apps/news?pid=20601087&sid=aY4.Y24hPlxQ&refer=home