Hoodoos, Hedge Funds, and Alibis: Victor Niederhoffer on Being Wrong
"When you first contacted me about an interview on errors, I made the error of excessive self-esteem. I thought for a second that you thought I was a sagacious personage who had led a not uneventful life that might have something useful to say to your readers. But then when you mentioned [Alan] Dershowitz, it came to me in a flash."
Thus began one of 26 e-mails (not counting those dedicated to the logistics of our interview) that I received from Victor Niederhoffer after inviting him to participate in this series. Niederhoffer is a hedge fund manager, a former partner of George Soros, a five-time U.S. Nationals squash champion, and the best-selling author of The Education of a Speculator and Practical Speculation. Those successes notwithstanding, Niederhoffer is best known for two spectacular financial blow-ups. In 1997, a risky investment in Thai bank stocks combined with a dramatic one-day drop in the Dow Jones to permanently close the doors of Niederhoffer Investments. Ten years later, having recouped his losses, Niederhoffer saw his Matador Fund, buffeted by the 2007 credit crunch, self-destruct.
Niederhoffer's e-mails suggested a man already obsessed with wrongness. In them, he referenced the statistical concept of path dependence; shared a series of proverbs about the game of checkers (of 5,000 such proverbs, he hazarded, about 250 concerned error); meditated on the difference between Type One mistakes (excessive credulity) and Type Two mistakes (excessive skepticism) (he himself is much more prone to Type One, he says: "I'm tremendously gullible"); observed that "one should be careful of multitasking or multiromancing"; sent me the citations for hoodoo in the Oxford English Dictionary (a hoodoo is something or someone that brings bad luck); and noted that the harpooner in Moby Dick would have made a great interview subject for this series. Finally, he pointed out that the word error has no antonym. "In retrospect," he wrote, "I know much too much about errors and much too little about the opposite, whatever it is."
You can read my interview with Niederhoffer over at Slate, temporary home to this blog.
Okay, maybe you don’t have strong beliefs about the “right” way to load a dishwasher, or about your sweetheart’s propensity to do it “wrong.” In that case, either you are unusually saintly or (like me) you don’t own a dishwasher. But you almost certainly get involved in domestic disputes about who’s right and who’s wrong all the time; we all do. Although interpersonal arguments can have a number of causes – from serious and painful breaches in trust to the fact that we haven’t had our coffee yet – an impressive number of them amount to a tug-of-war over who possesses the truth. We fight over the right to be right.
Hi I recently came across
Hi
I recently came across your work it is really fascinating .Your interview with Niederhoffer really got me thinking about something. Niederhoffer said in the interview that during his squash career he played it too safe and regretted not being aggressive enough and in his trading career he took way too much risks.Problem is that in trading circles it is generally assumed that he played the trading game exactly like his squash game he tried to play it too safe in his trading as well.
Secondly he mentioned Charles Darwin at the end.I do not understand in what context he was talking about. Darwin's theory of evolution is indeed unique in a sense that it is one of hardest one to disprove.The beauty of the theory is that it does not aspire to predict and control hallmarks of other scientific methods.Assume if life had evolved in a completely different manner during the last two billion years, it would still be possible to define those circumstances through the prism of Darwin's theory.Interesting Is'nt it?
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