Honore de Balzac, the great French writer, once remarked that it was a shame people had to live with novelists—and not their novels. The same is true of many of Wall Street’s most successful investors. Victor Niederhoffer is an exception. He also unfortunately happens to personify, like a modern Greek tragedy, what Mr. Market does to the overconfident. After attending Harvard University on a scholarship, this son of a New York City cop earned a doctorate in finance at the University of Chicago. He was a champion squash player. He grew up to collect art and live in a house with 15,000 books. He also, legend has it, likes to trade in his socks.
He was once a partner of hedge fund grandee, George Soros. He also was, at varying times, widely regarded as one of the world’s best traders. He went on to lose enormous sums of money trading Thai stocks and U.S. options. His fund blew up in 1997 when he bet wrong on Thai stocks and some options positions moved against him. He came back only to crater again in 2007, during the worst of the credit crisis, showing that intelligence and bad timing are a lethal combination.
“Unfortunately I was so successful for so many years in that particular field that I began to believe in my own success. I thought that because my method worked in markets that I knew about and had quantified, I could apply the same methods to something I didn’t know about,” said Niederhoffer, who still manages some money, and operates a blog, dailyspeculations.com