Chapter 1Are Experts Trying Too Hard?

“A speculator can always be beset by an unfathomable event—a constellation of unpredictable and unforeseen events—that leads to a disaster that seemingly was impossible, and it's always important to keep this in mind.”

—Victor Niederhoffer, Commenting on the 1997 Asian Crisis1

It took Victor Niederhoffer many years of study and a lot of hard work to become widely known as an expert in financial markets. After graduating from Harvard and receiving his PhD in finance from the University of Chicago, he continued his ascent within academia, teaching at Berkeley for five years. As an academic, he authored numerous research papers on market anomalies and how one might profit from following clever trading strategies.

As Niederhoffer learned more, and became increasingly sophisticated, he sensed an opportunity to use his academic knowledge to make money. Retiring from academia in 1980, he chose to pursue a career as a practitioner in financial markets. His firm, Niederhoffer Investments, was so successful that he caught the notice of investing guru George Soros. Niederhoffer began working with Soros in the 1980s, advising him on commodities and fixed-income trading. Eventually, Soros allocated $100 million to his firm. During the early 1990s, it was rumored in the financial press that Niederhoffer had been generating returns of 30 percent, or more, per year.

In 1996, based on an illustrious track record and a distinguished trading career, Niederhoffer ...

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