Practical Speculation [Paperback]

Victor Niederhoffer (Author), Laurel Kenner (Author)

Book Description

Publication Date: January 21, 2005

The follow-up to Victor Niederhoffer's critically and commercially acclaimed book The Education of a Speculator has finally arrived. Practical Speculation continues the story of a true market legend who ran a hugely successful futures trading firm that had annual returns of over thirty percent until unforeseen losses forced him to close operations. Like a phoenix rising from the ashes, Niederhoffer returned to the world of trading stocks, futures, and options, with a new colleague and a new approach and found success. Order your copy of this compelling story of risk and survival today.

Editorial Reviews

Review

". . . the best trading book of the young millenium. . . offers more trading 'truth' than a dozen typical market books combined. It's in a league of it's own." (Active Trader magazine)

At last, some modest proof of what some of us have long suspected - beware of lords on boards. Authors Victor Niederhoffer and Laurel Kenner* studied the relationship between stock returns and the number of board members with titles in the 50 largest companies by market value in the FTSE 100. Over a five year period, the more titles on the board, the worse the performance of the shares.
Niederhoffer and Kenner even invented a valuation indicator, the earnings/lords ratio, dividing the earnings per share by the number of titles in the boardroom. At the time they did the study, Powergen, with just one lord, looked the most attractive stock on this basis.
The finding raises the obvious question of causality. As the authors write: "Was it the lords who caused the lackluster performance or the lackluster performance that prompted the companies to use lords as window-dressing?"
That comment, however, suggests a possible American misunderstanding of the British honors system. The presence of titles on UK boards does not simply indicate the lingering influence of the ancient British aristocracy. Charities may still want to recruit Lord Ponsonby-Snodgrass just to make the notepaper look respectable; boards of FTSE 100 companies don't really need to do so.
Instead, the preponderance of titles shows the tendency for the honours system to reward people for business success. Rise to the top of a FTSE 100 company and you can be pretty sure a gong is heading your way, especially if you have the foresight to make some political donations.
The "lords on boards" effect may thus be merely another indication of the old rule of "reversion to the mean". Executives get awarded titles when profits are strong and the share price is rising, not in the aftermath of profit warnings and failed acquisitions. Since all companies eventually suffer some sort of bad news, the disasters are more likely to occur after the honours are awarded. When the queen brings the sword down on an executive's shoulder, the blade of Damocles may not be far behind it. *Practical Speculation, published by John Wiley & Sons (The Financial Times, June 4, 2003)

"...At last, some modest proof of what some of us have long suspected - beware of lords on boards..." (Financial Times, 3 June 2003)

"...will enable the investor to make independent decisions about their investments with confidence..." (Portfolio International, June 2003)

"...shows how far pension fund figures are out of line with long -term share market expectation..." (Liverpool Daily Post, 6 August 2003)

"Niederhoffer and Kenner dispense pearls of wisdom for both the seasoned professional and the novice about investing and much more. Though you may not agree with all that they write – I can’t imagine anyone would – they will compel you to think and very often, cause you to smile." --Mark P. Kritzman

I consider Victor Neiderhoffer's highly entertaining Practical Speculation to be a modern classic. In Practical Speculation, Neiderhoffer explores a wide range of fascinating topics ranging from the wisdom of value investing to the implications of a company slapping its name on a shiny new stadium. - Street.com --This text refers to the Hardcover edition.

Review

"Niederhoffer and Kenner dispense pearls of wisdom for both the seasoned professional and the novice about investing and much more. Though you may not agree with all that they write – I can’t imagine anyone would – they will compel you to think and very often, cause you to smile."--Mark P. Kritzman --This text refers to the Hardcover edition.

See all Editorial Reviews

Product Details

• Paperback: 400 pages
• Publisher: Wiley; 1 edition (January 21, 2005)
• Language: English
• ISBN-10: 0471677744
• ISBN-13: 978-0471677741
• Product Dimensions: 9 x 6.1 x 1 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 3.9 out of 5 stars  See all reviews (96 customer reviews)
• Amazon Best Sellers Rank: #369,515 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

125 of 135 people found the following review helpful:

5.0 out of 5 stars $120000000 tuition fee paid on your behalf by Niederhoffer, July 16, 2003

By A Customer

This review is from: Practical Speculation (Hardcover)

This is literally the cost of the wisdom in this book.

Mr.Niederhoffer is back after his fund with $120 million under management,rated the best for 12 consecutive years,lost big and was forced to close in 97.
He`s back explaining what went wrong and how to avoid the mistakes he himself committed before learning (the expensive way)what not to do.

It`s hard for a small fish like myself who lost his small stake (relatively speaking) few times in his years of ignorance to recommend this book since,I consider it a hidden treasure no one has the right to benefit from in this cut throat business without paying at least the tuition fee I and my fellow traders paid switching from one losing system to the next.

This said,Do you accept the gift?
This book is the closest thing to a free lunch on wall street.

The best investment ideas are found in the most unlikely places.
Isn`t Practical speculation,a book written by a hedge fund manager who lost everything and mortgaged his house, an unlikely place to find great investment ideas? Well,think again.
Victor Niederhoffer is imho the world`s best trader.

Now,here`s the man`s REAL TIME track record that you can verify for yourself:
In March 2003,Niederhoffer was THE ONLY bullish trader I know of.
He published his opinion in a very insightful column on MSN -why the market should go up 19%? - while the Prechters,Abelsons and the other trend followers of the world were talking about a 10 year bear mkt and a crash that only Mr.Prechter can help us conquer.

Mr.Niederhoffer`s prediction was not contingent on any break of a trendline or a moving average crossover or a resistance level breakout like most technicians tell you to save face in case their prediction goes astray as it usually does.
No sir,his prediction was a straightforward 19% no strings attached.

At the date of this review,16th of july,the market is up more than 15% from the date the article was published.Now my friend,this is a real time prediction not a retrospective one (I told you so type).

In his short term swing trading using the VIC (a variation from the volatility index)and the stock/bond ration,he caught 960 dow points out of 1050 on 12 trades.
Experienced traders know that predicting reversals in the long term let alone the short term is the hardest task for a trader and that the probabilty of achieving such endeavour by chance variation alone is nil.

In fact,most of the successful hedge fund managers were at one point or another either his students or his employees.

If you already missed the 15%+ return in 3 months or the 900+ dow points, cut your losses short like good traders do and BUY THIS BOOK.
There are two things that experienced traders and squash players of this world do not want: a)being on the other side of Niederhoffer`s trades like the abelsons of 2003.
b)having to return a Niederhoffer`s backhand like the khans of the 70s.
While I was never locked in a squash court with Niedrhoffer,I found myself unknowingly on the other side of one of his IBM trades last year at the expense of my trading account.

Last word of advice,do not let Niederhoffer`s humility fool you.He`s not crawling back slowly up the stairs as he likes to say,he is taking monster steps that neither you or I are capable of taking yet.
Like all the greats,he only talks about his losses and hardly mentions his wins.
If you followed his writings,predictions and recommendations as closely as I did you would quickly realize that the misses don`t amount to more than a very small percentage of the hits.

Laurel Kenner on the other hand is the most shortchanged writer in history.Co-authoring a book with a giant like Niederhoffer is not an easy task.To her credit,her writings prior to joining Niederhoffer at MSN showed a great understanding of the financial mkts and contrarian views on different aspects of speculation (a trait you can`t do without as a trader).

My only minor disappointment was the lack of mention of Livermore.In my years of ignorance I traded using Livermore`s methods and was wiped out few times before realizing that I was feeding the system with my hard earned money by placing mkt orders and only buying on up days and new highs a la Livermore.
Mr.Livermore in my opinion disseminated more ill founded wisdom than Graham since his words became cliches in all brokerage ofices.

On a final note,whether you buy this book or not won`t affect my wealth in anyway SO,IGNORE THIS REVIEW AND THE BOOK AT YOUR OWN EXPENSE

55 of 62 people found the following review helpful:

5.0 out of 5 stars Another Masterpiece., April 2, 2003

By A Customer

This review is from: Practical Speculation (Hardcover)

Practical Speculation is one of the two best books on trading/investing on the market, the other book is The Education of a Speculator.

The Education of a Speculator, was largely an autobiography, in which Niederhoffer shared some of his life experiences and lessons, that helped him become one of the greatest traders in history. Most successful traders will tell you that it is the best book on the subject of investing ever written.

The new book Practical Speculation, teaches you how Victor does his research, walks you through a few examples, and explains why the the research churned out by brokerage firms, and Stock Market Commentators is flawed, and will only loose money for you. Victor alerts you to the pitfalls that most average investors fall in to, and shows how the scientific method can be used to illuminate the path.

This book is well written, entertaining, and filled with great ideas, that you wont find elsewhere. Victor's two books are probabaly the only two books any investor need read. I have read most of the popular books on investing and trading, and Victors books are so far ahead of the rest it is unbelieveable.

I have only just finished reading this book, but I know I will go back to it many times, as it is difficult to absorb all the great ideas in one reading.

71 of 82 people found the following review helpful:

5.0 out of 5 stars Best book for the responsible investor, June 27, 2003

By 

Russell D Sears (Lafayette, Indiana United States) - See all my reviews

This review is from: Practical Speculation (Hardcover)

Perhaps the best book ever written for someone trying to establish their own views and beliefs on the markets. If you note the list of people reviewing this book, it is like a who's who of ground breaking work on the markets. Jon Markman, Yale Hircsh, Dr. Steenbab all are on the cutting edge of practical market writing. If you write this off as the authors simply being a "Wall Street insider" you are mistaken. Further, if you let the high accolades of Victor Niederhoffer's brilliance, intimidate you from buying the book., you couldn't be more wrong. If you are just beginning your studies of the market, or if you are a "tried and true wall street insider", there are many lessons to learn.

I am far removed from Wall Street, and Indiana boy just beginning my "investment career", without a business degree from a esteemed college. Yet found this book inspiring and full of wonderful suggestions on how to approach the markets.

My best sentence summary of this book: "It leads you to personal responsibility for your investments".

You learn of Victor's own dramatic poignant personal acceptance of such responsibility. From his meteoric rise to top of the hedge fund world to his fall, in 1997, only to reinvent himself to make a return. Few have had a more spectacular fall from grace. He admits mistakes and clearly exposes an easy target for his critics. However, I found this most endearing. He gladly accepts the criticism of others more enlightened, to teach his mentors a few lessons. He explains how to avoid being blinded by success, if you are fortunate enough to achieve it. And how to accept the evitable falls as being part of the duty of a capitalist progressive, trying to achieve wealth through acceptance of risk

It clearly shows why others would prefer that you abdicate responsibility. Exposes a journalist with a hidden political agenda, to "balance" capitalistic thrust of the markets. Exposes writers with sole interest of getting most eyes to pay for their latest view. Some blatantly ride the latest fad. Others play on emotions of fear and greed. All with promises of a treasure map to the markets, for the price of their advice.

But perhaps most enriching are the numerous and brilliant ideas on how to get an edge. Not promises of wealth, but an edge. Further, he shows how these "edges" are bound to disappear as markets learn and reacts to them. Victor and Laurel call this the "ever changing cycles" of the market.

Laurel and Vic, however, must be commended for making their method, the "scientific method", easy to understand and interesting to read. They leave it, however, for you and your professors to take the responsibility to learn the nuances of perfecting the statistical method. But give you the overview on how to successfully apply it. The focus is on how to creatively apply this method to the markets. Their narrative is so interesting their presentation of their discovery process, was inspiring to me to develop several of my own statistical indicators. The practical applications for both the billion dollar hedge funds and the few thousand IRA investors are very exciting. This I suspect is the true motivation for Victor writing the book. He had to share his excitement. As the low price and clear time put into it cannot justify the opportunity cost to him. If there was a weakness in the book, it was that after explaining the "ever changing cycle" and power of the method, it seemed clear that Victor was not giving away the shop. Leaving perhaps some of the most potent and recent of his arsenal to himself. Not wanting to hasten the cycle along. Yet, this could be considered it strongest point compared to the books competitors. As they explain the get rich quick authors, either never actually use their methods or only expose their method after they intuitively realize the cycle is about to change. But leave their readers clueless of such cycles. Yet, it is clear that Victor both has invested recently using these indicators and expects to use them in the near future. Perhaps this also explains the low marketing budget. As this clearly is the best investment book you never heard of.

Finally, I must make a comment about chapter 11 on Value Line. This chapter alone is worth the book, and I believe can make or break a investor's career.