Strike Two for Niederhoffer
Smart people populate all corners of Wall Street. Victor Niederhoffer might be one of the smartest of them all, but even his genius fails once every decade. Apparently he was another victim of the market’s turbulence, which has aged us all over the past few months.
Leverage can kill, and Victor used it in spades…
For a trader like Niederhoffer, who uses leverage—borrowed money—to scale up his bets, the ability to predict even relatively small changes in the market can pay off handsomely. The New Yorker
Handsome would not be a term used to describe Victor’s summer of 2007.
Niederhoffer, a child mathematics prodigy who holds a doctorate in economics, was still working his valued computer formulas earlier this year. He believes markets don’t act randomly and that their swings can be predicted. Now, they were telling him it would be smooth sailing with little volatility.
Then the incredible 100-point plus swings of July and august hit and Niederhoffer left himself without a safety net of cash. When the market dived and the investor was asked to double the amount of capital supporting his highly leveraged positions, he couldn’t come up with the cash.
The funds were forced to close. New York Post
Victor might not be the first, or last prodigy to crash and burn on Wall Street.
But not everyone gets a second chance. Will he get a third?
We had admired Victor for dusting himself off and starting over after the debacle of the Thai Baht crisis. His hedge fund blowup was one of the first to attract the media’s gaze, and perhaps the third time will be the charm. Perhaps his primer broker pulled the plug again at an inopportune time, but we have to ask.
Why would you put yourself in this position again, Victor?
You might have time to read the New Yorker’s 12-page piece on a slow holiday trading day, and draw your own conclusions and lessons. But if you are pressed for time, this says it all:
“I was caught wrong-footed in the market turbulence,” said Niederhoffer, whose $350 million of assets under management was puny compared to the multi-billion dollar blow-ups down the Street. “We were prepared for many different contingencies, but this kind of one we were not prepared for.”
Victor Hit Again
New York Post
The Blow Up Artist
The New Yorker
-----------------------------------------------------------------------------------------------------------------------
The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
Comments:
Next entry: LDK Solar Saga Rolls On
Previous entry: Traders Hit the Dim Switch at LDK Solar
