In The Education of a Speculator, Niederhoffer opens the kaleidoscopic story of his life to show how he came to understand these fundamental forces. Offering a way of thinking rather than a "system," this powerful, remarkable book shows us how to speculate and win much more than we ever thought possible. Niederhoffer shows how, by distilling the lessons of board games, horse racing, and hoodoos, we can achieve the right mental and emotional state before, after, and during a contest. Of course, Niederhoffer's greatest fame (and fortune) is as an extremely successful trader, and here his tips, principles, and methods become most manifest. Niederhoffer establishes the relationship between stampeding elephants and market behavior, explores the use of musical structure as a guide to trading, and dissects the many roles of deception. In The Education of a Speculator, charts of stock prices are followed by pictures of paintings; the advice of cops, crooks, and Nobel scientists are all juxtaposed and synthesized - all in the service of successful speculation and investment.
From George Soros
With an original mind and an eclectic approach, Victor Niederhoffer takes the reader from Brighton Beach to Wall Street, visiting all stops of interest along the way. What emerges is a book full of insights, useful to the professional and layman alike.
Excerpts
Bank Negara (Malaysia’s central bank) is like a pirate. It trades violently and takes no prisoners. (…) The Malaysians like to stampede the market at 7 p.m. New York time.
A man should never give up hope. But it is better to have science.
I love you, yen. You are so orderly, so loyal, like your country.
Japanese are brilliant (…) but they run in herds.
The trends often change when the moon is full. The moon affects the markets just as it affects women, crops, crime, and the tides.
The business environment of 1907 is a reminder that not much has changed in the forces that move markets.
There’s more agreement on what comes after panics-stability and recovery. The weak hands are washed out, and bargain hunters pick up the pieces.
Former members who are floating around Wall Street bereft of funds are referred to as ghosts or dead ducks. The graveyard watchman at Trinity Church looks out for them, but they are gone in the twinkling of an one-eight down tick.
I don’t like to sell short. The brokers have all sorts of contrived reasons for refusing to pay interest on the credit balances. I lose an interest rate, a dividend, and a risk premium when I short.
Of the 12 companies constituting the Dow Jones Industrial Average at the end of the 19th century, only one, General Electric, has withstood the test of time.
Men (…) who lost everything in the Depression, were traumatized by the vivid memories of their losses.
I have repeated the mistake of grabbing at small profits and selling at a targeted round number over and over in my speculative career. I believe many others make this same error. The reason: Many players set their sight at certain reasonable targets. Fast-moving operators, aware of these targets, come in just ahead, ready to take the other side, knowing that there will be considerable pressure to offset at prices not much worse than current.
I found that after a breakup and a subsequent pullback, markets tend to be quite bullish.
(…) like most elderly people in this situation, she had sold the ones that were above costs, only to see them quadruple in the next few years, and had retained the ones that were below costs (..) which eventually sank into bankruptcy.
“Dr.” Greenspan mysteriously graduated from when he assumed the chairmanship at the age of 62. As far as I know, no one has ever seen or read Greenspan’s dissertation.
A good gamester, good musician, good scientist, and a good speculator often turn out to be one and the same.
Some if the features common to most scientific work are : classification, observation, questioning, testing, measuring, collecting information, experimenting, modeling, and revising theories.
In sports and markets, the most dangerous time is when you are ahead. That is when you are most likely to let up, drop your guard, and make bad decision out of overconfidence.
Speculation, like most activities, is an art-science. Attempts to answer the pivotal question of speculation invariably raise twice as many questions as they solve.
Stock prices tend to fluctuate, up and down, between the “magic” numbers where the limit orders are concentrated, until the concentration is broken.
Rises tend to occur in the shape of a U. After a day or two of normal rises, there is frequently ample time to join the major move. But declines generally have the shape of an inverted V (…) Thus, selling into strength becomes “de rigueur”.
Humans like the comfort of a herd in choosing risky investments.
A corresponding desire to stay in the middle afflicts most speculators, myself included, in the order placement.
A good speculator builds his position from a single base linked to a long, flexible chain of trades (…) Exploding links in your positions can have lethal consequences (...) Unfortunately, the patterns are always reshuffling and realigning.
Speculation combines chance and skill and includes elements of hunting, deception, cooperation, creativity, rhythm, and physical strength.
Disruptive behavior is the most spectacular form of deception.
Trapping, the offering of a false gift to get the prey in a vulnerable position, is possibly the most common deceit used by humans.
Imagine the mind of Mr. Market as he disguises and conceals himself, intimidates and plays dead, in the multifarious manifestations of the price chart. Should we be surprised at how much subtler his stratagems could be than those of the puss moth? Market life is hazardous.
The market is a lonely place. The infinity of political, economic, biological, sociological, and psychological factors that influence it overloads the senses. It’s essential to have an oasis, a place where a fresh breeze clears the senses.
There’s something incerdibly naïve about many of the academics who work in fields where financial results might lead to profitable activities. It never occurs to them that shrewd operators who discover a regularity might keep the secret close to the vest.
I realize that I have become as superfluous in the world of forums as I have become in many other fields.
All markets are buffeted by chains.
On the 1987 stock crash:
The memory of the crash lives on in the collective consciousness. Since that time, stocks have pretended to recede into another crash on at least 50 occasions. Speculators rush in to sell stocks and by bonds. This is a vivid real-life example of what psychologists call the recency effect.
As usual, selling out when the fear is greatest is the worst time to sell.
I especially like to note the move I the dollar/yen when it trades I Tokyo from zero GMT to 6 GMT, because this sings like a canary.
The web of relations is always changing in its leads, lags, direction, and magnitude, but there is a certain continuity in the pathway.
Easy money should not be available.
I am always just a day or two early in every position I enter or exit. How does the market always know to make the real move after I’m forced out?
I don’t fulminate at the racetrack or the casino when the customers are charged for entertainment and hope. Why should I hold the exchange to a higher standard?
Perhaps the best way to identify the species is by behavior-inflexibility, ignoreance, arrogance, myopia, hesitancy, undercapitalization, overconfidence, spendthrift ways, and hopefulness.
Margin requirements play an important role in keeping the wheels of futures commerce turning.
Bulls make money; bears make money; but pigs get slaughtered.
(..) in market webs as in all such webs, there is a close commonality of interest between predators and prey.
