Customer Reviews

The Education of a Speculator

5 star:		(33)
4 star:		(14)
3 star:		(10)
2 star:		(5)
1 star:		(23)

 

 

The Education of a Speculator is a long, sometimes meandering account of the life of speculator Victor Niederhoffer. There is no particular order to this book, at least that I could discern; Niederhoffer jumps from topic to topic, going backwards and forwards in time. The style is almost stream of consciousness, with the main subject of finance digressing into topics as diverse as biology, music and squash (the author is a serious player of squash and other racquet sports). In addition to Niederhoffer's unconventional style of writing, the book assumes a fairly high level of knowledge regarding financial markets. Those (such as this reviewer) who are not well versed in the kind of articles, charts and data found in the Wall Street Journal or Barron's will often find themselves in way over their heads. For all this, I still recommend The Education of a Speculator, even to people not especially interested in the world of investing. Victor Niederhoffer is what may be called a holistic or macro thinker; he could also be called a Renaissance man. He has knowledge of many subjects and sees the connecting links between all events, objects and disciplines. He may not be right about everything, but his perspective is always interesting, intelligent and original. He combines the streetwise instincts of Brooklyn, where he grew up, with the scholarly mindset of Harvard, where he both graduated from and taught. As for investing itself, Niederhoffer, like many speculators (at one point he describes the overlapping definitions of an investor, a speculator and a gambler), has had many ups and downs in his life. When this book was written, he was at the top of his game; shortly afterwards he was wiped out. That, of course, was several years ago and he is still active as a writer (he has recently written a new book) and investor. I have always been fascinated with the world of investing, especially the kind of volatile speculating engaged in by people like Niederhoffer. Even if you don't understand all the details and nuances, the book conveys the dangers and excitement of this unpredictable universe. The author has spent many years compiling and analyzing data concerning markets, and he discusses how difficult it is to make predictions based on past performance. It is easy to look at a chart and, after the fact, describe how stocks or commodities moved in a logical, predictable manner. Often when you try to apply any seemingly logical system using real money, the results are disastrous. Niederhoffer seems to conclude that markets are paradoxical -they are both logical and illogical; sometimes they follow patterns but sometimes they are chaotic. And, most importantly, we can never be sure when order or chaos will prevail. If there is one overall lesson we can take from The Education of a Speculator, it is probably something like this -reality is almost infinitely complex with every part connected to every other part, the whole thing organized by some vast pattern that can only occasionally be comprehended.

In finance, "The Black Box" describes a hidden and usually quantitative process an investor might employ to select securities or markets. The author clearly employs such a box in his work though it seems completely subjective. The problem is, he does not see fit to explain the inputs; the book reads like a mystery novel without a resolution. In his defense, he does say, at the outset, that he is not going to teach you his methods. Yet you expect more. The book is a long (very long) recounting of his own personal history (including odd digressions on Coney Island, and his father, whom he worships through a nine-year old's eyes) as well as his interests--how these things created the savant. As Flaubert might say, it's the stuff of his "Sentimental Education." But investing is not strictly literary. Imagine a Brain Surgeon explaining his techniques by alluding to his liberal arts term papers and you'll grasp the essential frustation with the book. For example, the author equates trading with the performance and appreciation of symphonic music. Indeed, he says he hires musicians to move millions in options money. Why? He doesn't elaborate; only that they are better. Horse Racing is another analogy he mentions. But what are the statistical underpinnings? How does a Racing Form connect to the Wall Street Journal? One more: He claims that only old literature can train your senses for the markets. This strikes me as absolute hogwash, a philistine bowing to Aristotle to gain class. In all, it's as though he is trying to intellectualize his profession, as if just making money is vulgar; he's staking a claim for traders in the pantheon of artists. Of course, many of his points are good ones, but there are not enough of them (a few equations would have helped). Indeed, the book comes off as an exercise in self-congratulation. And God knows what debt he owes George Soros, venerated here with religous adoration. Strange, indeed. (OK, I admit I bought a Soros book after reading this one. He at least ties his ideas to the markets.) Next time, Victor, tell us your secrets. The good ones.

This is a brain dump written without much apparent discipline. Niederhoffer's egotism and hubris can grate at times and the book is somewhat self serving e.g. the circumstances that led to his quitting squash for five years were not quite as they seemed.

However there is a lot of good material and if you like ideas you will enjoy the way he ties many different fields back to trading. Some of the ideas are baloney but many are not. I found it useful because it does give a lot of insight into how a top trader thinks.

From reading the book it was quite obvious he would blow up at some stage, which he has in fact done.

The chapter on the ecology of markets is worth the price alone. Also the one on the interconnectness of markets, and on deception and gamesmanship.

However this should definitely not be your only book on trading. There is hardly any useful material on risk management.

Worth a read IMO but a lot of people will not like it i.e. those looking for a cookbook approach to easy wealth.

An interesting book about an interesting guy for those readers who like biographies and philosophical meanderings. Unfortunately, few practical investing insights are shared other than the one above (which I agree with!) To his ethical credit, Neiderhoffer puts the reader on notice in the first few pages that no great investing secrets will be disclosed as this would cost him (and the reader) the advantage. However, judging from the way Neiderhoffer lost his clients' money (heavily margined bet long on the S&P500 futures just before the Asian meltdown) with no offsetting put hedge (oi vay!), I am pleased he did not share his "secrets".

I purchased Mr. Niederhoffer's book after his much publicized debacle in the stock market in October, in an attempt to understand what could have motivated him to take the risks that brought his trading career to an end. What I got out of the book, besides a plethora of shameless self-aggrandizement was reinforcement to the old adage that sometimes, it is better to take than to give advice. Mr. Niederhoffer's herky-jerky style and numerous tangential forays into the "academic & philosophical " foundation of speculation do nothing to keep the readers attention or interest and at best comes across as intellectual chauvanism. This approach to the subject, liberally sprinkled with accounts of what a big lasagna he is (was?), makes for a tedious and sometimes annoying read. A point worth highlighting was, his accurate description of the "HOO-DOO" or "tipster" (in laymans parlance) and his recollection of meeting Ivan Boetsky, in the prime of his career, and regarding him in this light. From Niederhoffer's accounts of how many times he was closing to losing the "farm" and his repeat mistakes in the markets, calling Boetsky a HOO-DOO smacked a bit hypocritical. To say that Victor Niederhoffer was an accident waiting to happen is a fair assesment of the book. (Ironically, his best friend George Soros seemed to think so, as Niederhoffer so proudly boasts in the opening chapter.) Playing the absent-minded professor in the reality of the modern financial world can exact a tremendous price. Sadly, Niederhoffer was too busy telling everyone else this, and forgot to take into account his same weaknesses.

The author obviously knows his subject but is overawed by his own expertise. A trend spotter par excellence, this book both makes a mockery of trends (he always bets against) and also subjects trend analysis to the kind of stupefying statisitical fury which is at core devoid of meaning. In a fit of Wall Street honesty he reminds us that no book of this price would detail any effective scheme of success even if it was available, which perhaps it isn't. (Note: in Niederhoffers World, that conclusion would probably spawn a derivative) Suffice it to say that if you can't spot the fool in this book, then you are the fool. Norm Marcu

As many already know, Niederhoffer has had quite a volatile, and highly publicized career as a speculator. But it is pure naivety and ignorance for people to brush his work off merely because of the two blow ups he had in his fund. In fact, if anything, these two events have, in my opinion, made Niederhoffer's perspective exponentially more valuable than most modern financial literature on the subject.

With that said, I must disagree with his view on statistical inference and its role in market speculation. Although statistical inference is valid as a data point, when one uses it as their primary and sole validation of any trade premise, the risk they expose themselves to is far too high. The foundation of his theories are based on using prior statistical probabilities to validate a trade. In other words, if the odds of a trade blowing up in your face are 1 in 1000, then it's a good trade. But if you don't consider what is going on in the macro environment, the overall sentiment of market participants, and other "subjective" data sets, then you risk exposing yourself to a situation where you make a massive long bet on the S&P futures at a time when the market is in a freefall because of some geo-political and/or financial event such as a Russian debt default, or Asian financial meltdown. This is the scenario that blew Niederhoffer up, but the interesting thing to note is that the "trade" itself had already caused significant loss in a prior event. So what does that tell you about statistical inference?

The value in this book is what you gain from his anectdotes and insights. Although he has a tendancy to go off on a tangent and lose you, if you can keep your focus, this book will provide you with invaluable insight into the mind of one of this generations most experienced market operators.

And his comparison of a classical symphony with the Japanese Yen is priceless, and can be worth the price of this book in itself.

I have personally read this book over 5 times by now, and I'm sure I'll read it again.

If you expect something like Pit Bull, Reminiscences of a stock operator, market wizards (I&II), Trader vic, Investment Quotient etc etc, you will be worse off than even disappointed. This book takes you to anywhere but successful investment and trading. Talking about trading and investment there are plenty of good ones out there for you to pick instead of wasting your time and money on this. I dont understand how some reviewers say it's a must for the traders or investors. Quite the opposite, as a professional trader, this one is excellent to sell short.

The author offers nothing that is not already known. In the preface he even states "if I had decided to give away secrets and systems that I thought would have recurring value, [people who know me] would doubtless have prevailed on me not to spill the beans."

So why would you want to read a book with no "recurring value?"

Make sure you saved your receipt.

If you are looking for great insight or help on trading or investing, you won't find it in The Education of Speculator. It is an entertaining book, but definitely not educational. Victor Niederhoffer provides his history plus the history of his family interwoven with a few bits of market strategy and techniques. If you enjoy reading about what life experiences compels a man to speculate in the markets, read his book. If you want to learn to speculate, don't with his book.