Victor Niederhoffer

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Victor Niederhoffer

Victor Niederhoffer (born 1943), is a hedge fund manager, champion squash player, best selling author and statistician.

He studied statistics and economics at Harvard University (B.A. 1964) and the University of Chicago (Ph.D. 1969). He was a finance professor at the University of California, Berkeley (1967-1972). In 1965, while still at college he co-founded with Frank Cross a company called Niederhoffer, Cross and Zeckhauser, Inc., an investment bank which sold privately held firms to public companies. This firm is now called Niederhoffer Henkel, and is run by Lee Henkel, the former general counsel to the IRS. Victor pioneered a mass marketing approach in investment banking, and did a large volume of small deals at this firm. Niederhoffer also bought many privately held firms with Dan Grossman, his partner during this period.

As a college professor in the 1960s and 1970s, he wrote numerous influential academic articles about market inefficiencies which led to the founding in 1980 of a trading firm, NCZ Commodities, Inc. (aka Niederhoffer Investments, Inc.). The success of this firm attracted the attention of George Soros. Niederhoffer became a partner of Soros' and managed all of the fixed income and foreign exchange from 1982-1990. [1] Soros said in The Alchemy of Finance that Niederhoffer was the only one of his managers who retired voluntarily from trading for him while still ahead. In fact Soros held Victor in such high esteem, that he sent his son to work for him to learn how to trade. [1]

Contents

[edit] Academia

As an academic at Berkley in the 1960's Niederhoffer wrote a number of influential papers on anomalies in stock market behavior. His paper 'Market making and reversal on the stock exchange (1966)'[1] made Niederhoffer the father of Statistical Arbitrage and of Market Microstructure Studies. He used innovative methods to search for profitable opportunities in Stock Markets, such as his paper 'The analysis of world events and stock prices (1971)' which used the font size of news print to determine the relative importance of news events, and measure how they affected the stock market. He left academia in 1972 to concentrate fully on his other business activities..[2]

[edit] Returns

Niederhoffer Investments returned 35% a year from inception through 1996, when MAR ranked it the No. 1 hedge fund manager in the world. In 1997 Victor published a NY Times bestselling book, The Education of a Speculator.

[edit] 1997 losses

In 1997, Niederhoffer Investments was not finding many opportunities for investment, and having returned much of its funds to customers such as George Soros, began investing the remaining 100 million dollars in areas where Niederhoffer later admitted that he did not have much expertise. [3] Niederhoffer decided to buy Thai bank stocks, which had fallen heavily in the Asian financial crisis, his bet was that the Thai government would not allow these companies to go out of business. On October 27, 1997, losses resulting from this investment, combined with a 554 point (7.2%) single day decline in the Dow Jones Industrial Average (the second largest point decline to date in index history) forced Niederhoffer Investments to close its doors. In a lawsuit Niederhoffer later filed in the U.S. District Court for the Northern District of Illinois against the Chicago Mercantile Exchange, where he traded options, he alleged that floor traders colluded to drive the market down that day to force him out of his positions. Traders at the time said Refco may have been responsible for as much as $35 million of Niederhoffer's losses.[4]

[edit] New fund

Since closing down his fund in 1997, he began trading for his own account again in 1998, after mortgaging his house and selling his antique silver collection. This original fund is called Wimbledon Fund, the name reflecting his love of tennis. He began managing money for offshore clients in February 2002, with the Matador Fund. Niederhoffer employs proprietary programs that predict short-term moves using multivariate time series analysis. In a five-year period beginning in 2001, Victor Niederhoffer's fund returned 50% a year(compounded). His worst year in this period was 2004 returning 40%, in 2005 he returned 56.2% (as reported in eFinancial News). On April 6, 2006, the industry group MarHedge awarded [5] Matador Fund Ltd. And Manchester Trading, two funds managed by Niederhoffer the prize for best performance by a Commodity Trading Advisor (CTA) in the two years 2004 and 2005.

However, Niederhoffer's funds were caught up in the 2007 financial turbulence and credit crunch, and the Matador Fund was closed in September 2007 after a decline in value of more than seventy-five percent.[6][7]

From 2000-2003, Niederhoffer co-wrote with financial writer Laurel Kenner a widely read weekly column on the markets for CNBC MoneyCentral.[8] He and Kenner co-wrote Practical Speculation (John Wiley & Sons, February 2003), called "the best trading book of the young millennium" by Active Trader magazine. Niederhoffer's life story, and the lessons he learned growing up that helped him become a success, were told in the 1997 best-selling book The Education of a Speculator.

On his website[9] Niederhoffer claims to be proudest of having had “a benevolent influence” on people that came in contact with him. At least a dozen employees whom he started out or taught became billionaires or multi-centimillionaires, including Monroe Trout, Toby Crabel, Stu Rose, James Altucher, John Hummer, Jake Burton Carpenter and Roy Niederhoffer (Victor's younger brother), all of whom are famous money managers or entrepreneurs.

Victor Niederhoffer is famous for hiring young and extremely bright traders, whom he mentors. He encourages them to develop their own trading strategies, and runs his firm more like a science lab than a traditional trading firm.

[edit] Squash

Niederhoffer was a winning hardball squash player and is a member of the squash hall of fame. [10] Niederhoffer had never played squash when he entered Harvard University in 1960, but had played other racquet sports. One year later he won the national junior title and by the time he graduated, Niederhoffer was the National Intercollegiate squash champion. He won the U.S. Nationals five times (a record exceeded only by Stanley Pearson who won his sixth in 1923). He also won three national doubles titles. In 1975, he defeated one of the greatest players in the history of the game Sharif Khan in the final of the North American Open (the only time that Khan failed to win the title in the 13 year period between 1969 and 1981).

[edit] Other activities

Niederhoffer is also the founder of the NYC Junto, a libertarian group hosted on the first Thursday of every month since 1985. He is an enthusiast of Ayn Rand. The NYC Junto focuses on libertarianism, objectivism and investing and was inspired by the Junto hosted by Benjamin Franklin in Philadelphia from 1727 to 1757. He has six daughters, Galt, Katie, Rand, Victoria, Artemis and Kira. Although Rand and Kira are obvious references to Ayn Rand and the heroine of one of her books, Galt may not have been named after another Rand hero, John Galt, but rather, at least according to a New York Times story, after Sir Francis Galton.[2] His son Aubrey (named after the main character from the Aubrey–Maturin series of novels by Patrick O'Brian) was born in May 2006.

In 2001, Niederhoffer was caricatured in Titans of Finance (Alternative Comics, 2001, ISBN 1891867059)[11] by R. Walker and Josh Neufeld.[12] The comic book is a collaboration between a cartoonist and a finance columnist, which casts Wall Street executives and traders as heroes and villains. The lead story features Ronald O. Perelman, and Mike Vranos and Al Dunlap are among those included.

[edit] Bibliography

[edit] References

Patel, Navroz (March 2004). "The iconoclast of Brooklyn". Profile (Risk magazine). http://db.riskwaters.com/public/showPage.html?page=104767. Retrieved on 2006-09-18. 

Sweeney, John (April 2001). "Interview: Victor B. Niederhoffer - Music of the Markets". Stocks & Commodities magazine. http://traderscom.stores.yahoo.net/v19470invicb.html. Retrieved on 2006-09-05. 

Taleb, Nassim. Fooled by Randomness. UK: Penguin Books. 

[edit] Notes

  1. ^ a b Niederhoffer, Victor (1997). The Education of a Speculator. 
  2. ^ "Niederhoffer Papers". Google Scholar. http://scholar.google.com/scholar?q=Victor+Niederhoffer&hl=en&lr=. Retrieved on 2009-03-03. 
  3. ^ Niederhoffer, Victor (2003). Practical Speculation. 
  4. ^ Robison, Peter (October 27, 2005). "Bennett's Refco Scheme Exposed by Late-Night Hunch" (PDF). Bloomberg. http://www.beearly.com/pdfFiles/Refco27102005.pdf. Retrieved on 2006-09-18. 
  5. ^ "MARHedge Performance Awards 2006: Winners". Marhedge. April 7, 2006. http://marhedge.com/performance/ny2006/winners.asp. Retrieved on 2006-09-18. 
  6. ^ Cassidy, John (October 15, 2007). "Annals of Finance, The Blow-Up Artist, Can Victor Niederhoffer survive another market crisis?". New Yorker. http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy. Retrieved on 2007-10-10. 
  7. ^ Zuckerman, Gregory (October 10, 2007). "Veteran Trader Loses Investor, Closes a Fund". The Wall Street Journal: pp. C2. 
  8. ^ "Contributors:Bios". MSN Money. 2006. http://moneycentral.msn.com/Content/contributors.asp. Retrieved on 2006-09-18. 
  9. ^ Niederhoffer, Victor (2006). "About Us". http://www.dailyspeculations.com/. Retrieved on 2006-09-18. 
  10. ^ "Victor Niederhoffer: Opened up Squash". Squashtalk. 2006. http://www.squashtalk.com/profiles/niederhoffer.htm. Retrieved on 2006-09-18. 
  11. ^ "Titans of Finance: True Tales of Money & Business". Amazon.com, Inc.. 2007. http://www.amazon.com/Titans-Finance-Tales-Money-Business/dp/1891867059/ref=sr_1_1?ie=UTF8&s=books&qid=1197245272&sr=8-1. Retrieved on 2007-12-10. 
  12. ^ McGeehan, Patrick (2001-06-03). "Private Sector; Dumbed Down on Wall St.: Junk Finance, With Pictures". The New York Times Company. http://query.nytimes.com/gst/fullpage.html?res=9907E2DC173FF930A35755C0A9679C8B63. Retrieved on 2007-12-10. 

[edit] External links

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