It was during the Asian crisis of 1997 that hedge fund poster-boy, Victor Niederhoffer, blew up in spectacular fashion. Niederhoffer’s losses were so large that he literally had to sell the family silver, staring ruin in the face. It must have been very disheartening. I never climbed the dizzy heights of a Niederhoffer. No, I started at the bottom (in terms of performance) and worked my way lower. A few months ago, after a series of considerable losses, I had my own fire-sale auction on E-bay, selling the following items: a wireless modem, a wireless mouse, my prized Rocky and Godfather box-sets, my vintage fountain pens, a new mobile phone, an alarm clock, a digital camera, my financial calculators, my sporting equipment, and a great many books.
I mention Niederhoffer’s experience because he learned from his mistakes. After falling from such great heights, Niederhoffer was humbled but he was not finished. The Matador fund, which he advises, has posted average gains of 50% a year since its inception in 2001 (according to Wikipedia). It is a great story. One of my favourite quotes from Niederhoffer is “I don’t know how to make money without taking the kind of risk that would be disastrous for many people to consider” because I share same view and appreciate there is no escape from risk, especially from my current vantage point (near ruin).
I mustn’t be deluded with false hope, however. While I believe I have a profitable approach to trading, surely all traders think the very same thing. My past performance and behavioural deficiencies also suggest the odds of surviving the months ahead are low; I am already several thousand pounds below the level at which I had my auction (still, I don’t miss the items I sold and have come to view ‘ownership’ as highly over rated.) I know I cannot achieve the consistent performance of the Matador fund but it remains beacon of hope, a shining example of a humble come back in the face of adversity.
Niederhoffer and his collaborators post many useful insights at Daily Speculations.