1 00:00:02,200 --> 00:00:06,800 Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:10,480 --> 00:00:13,920 Speaker 1: This week we have a special extra podcast. It's my 3 00:00:14,160 --> 00:00:19,040 Speaker 1: interview with Viktor Niederhoffer. He is the author of Education 4 00:00:19,079 --> 00:00:23,480 Speaker 1: of a Speculator and really is quite an accomplished and 5 00:00:23,600 --> 00:00:29,920 Speaker 1: fascinating person. He has made and lost several fortunes, uh, 6 00:00:30,200 --> 00:00:34,839 Speaker 1: primarily by using lots of leverage and by being on 7 00:00:34,880 --> 00:00:38,920 Speaker 1: the other side of the trade from a number of 8 00:00:38,960 --> 00:00:42,120 Speaker 1: black swans. And and if you think about taking the 9 00:00:42,120 --> 00:00:44,960 Speaker 1: other side of the trade from not seem to leb Well, 10 00:00:45,000 --> 00:00:47,479 Speaker 1: when you're right, you're gonna make money, but when you 11 00:00:47,560 --> 00:00:50,040 Speaker 1: lose you're wrong, you're gonna lose a ton of money. 12 00:00:50,520 --> 00:00:52,960 Speaker 1: And and that seemed to be what happened to Niederhoffer 13 00:00:53,000 --> 00:00:56,360 Speaker 1: in the oh seven O eight o nine collapse. UM. 14 00:00:56,440 --> 00:01:01,800 Speaker 1: He's had a number of uh astonishing setbacks that he's 15 00:01:01,960 --> 00:01:05,960 Speaker 1: more or less recovered from. He still carries scars from 16 00:01:06,080 --> 00:01:09,560 Speaker 1: from some of the losses, but by and large he 17 00:01:09,680 --> 00:01:13,360 Speaker 1: is an accomplished and fascinating person, and I think people 18 00:01:13,360 --> 00:01:17,360 Speaker 1: who are active traders can stand to learn a lot 19 00:01:17,959 --> 00:01:22,560 Speaker 1: from his experiences. So, with no further ado, my conversation 20 00:01:22,680 --> 00:01:29,040 Speaker 1: with Victor Niederhoffer. This is Masters in Business with Barry 21 00:01:29,120 --> 00:01:36,840 Speaker 1: Ridholts on Bloomberg Radio. My special guest today is Victor Niederhoffer. 22 00:01:37,400 --> 00:01:41,520 Speaker 1: He is known as one of the legendary traders on 23 00:01:41,560 --> 00:01:45,200 Speaker 1: Wall Street. He studied statistics and economics at Harvard, got 24 00:01:45,200 --> 00:01:49,120 Speaker 1: his PhD at the University of Chicago, briefly taught finance 25 00:01:49,160 --> 00:01:53,320 Speaker 1: at Berkeley University before he began trading in ninety nine, 26 00:01:53,680 --> 00:01:58,040 Speaker 1: when he turned fifty thousand dollars into twenty million in 27 00:01:58,160 --> 00:02:02,360 Speaker 1: eighteen months. He was top trader for George Soros before 28 00:02:02,400 --> 00:02:05,760 Speaker 1: starting on his own in the ninety nineties, launching his 29 00:02:05,800 --> 00:02:09,160 Speaker 1: own fund. Then. He is the author of the classic 30 00:02:09,320 --> 00:02:15,200 Speaker 1: investment text Education of a Speculator. Viktor Niederhoffer, Welcome to Bloomberg. 31 00:02:15,400 --> 00:02:20,360 Speaker 1: Thank you very much, Barry. So. I am a fan 32 00:02:20,440 --> 00:02:22,320 Speaker 1: of some of your writings and some of your work. 33 00:02:22,400 --> 00:02:25,960 Speaker 1: I know of you through your reputation and your legends. 34 00:02:26,639 --> 00:02:30,320 Speaker 1: You have a really interesting background. Your father was a 35 00:02:30,320 --> 00:02:32,640 Speaker 1: police officer in New York City. Your mother was an 36 00:02:32,639 --> 00:02:37,160 Speaker 1: English teacher. From that beginning, how did you find your 37 00:02:37,160 --> 00:02:46,120 Speaker 1: way into finance? Well, what a policeman he was. He 38 00:02:46,240 --> 00:02:51,600 Speaker 1: was in a class of nineteen thirty seven, which was 39 00:02:51,639 --> 00:02:56,600 Speaker 1: the first time that civil service exams were given for policemen. 40 00:02:57,440 --> 00:03:02,280 Speaker 1: Before that it was based upon m who you knew 41 00:03:03,120 --> 00:03:14,040 Speaker 1: and your ethnicity. So in that in that class they had, 42 00:03:14,360 --> 00:03:17,520 Speaker 1: which was in the middle of the depression, they had 43 00:03:17,560 --> 00:03:21,120 Speaker 1: about fifty thousand applicants for two hundred and fifty jobs, 44 00:03:22,840 --> 00:03:30,200 Speaker 1: and the two hundred and fifty jobs were decided based 45 00:03:30,240 --> 00:03:33,800 Speaker 1: on a combination of physical i Q and intelligence i Q. 46 00:03:35,600 --> 00:03:38,320 Speaker 1: So all the people in that class, including my father, 47 00:03:38,600 --> 00:03:44,280 Speaker 1: were geniuses. Uh. My father, Um was a full letter 48 00:03:44,320 --> 00:03:50,760 Speaker 1: man at Brooklyn College, and he had a pH d 49 00:03:50,960 --> 00:03:55,839 Speaker 1: in a law degree, and he was a founder of 50 00:03:56,760 --> 00:04:01,800 Speaker 1: John J. College and univer Versity, which at that time 51 00:04:01,840 --> 00:04:08,440 Speaker 1: had fifteen students and now has eighteen thousand. And he 52 00:04:08,560 --> 00:04:17,680 Speaker 1: was omniscient. So I always had a very uh intellectual 53 00:04:18,360 --> 00:04:21,880 Speaker 1: background and a physical background from and in fact, let's 54 00:04:21,880 --> 00:04:26,040 Speaker 1: flesh that out for listeners. You were the national amateur 55 00:04:26,640 --> 00:04:30,359 Speaker 1: champion in squash. You're a highly regarded tennis player. You 56 00:04:30,480 --> 00:04:35,880 Speaker 1: competed at the professional level in in racket squash, um 57 00:04:35,920 --> 00:04:40,440 Speaker 1: surprising the number of pros by beating them, and on 58 00:04:40,480 --> 00:04:44,640 Speaker 1: the intelligence side, no less than seemed to lab called 59 00:04:44,680 --> 00:04:48,160 Speaker 1: you the most brilliant person he's ever met. So apparently 60 00:04:48,440 --> 00:04:51,880 Speaker 1: the apple does not fall far from the tree. Well, 61 00:04:52,120 --> 00:04:56,720 Speaker 1: m I wish I was half the man my father was. 62 00:04:56,960 --> 00:05:02,719 Speaker 1: Um and uh, but you might as well since the 63 00:05:02,760 --> 00:05:07,400 Speaker 1: one thing that I really have been very successful at 64 00:05:08,000 --> 00:05:14,640 Speaker 1: was my rackets career. On my uh, there's a a 65 00:05:14,800 --> 00:05:21,760 Speaker 1: very famous rackets player named Steve Keiley who was the 66 00:05:21,880 --> 00:05:27,200 Speaker 1: number number one racquetball and paddle ball player in the 67 00:05:29,040 --> 00:05:35,520 Speaker 1: in the world in the mid seventies, and he once 68 00:05:35,640 --> 00:05:38,719 Speaker 1: described me as the best all amount, all around racket 69 00:05:38,760 --> 00:05:45,920 Speaker 1: player in history. And I did win the us UM 70 00:05:46,480 --> 00:05:53,279 Speaker 1: Amateur Championships five times and the North American Pro which 71 00:05:53,320 --> 00:05:57,720 Speaker 1: at that time was the World Championships once so uh. 72 00:05:57,800 --> 00:06:00,200 Speaker 1: And I was in the top ten in racquetball. So 73 00:06:01,040 --> 00:06:06,680 Speaker 1: I did a lot of racket playing and but like 74 00:06:06,839 --> 00:06:17,000 Speaker 1: everything else, success is fleeting. And last week I had 75 00:06:17,000 --> 00:06:24,160 Speaker 1: a challenge match with your colleague Joe Weasenthal. And before it, 76 00:06:25,360 --> 00:06:30,680 Speaker 1: I played a woman who was the who played with 77 00:06:30,720 --> 00:06:39,279 Speaker 1: a paddle racket against my tennis racket. She uh m hm, 78 00:06:40,720 --> 00:06:43,680 Speaker 1: so I had a big advantage. How did you do? 79 00:06:44,400 --> 00:06:50,000 Speaker 1: She beat me twenty one to twelve. So a lot 80 00:06:50,040 --> 00:06:53,320 Speaker 1: of a lot has changed. I had played on those 81 00:06:53,320 --> 00:07:03,320 Speaker 1: same courts fifty about fifty eight years ago, and one 82 00:07:04,600 --> 00:07:11,400 Speaker 1: the what was then called the the National paddle Bowl Championships, 83 00:07:11,800 --> 00:07:14,680 Speaker 1: which they played with tennis racket in those days. And 84 00:07:15,840 --> 00:07:20,760 Speaker 1: so in fifty five years I went from the top 85 00:07:20,840 --> 00:07:25,280 Speaker 1: two and also ran in the markets like that. Also, 86 00:07:26,040 --> 00:07:30,960 Speaker 1: let's begin with the quote of yours that I really like. Speculation, 87 00:07:31,160 --> 00:07:36,360 Speaker 1: like most activities, is an art. Science attempts to answer 88 00:07:36,480 --> 00:07:41,000 Speaker 1: the pivotal question of speculation invariably raised twice as many 89 00:07:41,120 --> 00:07:45,600 Speaker 1: questions as they solve. That that quote raises at least 90 00:07:45,640 --> 00:07:48,600 Speaker 1: two questions I find fascinating. What do you mean that 91 00:07:48,760 --> 00:07:56,400 Speaker 1: speculation is an art and a science? Well, I I 92 00:07:56,520 --> 00:08:02,760 Speaker 1: believe that in order to be successful speculation, you have 93 00:08:02,960 --> 00:08:06,960 Speaker 1: to be very systematic, you have to do a lot 94 00:08:07,000 --> 00:08:14,600 Speaker 1: of counting, and you have to have a scientific men. 95 00:08:15,800 --> 00:08:24,240 Speaker 1: But also I I don't believe that algorithms and robot 96 00:08:24,520 --> 00:08:28,480 Speaker 1: trading is the secret to success. I believe you have 97 00:08:28,600 --> 00:08:34,400 Speaker 1: to have a higher framework. My higher framework involves a 98 00:08:34,480 --> 00:08:46,640 Speaker 1: combination of ecology and statistics, biology, physics, and it's very 99 00:08:46,679 --> 00:08:52,160 Speaker 1: important for anyone who wants to be successful to have 100 00:08:52,240 --> 00:09:01,680 Speaker 1: a good foundation that overrides the ephemeral and the transitory 101 00:09:02,040 --> 00:09:05,880 Speaker 1: aspects of the market. Why do you say that each 102 00:09:06,400 --> 00:09:10,120 Speaker 1: inquiry raised twice as many questions as they answered that. 103 00:09:10,280 --> 00:09:16,200 Speaker 1: That's a fascinating observation. Well, the beautiful aspect of speculation 104 00:09:16,520 --> 00:09:27,360 Speaker 1: is that it's all encompassing. It covers um every economic, political, psychological, 105 00:09:27,440 --> 00:09:33,400 Speaker 1: and biological facet of life. And in order to be 106 00:09:34,000 --> 00:09:39,120 Speaker 1: good at it, you need to have a grounding and 107 00:09:39,160 --> 00:09:45,760 Speaker 1: an appreciation of all these subjects, besides being systematic and 108 00:09:45,800 --> 00:09:48,920 Speaker 1: knowing how to count. M hmm. It's a little more 109 00:09:48,960 --> 00:09:53,199 Speaker 1: than knowing how to count, though, isn't it. You need 110 00:09:53,200 --> 00:09:56,600 Speaker 1: to There are some people who do a lot of counting, 111 00:09:56,640 --> 00:10:02,319 Speaker 1: and I I'm happy to say that, uh, I invented 112 00:10:03,200 --> 00:10:12,360 Speaker 1: that what's perhaps the major, the major utilized tool and counting. 113 00:10:13,520 --> 00:10:18,040 Speaker 1: I invented that thirty years ago, basically the idea that 114 00:10:18,080 --> 00:10:25,360 Speaker 1: there are multivariate time series relations between markets that vary 115 00:10:25,360 --> 00:10:30,839 Speaker 1: by day and time of the the day, and that 116 00:10:30,920 --> 00:10:38,520 Speaker 1: has become the mainstay of of many of the many 117 00:10:38,600 --> 00:10:46,960 Speaker 1: thousands of my competitors and followers who have used my 118 00:10:47,080 --> 00:10:50,440 Speaker 1: program of variants of it, which I invented thirty years ago. 119 00:10:50,960 --> 00:10:54,960 Speaker 1: You also invented thirty years ago, one of, if not 120 00:10:55,120 --> 00:11:00,679 Speaker 1: the first software written as a trading program. You were 121 00:11:00,720 --> 00:11:03,360 Speaker 1: decades ahead of the rest of Wall Street. Tell us 122 00:11:03,400 --> 00:11:09,240 Speaker 1: how that computerized trading program that's about. That's an interesting story, 123 00:11:09,440 --> 00:11:18,160 Speaker 1: and it's had a lot of unintended consequences. It was inevitable. 124 00:11:18,240 --> 00:11:22,360 Speaker 1: It was going to happen eventually, of course, yes, But 125 00:11:22,360 --> 00:11:25,080 Speaker 1: but you started before people were really think. I'll tell 126 00:11:25,120 --> 00:11:30,599 Speaker 1: you how it started. It started and unique fashion that 127 00:11:30,760 --> 00:11:35,960 Speaker 1: probably has never happened before. When I got into business, 128 00:11:36,160 --> 00:11:43,680 Speaker 1: I started a business in being a merger broker. We're 129 00:11:43,720 --> 00:11:47,880 Speaker 1: called finders in those days, an investment banker. I was 130 00:11:47,960 --> 00:11:51,880 Speaker 1: not an investment banker. That people used to try to 131 00:11:51,960 --> 00:11:56,480 Speaker 1: criticize me and say that I sold businesses the way 132 00:11:56,600 --> 00:12:02,559 Speaker 1: Colgate sold toothpaste, which I took as a great compliment. 133 00:12:02,960 --> 00:12:09,239 Speaker 1: In one of those aspects, I was visiting Tandy Cooperation 134 00:12:10,800 --> 00:12:15,679 Speaker 1: and they were an owner of radio shock if Memory serves. 135 00:12:14,720 --> 00:12:23,800 Speaker 1: At that time in their catalog they had first developed 136 00:12:24,240 --> 00:12:29,160 Speaker 1: and offered for sale a radio Shock TRS a D, 137 00:12:30,400 --> 00:12:37,240 Speaker 1: the first user programmable computer. More or less correct, I 138 00:12:37,320 --> 00:12:40,160 Speaker 1: was one of the first to buy that computer, and 139 00:12:40,200 --> 00:12:45,120 Speaker 1: I bought one from my younger brother, Royn eater Offer, 140 00:12:46,520 --> 00:12:51,199 Speaker 1: and he and I. He was about ten at the time. 141 00:12:52,640 --> 00:12:58,880 Speaker 1: He subsequently developed a game business where he had about 142 00:12:58,960 --> 00:13:05,440 Speaker 1: seventy of his colleagues in elementary in high school working 143 00:13:05,480 --> 00:13:10,280 Speaker 1: for him and I. Then UM used that radio shack 144 00:13:10,360 --> 00:13:16,120 Speaker 1: computer which had thirty about fifteen thousand UM bits of 145 00:13:16,160 --> 00:13:29,520 Speaker 1: memory available to program a systematic multivariate time series program 146 00:13:29,640 --> 00:13:35,280 Speaker 1: with a young assistant of mine named Susan, who was 147 00:13:35,320 --> 00:13:40,199 Speaker 1: so good at programming and so efficient and also very 148 00:13:40,240 --> 00:13:47,640 Speaker 1: good at racquetball that ultimately, UM, we started living together, 149 00:13:47,800 --> 00:13:52,120 Speaker 1: and it's about we're we've been married for thirty or 150 00:13:52,160 --> 00:13:56,320 Speaker 1: forty years and and been with each other for about 151 00:13:56,320 --> 00:14:00,520 Speaker 1: fifty years forty five years. So you grab await from 152 00:14:00,520 --> 00:14:03,640 Speaker 1: the University of Chicago, which is known as the efficient 153 00:14:03,840 --> 00:14:08,720 Speaker 1: market hypothesis capital of the universe, and yet you UH 154 00:14:08,920 --> 00:14:12,760 Speaker 1: start pushing back against the m H immediately saying, now, 155 00:14:12,880 --> 00:14:15,680 Speaker 1: I think there are patterns visible and market trading and 156 00:14:16,480 --> 00:14:19,520 Speaker 1: short term there are ways to beat the market and 157 00:14:19,520 --> 00:14:26,600 Speaker 1: and earn UM identify UH. Short term, there are ways 158 00:14:26,640 --> 00:14:32,320 Speaker 1: to identify opportunities that are consistent, repeatable. How much pushback 159 00:14:32,360 --> 00:14:37,000 Speaker 1: did you get from the E m H crowd at Chicago, well, 160 00:14:37,560 --> 00:14:42,080 Speaker 1: we were all a bunch of ignoramuses in those days, 161 00:14:42,200 --> 00:14:47,920 Speaker 1: and they had some crutches and old sauce that they 162 00:14:47,960 --> 00:14:54,960 Speaker 1: like to use based upon um distributions with infinite variances. 163 00:14:55,000 --> 00:15:04,960 Speaker 1: They called them Paradouh distributions, and there their acts. Their 164 00:15:05,040 --> 00:15:11,240 Speaker 1: bias at that time was that everything was random, and 165 00:15:11,320 --> 00:15:18,120 Speaker 1: that all um known information was immediately in captain the market, 166 00:15:18,160 --> 00:15:22,880 Speaker 1: and there was no way to make a profit. And 167 00:15:24,640 --> 00:15:30,440 Speaker 1: I was I've always loved to go into the stacks 168 00:15:30,480 --> 00:15:34,640 Speaker 1: of libraries, and fortunately the Harvard Business Library had one 169 00:15:34,640 --> 00:15:39,840 Speaker 1: of the best libraries in the world. And I would 170 00:15:39,840 --> 00:15:44,120 Speaker 1: add I've been fortunate to be associated in my three 171 00:15:45,240 --> 00:15:49,280 Speaker 1: stints at education at Harvard, Chicago, and Berkeley. Each one 172 00:15:49,400 --> 00:15:54,000 Speaker 1: had a great library, which I used to the foremost. 173 00:15:54,000 --> 00:15:57,640 Speaker 1: But I used to look at the Harvard had something 174 00:15:58,200 --> 00:16:00,760 Speaker 1: in those days which no one else had, which was 175 00:16:00,800 --> 00:16:05,120 Speaker 1: the Francis Emery Fitch Sheets, which had the record of 176 00:16:05,200 --> 00:16:10,320 Speaker 1: every transaction, which in those days were about twenty thousand 177 00:16:10,880 --> 00:16:14,880 Speaker 1: transactions a day on the New York Stock Exchange and 178 00:16:14,920 --> 00:16:19,640 Speaker 1: the American Stock Exchange. And I looked at those transactions 179 00:16:20,680 --> 00:16:25,200 Speaker 1: and found that there was a tendency to reversal at 180 00:16:25,240 --> 00:16:35,880 Speaker 1: the microscopic level, and to continuation at the macroscopic level. Now, 181 00:16:36,440 --> 00:16:39,400 Speaker 1: in other words, ongoing trends tend to continue, but there 182 00:16:39,440 --> 00:16:45,400 Speaker 1: are short term reversals against the dominant trends. That's what 183 00:16:45,600 --> 00:16:50,160 Speaker 1: I noticed. Of course, the markets are ever changing, and 184 00:16:50,360 --> 00:16:57,160 Speaker 1: I wouldn't say that's true today in general. But I 185 00:16:57,240 --> 00:17:03,760 Speaker 1: then looked at a in one of my florays in 186 00:17:03,760 --> 00:17:07,040 Speaker 1: the evening I've always been like to read late in 187 00:17:07,080 --> 00:17:14,800 Speaker 1: the night. Harvard had bound copies of all magazines, all 188 00:17:14,840 --> 00:17:17,320 Speaker 1: scientific journals, and one of them was called the Monthly 189 00:17:17,440 --> 00:17:23,040 Speaker 1: Weather Review, and in a like a nineteen sixteen article, 190 00:17:24,359 --> 00:17:33,000 Speaker 1: they had an article about runs and sequences, turning points 191 00:17:33,040 --> 00:17:37,400 Speaker 1: in weather. And it occurred to me that it would 192 00:17:37,440 --> 00:17:43,440 Speaker 1: be useful to look at runs and classified by the 193 00:17:43,520 --> 00:17:48,760 Speaker 1: length of run in the market. So I started. While 194 00:17:48,800 --> 00:17:53,199 Speaker 1: I was competing on the squash and tennis team, I 195 00:17:53,240 --> 00:17:59,080 Speaker 1: would take the ticker tapes, the Francis Emery Fitch sheets, 196 00:17:59,080 --> 00:18:05,119 Speaker 1: and i'd stought owning reversals and continuations, and I found 197 00:18:05,160 --> 00:18:09,920 Speaker 1: that it was about nine times as likely for there 198 00:18:09,920 --> 00:18:13,080 Speaker 1: to be a short term reversal as a continuation. And 199 00:18:13,119 --> 00:18:16,080 Speaker 1: I wrote an article on this and UM. It was 200 00:18:16,760 --> 00:18:21,600 Speaker 1: published in the Journal of the American Statistical Association, was 201 00:18:21,640 --> 00:18:25,720 Speaker 1: the lead article, and I applied some what they called 202 00:18:25,760 --> 00:18:31,679 Speaker 1: some Markov processes to it. So when I went to Chicago, 203 00:18:31,840 --> 00:18:37,760 Speaker 1: I had this under my belt, and it created uh, 204 00:18:38,480 --> 00:18:46,399 Speaker 1: tremendous negative feedback with hysteria and tremendous hatred from the 205 00:18:46,520 --> 00:18:51,760 Speaker 1: random walkers UM, who then were following the idea that 206 00:18:51,840 --> 00:18:57,000 Speaker 1: everything was efficient, and they manifested this hatred in many ways, 207 00:18:57,680 --> 00:19:02,280 Speaker 1: so cognitive dissonance its head. Rather than accept the data, 208 00:19:02,720 --> 00:19:05,840 Speaker 1: they doubled down on the theory because you also had 209 00:19:05,920 --> 00:19:10,000 Speaker 1: data showing that there was a consistent pattern between what 210 00:19:10,160 --> 00:19:11,800 Speaker 1: took place on a Monday and what took place on 211 00:19:11,840 --> 00:19:14,399 Speaker 1: a Friday. And even though there was a lot of data, 212 00:19:14,560 --> 00:19:19,320 Speaker 1: they seem to have a hard time with that. Well 213 00:19:19,359 --> 00:19:27,800 Speaker 1: that's that's another story. But as as an example, the 214 00:19:27,840 --> 00:19:35,160 Speaker 1: Business school was it was situated in a place called 215 00:19:35,200 --> 00:19:41,919 Speaker 1: Haskell Hall at that time, and one time I was 216 00:19:42,760 --> 00:19:49,400 Speaker 1: coming down from the third floor and and speech echoes 217 00:19:49,880 --> 00:19:55,000 Speaker 1: up and four or five of the random walker is, 218 00:19:55,040 --> 00:20:00,440 Speaker 1: including two of subsequently one Noble prizes, uh what talking 219 00:20:01,200 --> 00:20:05,879 Speaker 1: And they were studying us some computer output on stock 220 00:20:05,920 --> 00:20:11,080 Speaker 1: splits and I heard one of them say, Wow, you know, 221 00:20:11,119 --> 00:20:14,200 Speaker 1: we're really in trouble. If we find some regularities here, 222 00:20:15,200 --> 00:20:22,840 Speaker 1: now this, this could defeat our ideas. And I memorialized 223 00:20:22,880 --> 00:20:32,840 Speaker 1: that conversation and I did not neglect UM two UM 224 00:20:34,880 --> 00:20:41,040 Speaker 1: HM to elicit it and some of my presentations. You 225 00:20:41,160 --> 00:20:44,320 Speaker 1: put together quite a track record. You had a twenty 226 00:20:44,760 --> 00:20:52,760 Speaker 1: year run up of or better annual returns. How on 227 00:20:52,800 --> 00:20:56,320 Speaker 1: earth do you put together a track record like that. Well, 228 00:20:56,400 --> 00:21:00,960 Speaker 1: it was with a small amounts of of money, and 229 00:21:01,040 --> 00:21:07,960 Speaker 1: it was certainly unsustainable. But during that period, two or 230 00:21:08,000 --> 00:21:12,679 Speaker 1: three times I won the award as the best performing 231 00:21:12,920 --> 00:21:19,840 Speaker 1: UM managed to count. These were commodity futures commodity futures traders. 232 00:21:19,960 --> 00:21:28,040 Speaker 1: And I got another award in nine UM right before 233 00:21:29,119 --> 00:21:31,560 Speaker 1: the debacco that I believe is on the tip of 234 00:21:31,600 --> 00:21:36,080 Speaker 1: your tongue, the tie Bot crisis and uh what that 235 00:21:36,160 --> 00:21:40,679 Speaker 1: did to currency and commodity prices. I had the model 236 00:21:40,840 --> 00:21:45,120 Speaker 1: of George Soros, who I was very intimate with at 237 00:21:46,119 --> 00:21:53,400 Speaker 1: that time. We most have spoken thirty fifty times a day, 238 00:21:53,640 --> 00:21:56,280 Speaker 1: and he always said that he made more money from 239 00:21:56,359 --> 00:22:00,639 Speaker 1: things he didn't know about than things he did know about. 240 00:22:00,880 --> 00:22:05,680 Speaker 1: And I unfortunately ran with that idea, And I didn't 241 00:22:05,720 --> 00:22:12,119 Speaker 1: know anything about emerging markets, but I sent my before 242 00:22:12,200 --> 00:22:17,800 Speaker 1: mentioned friend Hobo Kiely around the world to visit every 243 00:22:17,920 --> 00:22:22,240 Speaker 1: emerging market, and he came back um with the idea 244 00:22:22,359 --> 00:22:29,080 Speaker 1: that India look good, but they charged you a half 245 00:22:29,080 --> 00:22:34,280 Speaker 1: a percent of one percent on every transaction, and they 246 00:22:34,320 --> 00:22:42,240 Speaker 1: had some hi um barriers to to entry. But he 247 00:22:42,359 --> 00:22:46,800 Speaker 1: really favored Thailand because on his previous visit the brothels 248 00:22:46,840 --> 00:22:49,680 Speaker 1: were much and much worse shape, and they had really 249 00:22:49,720 --> 00:22:52,359 Speaker 1: cleaned up the brothel act, and he felt that that 250 00:22:52,520 --> 00:22:55,840 Speaker 1: was his economic indicator. Yeah, and the length of the 251 00:22:55,920 --> 00:22:59,200 Speaker 1: cigarette stubbs. If people only smoked half a cigarette and 252 00:22:59,240 --> 00:23:02,680 Speaker 1: threw away you had you had referenced that it meant 253 00:23:02,800 --> 00:23:06,920 Speaker 1: they felt confident and had lots of discretionary money. He 254 00:23:07,080 --> 00:23:13,680 Speaker 1: had a number of of indirect indicators like that, um. 255 00:23:13,720 --> 00:23:19,920 Speaker 1: But in any case, they promised low commissions, and the 256 00:23:20,160 --> 00:23:24,359 Speaker 1: brothels were were very clean and they didn't use strong 257 00:23:24,480 --> 00:23:29,320 Speaker 1: arm tactics against the the visitors the way they did 258 00:23:29,400 --> 00:23:35,080 Speaker 1: on his previous visit. He didn't tell me that percent 259 00:23:35,200 --> 00:23:41,119 Speaker 1: of the buildings had stopped construction construction and at the 260 00:23:41,160 --> 00:23:45,080 Speaker 1: fourth floor, but in any case, I it was the 261 00:23:45,119 --> 00:23:49,040 Speaker 1: worst performing market. It was down about at that time 262 00:23:49,080 --> 00:23:53,080 Speaker 1: when every other market was up ten percent. And I 263 00:23:53,160 --> 00:23:57,560 Speaker 1: had had done some work that um, the worst the 264 00:23:57,600 --> 00:24:01,720 Speaker 1: worst performing groups in the New York Stock Exchange during 265 00:24:01,760 --> 00:24:05,280 Speaker 1: the next year always were the best performing and the 266 00:24:05,359 --> 00:24:09,439 Speaker 1: subsequent subsequent years and went from the worst to the 267 00:24:09,520 --> 00:24:12,280 Speaker 1: to the best. And can you extrapolate New York stock 268 00:24:12,320 --> 00:24:19,399 Speaker 1: groups to international? Regrettably not, but I I did. I 269 00:24:19,440 --> 00:24:23,520 Speaker 1: did extrapolate it. It seemed like I had everything. I 270 00:24:23,560 --> 00:24:30,000 Speaker 1: had the cigarettes, the brothels, and the commissions. And the 271 00:24:30,040 --> 00:24:32,239 Speaker 1: price is the price of a coke was something like 272 00:24:32,280 --> 00:24:38,440 Speaker 1: two cents uh there at that that time. And so 273 00:24:38,520 --> 00:24:42,800 Speaker 1: I got in and uh didn't work out. Oh, it 274 00:24:43,760 --> 00:24:47,159 Speaker 1: really used up a lot of my capital. I my 275 00:24:47,280 --> 00:24:54,639 Speaker 1: liquidity was tremendously um reduced, and I was not able. 276 00:24:54,920 --> 00:25:00,520 Speaker 1: Um two. Well, I'll tell you something that's very important. 277 00:25:00,560 --> 00:25:08,040 Speaker 1: You were talking about my family before. My grandfather once 278 00:25:08,119 --> 00:25:13,000 Speaker 1: told me that the worst thing in the market is 279 00:25:13,040 --> 00:25:15,880 Speaker 1: to get in over your head. He was a speculator, 280 00:25:15,920 --> 00:25:19,840 Speaker 1: traded in the twenties right up until the crash. He 281 00:25:19,960 --> 00:25:24,959 Speaker 1: had the pleasure of trading with Jesse Livermore. Really and 282 00:25:25,000 --> 00:25:29,400 Speaker 1: in fact, um, so your grandfather traded with Jesse Livermore. 283 00:25:29,480 --> 00:25:35,840 Speaker 1: You traded with George Soros. That's quite a family lineage, yes, UM, somewhat, 284 00:25:36,480 --> 00:25:39,639 Speaker 1: as they would say at a sepcoic in UM both 285 00:25:40,160 --> 00:25:45,919 Speaker 1: both cases. In fact, my grandfather took lessons from Scott 286 00:25:46,040 --> 00:25:50,560 Speaker 1: Choplin piano lessons and yeah, and he knew a lot 287 00:25:50,600 --> 00:25:57,199 Speaker 1: of the unpublished rags. And he was the treasurer of 288 00:25:57,240 --> 00:26:03,000 Speaker 1: Irving Berlin's public shring studio in nineteen oh seven, and 289 00:26:03,160 --> 00:26:11,760 Speaker 1: he had the unfortunate, uh experience of being liquidated during 290 00:26:11,760 --> 00:26:17,120 Speaker 1: the nine seven crash, which was very similar to the 291 00:26:17,119 --> 00:26:23,520 Speaker 1: two thousand eight crash in the and then yeah, he anyway, 292 00:26:23,560 --> 00:26:26,760 Speaker 1: he always told me never getting over your head. I 293 00:26:26,840 --> 00:26:30,760 Speaker 1: was in over my head, uh, with taught with Thailand 294 00:26:30,840 --> 00:26:36,000 Speaker 1: and with option trading. You dropped the phrase epicyclical. And 295 00:26:36,040 --> 00:26:39,720 Speaker 1: I want to reference that because in genetics there's a 296 00:26:39,800 --> 00:26:43,840 Speaker 1: concept of and I'm getting the word wrong, epigenomics or 297 00:26:44,440 --> 00:26:50,639 Speaker 1: the possibility that experiences can be transferred from one generation 298 00:26:50,760 --> 00:26:54,320 Speaker 1: to the next. Is that what your references No, I'm 299 00:26:54,520 --> 00:26:59,439 Speaker 1: not UM talking about the selfish gene and the fact 300 00:26:59,480 --> 00:27:06,560 Speaker 1: that um or activities are designed to maximize the fitness 301 00:27:06,840 --> 00:27:16,359 Speaker 1: of of our and replicability and survivorship, UH, prevalence of genes. 302 00:27:16,440 --> 00:27:22,760 Speaker 1: I'm talking in the old days. UM. The astronomy is 303 00:27:23,800 --> 00:27:27,120 Speaker 1: used to try to calculate the motion of the big 304 00:27:27,280 --> 00:27:30,280 Speaker 1: orbits of the planets, and they had come up with 305 00:27:31,200 --> 00:27:37,440 Speaker 1: Ptolemy came up with about thirty different equations to finally 306 00:27:37,760 --> 00:27:43,560 Speaker 1: to calculate how the planets moved before Newton the retrogrades, 307 00:27:43,640 --> 00:27:45,800 Speaker 1: thinking the Earth was the center of the Solar system 308 00:27:45,800 --> 00:27:49,360 Speaker 1: instead of the Sun. Is that is that what you're referencing? Well, 309 00:27:49,400 --> 00:27:55,760 Speaker 1: then Copernicus and uh and Tico Debra came up with 310 00:27:57,040 --> 00:28:00,359 Speaker 1: various equations and they called those equations epicickly of course, 311 00:28:00,400 --> 00:28:05,760 Speaker 1: so they were overdetermined and they had too many, too 312 00:28:05,760 --> 00:28:09,240 Speaker 1: many equations for the variables that they were trying too much. 313 00:28:09,960 --> 00:28:14,040 Speaker 1: By the way, that's probably the biggest mistake that the 314 00:28:14,560 --> 00:28:19,080 Speaker 1: systematic and the amateur trade and makes in the market. 315 00:28:19,280 --> 00:28:23,400 Speaker 1: Too too much complexity with simplicity will do They call 316 00:28:23,440 --> 00:28:29,760 Speaker 1: it multiple comparisons. It's UM implicitly to have UM numerous 317 00:28:29,840 --> 00:28:34,320 Speaker 1: hypotheses that they're testing what that they know about, and 318 00:28:34,359 --> 00:28:38,719 Speaker 1: then they try to fit that to a very small, 319 00:28:39,040 --> 00:28:44,880 Speaker 1: um small number of observations. I I read that you're 320 00:28:44,920 --> 00:28:51,680 Speaker 1: a great believer in UM indexing. Well, for the average person, 321 00:28:52,240 --> 00:28:55,320 Speaker 1: I think there's also a place for for a tactical 322 00:28:55,360 --> 00:28:58,160 Speaker 1: there is a place for active management. But the average 323 00:28:58,160 --> 00:29:02,360 Speaker 1: mom and pop investor, for the most part, can't pick stocks, 324 00:29:02,400 --> 00:29:05,560 Speaker 1: can't time markets, can't hire people to pick stocks or 325 00:29:05,600 --> 00:29:09,320 Speaker 1: time markets, and so I think for them, Jack Bogel 326 00:29:09,360 --> 00:29:11,239 Speaker 1: had it right. I think you have it right, and 327 00:29:11,800 --> 00:29:14,000 Speaker 1: Jack had it right. By the way, he's a squash 328 00:29:14,080 --> 00:29:17,200 Speaker 1: player that I've had some contact with. Any good Is 329 00:29:17,240 --> 00:29:20,400 Speaker 1: he any good? Yeah? I think he was. He was 330 00:29:20,640 --> 00:29:24,920 Speaker 1: quite a good player. I s eighties seven something like that. 331 00:29:25,000 --> 00:29:28,120 Speaker 1: He was just his birthday, not to and and the 332 00:29:28,200 --> 00:29:32,720 Speaker 1: Sage of Nebraska as a racquetball player. Larren Buffett, Yes, 333 00:29:32,760 --> 00:29:35,000 Speaker 1: I had no idea. Let's talk a little bit about 334 00:29:35,680 --> 00:29:38,840 Speaker 1: Soros before we start talking about your funds. You were 335 00:29:38,880 --> 00:29:43,320 Speaker 1: trading fixed income and currencies for Soros for for a 336 00:29:43,360 --> 00:29:47,600 Speaker 1: long time from eight two to What was that like. 337 00:29:47,760 --> 00:29:52,280 Speaker 1: He has a reputation of really micromanaging every trade. What 338 00:29:52,400 --> 00:29:59,800 Speaker 1: was it like to to be an active trader under Soros? M? Well, 339 00:29:59,800 --> 00:30:06,720 Speaker 1: he taught me M quite a few things. Um. The 340 00:30:06,840 --> 00:30:10,920 Speaker 1: most important was that you should always use two cans 341 00:30:10,960 --> 00:30:14,959 Speaker 1: of tennis balls when you were when you were playing. 342 00:30:15,120 --> 00:30:19,760 Speaker 1: Um that because if you have one can, which used 343 00:30:19,760 --> 00:30:24,360 Speaker 1: to be three bulls, then you spend half your time 344 00:30:24,600 --> 00:30:31,640 Speaker 1: chasing balls, whereas if you have two cans, then of 345 00:30:31,680 --> 00:30:33,920 Speaker 1: the time can be playing and you can let the bulls. 346 00:30:34,600 --> 00:30:37,400 Speaker 1: Is there a metaphor there for life, for trading or 347 00:30:37,440 --> 00:30:42,840 Speaker 1: is it just about tennis. No, there's a metaphor for 348 00:30:42,840 --> 00:30:49,480 Speaker 1: for life. You have to look at the big picture 349 00:30:49,680 --> 00:30:59,920 Speaker 1: and don't don't worry about the ephemera. And of course, 350 00:31:00,040 --> 00:31:05,320 Speaker 1: in my day I I played tennis every day with 351 00:31:05,360 --> 00:31:10,000 Speaker 1: my father and we would shovel snow off the courts 352 00:31:10,040 --> 00:31:15,560 Speaker 1: in Coney Island to play. And to have one new 353 00:31:15,600 --> 00:31:24,440 Speaker 1: tennis ball was considered uh a luxury, tremendous, tremendous luxury. 354 00:31:24,600 --> 00:31:29,280 Speaker 1: And the idea that you could actually have spend money 355 00:31:29,320 --> 00:31:35,720 Speaker 1: for two cans and with alacrity was astonishing to me. 356 00:31:35,840 --> 00:31:39,520 Speaker 1: And what else did you learn from Soros besides always 357 00:31:39,520 --> 00:31:43,680 Speaker 1: bring an extra can of tennis balls to the court. Uh, 358 00:31:45,040 --> 00:31:47,440 Speaker 1: No one in the world has a better instinct for 359 00:31:47,480 --> 00:31:55,440 Speaker 1: survival than he does. And both literally literally having escaped 360 00:31:55,480 --> 00:32:02,800 Speaker 1: the Nazis and figuratively as a trader exactly exactly. And 361 00:32:04,720 --> 00:32:12,160 Speaker 1: he I remember, as mentioned, we spoke fifty sixty times 362 00:32:12,960 --> 00:32:17,000 Speaker 1: a day continuously for about ten and twelve fifteen years. 363 00:32:17,160 --> 00:32:31,400 Speaker 1: And remember during the October seven crash on Thursday, October 364 00:32:35,320 --> 00:32:40,440 Speaker 1: uh he sold all of his stocks, just liquidated them 365 00:32:40,440 --> 00:32:44,400 Speaker 1: at the open he made he made he made so 366 00:32:44,560 --> 00:32:50,800 Speaker 1: many traders on the floor of the Mercantile Exchange multi 367 00:32:50,840 --> 00:32:55,400 Speaker 1: millionaires with that trade. But it occurred to him that 368 00:32:55,960 --> 00:33:02,640 Speaker 1: he could um face destruction, and he did what he 369 00:33:02,680 --> 00:33:07,600 Speaker 1: had to do. He liquidated his entire position, took a 370 00:33:07,680 --> 00:33:12,400 Speaker 1: huge loss, thinking that survival was more important than anything else. 371 00:33:12,480 --> 00:33:16,200 Speaker 1: And I believe he did the same thing with Mr 372 00:33:16,320 --> 00:33:24,040 Speaker 1: druck A Meyer in the two thousand period when um 373 00:33:24,280 --> 00:33:33,200 Speaker 1: drug A Miller attended a conference in which it was 374 00:33:35,200 --> 00:33:40,400 Speaker 1: mentioned that there's no such thing as a proper valuation 375 00:33:40,600 --> 00:33:47,040 Speaker 1: forum internet stocks for technology stocks, and that you know 376 00:33:47,280 --> 00:33:51,000 Speaker 1: it's based upon it should be based upon views and potential. 377 00:33:51,040 --> 00:33:56,360 Speaker 1: And then he he went ho hog and bought a 378 00:33:56,400 --> 00:34:05,720 Speaker 1: tremendous percentage of his fund into the the companies with 379 00:34:05,840 --> 00:34:10,760 Speaker 1: multibillion dollar market values and no earnings and little sales 380 00:34:10,800 --> 00:34:14,279 Speaker 1: at that time. And I believe that Soros had the 381 00:34:14,280 --> 00:34:20,920 Speaker 1: same reaction that he did in nine, just liquidated the 382 00:34:21,040 --> 00:34:26,759 Speaker 1: entire position. Thought that survival was at stake, and I 383 00:34:26,800 --> 00:34:29,160 Speaker 1: believe I believe that. I believe that was the key 384 00:34:29,400 --> 00:34:36,520 Speaker 1: UM in this year. The key UM, the key reason 385 00:34:36,600 --> 00:34:40,680 Speaker 1: that their partnership ended at that time, is the key 386 00:34:40,760 --> 00:34:45,080 Speaker 1: takeaway you got from Soros. The importance of survival in 387 00:34:45,120 --> 00:34:49,680 Speaker 1: the investment markets is always always lived to fight another day. 388 00:34:49,800 --> 00:34:52,440 Speaker 1: Is that the most important lesson he teaches. Well. One 389 00:34:52,440 --> 00:34:59,520 Speaker 1: of my mentors, Irving Riddell, always um said the market 390 00:34:59,560 --> 00:35:03,600 Speaker 1: will always be there. Then the next day. I should 391 00:35:03,640 --> 00:35:05,880 Speaker 1: have known that. My grandfather told me don't get in 392 00:35:07,120 --> 00:35:13,480 Speaker 1: over your head UM, and from my rackets career, I 393 00:35:13,480 --> 00:35:18,839 Speaker 1: should have known not to play the other person's game. 394 00:35:18,920 --> 00:35:24,360 Speaker 1: I should have should have learned that from sorrows escaping 395 00:35:24,440 --> 00:35:30,200 Speaker 1: from Hungary UM during World War Two. So after sorrows, 396 00:35:30,239 --> 00:35:33,080 Speaker 1: you launch your own hedge funds. Tell us what that 397 00:35:33,160 --> 00:35:40,320 Speaker 1: process was like, who your clients, how the fund do? UM? Well, again, 398 00:35:40,400 --> 00:35:46,360 Speaker 1: I I had some as my wife likes to say 399 00:35:46,400 --> 00:35:53,960 Speaker 1: in her m HM curriculum Vita. She's the director of 400 00:35:54,040 --> 00:36:00,319 Speaker 1: some of UM, the firms related to John mc key's 401 00:36:00,400 --> 00:36:05,879 Speaker 1: Whole Whole Foods UM operation and conscious capitalism as as 402 00:36:05,920 --> 00:36:09,960 Speaker 1: she likes to say. And she's been the director of 403 00:36:10,760 --> 00:36:18,600 Speaker 1: on the board of every Montessori school that we've sent 404 00:36:18,680 --> 00:36:21,600 Speaker 1: to our kids too that she's been associated. She's and 405 00:36:21,760 --> 00:36:24,080 Speaker 1: some of the years we were the best performing fund, 406 00:36:24,160 --> 00:36:25,760 Speaker 1: and in some of the years we were the worst 407 00:36:25,760 --> 00:36:30,560 Speaker 1: performing fund. And then UM, when I had the tobacco 408 00:36:30,719 --> 00:36:34,840 Speaker 1: in seven, she offered to resign from all her boards, 409 00:36:34,880 --> 00:36:39,400 Speaker 1: but they didn't. They didn't accept her resignation because she 410 00:36:39,480 --> 00:36:42,760 Speaker 1: was too good at what she did. So you launch 411 00:36:42,760 --> 00:36:46,160 Speaker 1: your funds, who are your clients and and who's investing 412 00:36:46,200 --> 00:36:51,840 Speaker 1: with you? Well, I had a number I had a 413 00:36:51,840 --> 00:36:55,719 Speaker 1: lot of people who mistakenly thought that because I was 414 00:36:55,760 --> 00:36:59,520 Speaker 1: so good in racket sports, and because I had a 415 00:36:59,600 --> 00:37:04,520 Speaker 1: very good academic reputation, that I might be good at 416 00:37:04,719 --> 00:37:12,480 Speaker 1: UM investing. And I did have a good track record 417 00:37:12,560 --> 00:37:16,120 Speaker 1: for many years. It was in nineteen as I mentioned, 418 00:37:16,160 --> 00:37:21,600 Speaker 1: in nineteen nineties, the twenty years prior to seven, you 419 00:37:21,640 --> 00:37:24,880 Speaker 1: were compounding at thirty a year. Well, again, that's a 420 00:37:24,920 --> 00:37:31,080 Speaker 1: phenomenal run. It's it's a lot of it's a lot easier. 421 00:37:32,480 --> 00:37:37,040 Speaker 1: As as you may know, when I started out in business, 422 00:37:37,080 --> 00:37:40,279 Speaker 1: I I knew nothing and I took fifty thousand into 423 00:37:40,320 --> 00:37:43,520 Speaker 1: twenty million in about six months. It's got to be 424 00:37:43,600 --> 00:37:51,080 Speaker 1: more than just dumb luck. It was very wrongful, very 425 00:37:51,480 --> 00:37:55,560 Speaker 1: meaning I did. I did a lot of um, a 426 00:37:55,560 --> 00:37:59,000 Speaker 1: lot of bad things. Was very but you were trading much, 427 00:37:59,760 --> 00:38:04,640 Speaker 1: very very much over my head. And it was just 428 00:38:04,719 --> 00:38:10,960 Speaker 1: fortunate that during that period, ah, I had a foundation 429 00:38:11,000 --> 00:38:16,480 Speaker 1: where I believe that, uh, sort of the way a 430 00:38:16,520 --> 00:38:19,600 Speaker 1: lot of people do now, that the world was coming 431 00:38:19,600 --> 00:38:21,400 Speaker 1: to an end, and that gold was going to go 432 00:38:21,560 --> 00:38:23,920 Speaker 1: from two hundred to a thousand, which it did, and 433 00:38:23,920 --> 00:38:28,680 Speaker 1: that the yields on bonds we're gonna go from in 434 00:38:28,719 --> 00:38:32,759 Speaker 1: those days six percent to twelve percent, and during that 435 00:38:32,880 --> 00:38:35,680 Speaker 1: six months it did. But so you were right. You 436 00:38:35,760 --> 00:38:38,640 Speaker 1: had some big perspective views and they turned out to 437 00:38:38,640 --> 00:38:44,200 Speaker 1: be correct. Fortunately. I also had learned a little something 438 00:38:45,360 --> 00:38:54,120 Speaker 1: from my forays into gambling and racket sports. And most 439 00:38:54,160 --> 00:39:00,000 Speaker 1: people make the mistake of putting a limit on how 440 00:39:00,120 --> 00:39:05,560 Speaker 1: much they're going um to lose, and they tell the 441 00:39:05,800 --> 00:39:08,440 Speaker 1: they tell the partner before they start gambling. You know, 442 00:39:08,719 --> 00:39:13,400 Speaker 1: dear him, if I lose more of them a thousand dollars, 443 00:39:13,400 --> 00:39:17,520 Speaker 1: I'm out of here regardless, And don't no matter what 444 00:39:17,600 --> 00:39:23,520 Speaker 1: I say, don't UM. Don't listen to me. UM put 445 00:39:23,880 --> 00:39:26,719 Speaker 1: put the ear plugs in your ears the way UM 446 00:39:26,960 --> 00:39:33,000 Speaker 1: ulysses Um shipmates did on his travels before the Skilla 447 00:39:33,080 --> 00:39:40,560 Speaker 1: and Charybdis and the sirens. And I, fortunately UM had 448 00:39:40,600 --> 00:39:46,640 Speaker 1: a m had a remembrance of those. It sounded, it 449 00:39:46,680 --> 00:39:49,560 Speaker 1: sounded sensible. So when I got up to twenty million, 450 00:39:49,600 --> 00:39:56,360 Speaker 1: I told all of my UH colleagues, including the future 451 00:39:56,480 --> 00:40:00,360 Speaker 1: Mrs Niederhoffer, I said, if I ever get down to 452 00:40:00,520 --> 00:40:05,080 Speaker 1: ten million, if I lose more than half, liquidate me 453 00:40:05,239 --> 00:40:08,480 Speaker 1: regardless of anything I say, don't listen to me, because 454 00:40:08,480 --> 00:40:12,160 Speaker 1: I'll probably be begging you not not to get out. 455 00:40:12,200 --> 00:40:16,000 Speaker 1: At that time, well, I I had there was one 456 00:40:16,080 --> 00:40:19,399 Speaker 1: player in the New York City area who could give 457 00:40:19,400 --> 00:40:22,120 Speaker 1: me a game in racquetball. His name was Ruben Gonzalez 458 00:40:23,040 --> 00:40:27,839 Speaker 1: and he he still is at sixty years old. He's 459 00:40:27,840 --> 00:40:30,799 Speaker 1: in the top ten and racket ball, and he was 460 00:40:30,880 --> 00:40:33,919 Speaker 1: the pro in the Staten Island Court Club. I went 461 00:40:33,960 --> 00:40:40,800 Speaker 1: to Staten Island one day during the morning and I UM. 462 00:40:40,840 --> 00:40:46,759 Speaker 1: We played UM two two games and it was one wall. 463 00:40:47,600 --> 00:40:50,600 Speaker 1: I made a call to the office and they said, 464 00:40:50,760 --> 00:40:57,359 Speaker 1: you just lost half your you just lost three quarters 465 00:40:57,719 --> 00:41:00,879 Speaker 1: of your steak and you're out of the mark. I said, 466 00:41:00,880 --> 00:41:05,239 Speaker 1: what are you crazy? And and what happened by the 467 00:41:05,239 --> 00:41:07,839 Speaker 1: time by the time I got out and lost another hand? 468 00:41:08,080 --> 00:41:10,520 Speaker 1: It was the first they started looking within a ten. 469 00:41:10,640 --> 00:41:14,680 Speaker 1: And yeah, and in those days, to only lose fift 470 00:41:15,400 --> 00:41:20,719 Speaker 1: was pretty pretty good. And Ruben Uh, about twenty years 471 00:41:20,800 --> 00:41:23,680 Speaker 1: later said to me, no vic, I remember that game, 472 00:41:23,680 --> 00:41:27,000 Speaker 1: and when when when we came back for the third game, 473 00:41:27,400 --> 00:41:33,520 Speaker 1: you seem like like a different person and you weren't. Yeah, 474 00:41:33,640 --> 00:41:37,400 Speaker 1: you are so uh, you seem so preoccupied, uh with 475 00:41:37,560 --> 00:41:40,680 Speaker 1: other things that it was easy, too easy to beat you. 476 00:41:40,760 --> 00:41:44,440 Speaker 1: That so losing three quarters of your fortune affects the 477 00:41:44,440 --> 00:41:49,720 Speaker 1: irracket game. Is that the takeaway there? Anything, anything affects 478 00:41:49,760 --> 00:41:54,359 Speaker 1: your market game and your racket game. Everybody loves a 479 00:41:54,360 --> 00:41:59,760 Speaker 1: comeback story. Tell us how you managed to after going 480 00:41:59,800 --> 00:42:04,040 Speaker 1: through that debacle. How did you manage to rebuild um 481 00:42:04,239 --> 00:42:08,279 Speaker 1: your trading positions? How do you find the confidence to say, yes, 482 00:42:08,360 --> 00:42:11,160 Speaker 1: I could do this. This was just an aberration and 483 00:42:11,200 --> 00:42:15,680 Speaker 1: I'm going to overcome this. The story is a little 484 00:42:16,560 --> 00:42:23,239 Speaker 1: a bit more complex than than that. It is one 485 00:42:23,320 --> 00:42:32,319 Speaker 1: of one of the aspects of of life is that 486 00:42:32,520 --> 00:42:42,680 Speaker 1: sometimes a tremendous quantum event um can which is seemingly 487 00:42:42,880 --> 00:42:50,920 Speaker 1: very good um, can have negative consequences, and vice vice versa. 488 00:42:51,719 --> 00:42:59,640 Speaker 1: From adversity often comes a great success and from racket 489 00:42:59,719 --> 00:43:03,719 Speaker 1: spot it's almost every good racket player will will tell 490 00:43:03,760 --> 00:43:08,480 Speaker 1: you that the most important lessons and the most the 491 00:43:08,520 --> 00:43:18,760 Speaker 1: greatest improvements in their life came after tremendous defeats um 492 00:43:18,840 --> 00:43:27,919 Speaker 1: and after my various debaccos, which, as you know, I've 493 00:43:28,080 --> 00:43:34,200 Speaker 1: been trading for fifty fifty five years, so I've had 494 00:43:34,280 --> 00:43:40,400 Speaker 1: some great successes. And in fact, you said that you had. 495 00:43:40,960 --> 00:43:43,080 Speaker 1: I want to get the numbers right because I want 496 00:43:43,120 --> 00:43:47,680 Speaker 1: to specifically reference some of these successes. You said, when 497 00:43:47,680 --> 00:43:51,560 Speaker 1: we look at the number of trades you have that 498 00:43:51,640 --> 00:43:58,279 Speaker 1: have been successful, your hundreds of standard deviations away from 499 00:43:58,280 --> 00:44:01,000 Speaker 1: the norm, you trade it over too million contracts with 500 00:44:01,040 --> 00:44:05,120 Speaker 1: the average profit of over seventy dollars per contract. That's 501 00:44:05,160 --> 00:44:09,279 Speaker 1: about a hundred and fifty million dollars in games just 502 00:44:09,480 --> 00:44:13,799 Speaker 1: from from those trades. In other words, this is not 503 00:44:14,120 --> 00:44:18,880 Speaker 1: purely random. There is obviously some skill to that much 504 00:44:19,400 --> 00:44:24,680 Speaker 1: successful trade. All right, now, I have to talk about 505 00:44:25,360 --> 00:44:31,520 Speaker 1: a great man. Man I loved His name was James 506 00:44:31,560 --> 00:44:38,320 Speaker 1: Lourie and without him, I wouldn't be in business. He 507 00:44:38,360 --> 00:44:46,239 Speaker 1: gave me my first job and he UM. He was 508 00:44:46,320 --> 00:44:54,719 Speaker 1: the founder of the first major statistical study of returns 509 00:44:55,520 --> 00:45:00,200 Speaker 1: in common stocks. They called it CHRISPS the sender for 510 00:45:00,320 --> 00:45:04,880 Speaker 1: research and security prices. That's a huge database these days. 511 00:45:05,480 --> 00:45:09,480 Speaker 1: Not only is it the huge database, but along with Dempson, 512 00:45:09,600 --> 00:45:16,359 Speaker 1: moh and Stunting, it's UM the most important thing for 513 00:45:16,520 --> 00:45:25,239 Speaker 1: UM the investor to comprehend and hopefully to read ah 514 00:45:25,360 --> 00:45:32,399 Speaker 1: in any In any case, he helped me get through 515 00:45:32,400 --> 00:45:36,000 Speaker 1: my thesis with all the detractors and haters that were 516 00:45:37,160 --> 00:45:43,680 Speaker 1: always around trying to um do me in. Yeah, they 517 00:45:44,360 --> 00:45:53,279 Speaker 1: they I was not a favorite son there, but he 518 00:45:53,400 --> 00:46:00,000 Speaker 1: steered me through. It helped me keep my scholarship. UM 519 00:46:00,239 --> 00:46:03,080 Speaker 1: helped me defend my thesis. He was my thesis advisor, 520 00:46:04,160 --> 00:46:08,600 Speaker 1: got me my first job at Merrill Lynch, my first 521 00:46:08,640 --> 00:46:21,480 Speaker 1: clients president of Sunbeam, and his daughter Um was He 522 00:46:21,560 --> 00:46:26,319 Speaker 1: became a traitor on the Chicago Options Exchange and then 523 00:46:26,400 --> 00:46:33,000 Speaker 1: she worked for me for fifteen years. Name is Erica 524 00:46:33,400 --> 00:46:37,879 Speaker 1: and Jim once came to my office whenever he came 525 00:46:37,920 --> 00:46:40,680 Speaker 1: to New York, and he was on ten different boards 526 00:46:40,680 --> 00:46:46,000 Speaker 1: in New York. He would stop by and he said, Victor, 527 00:46:46,080 --> 00:46:50,600 Speaker 1: if you had told me twenty years ago that my 528 00:46:50,719 --> 00:46:55,000 Speaker 1: daughter would be working for you with all your regularities 529 00:46:55,160 --> 00:47:03,480 Speaker 1: and UM predictive patterns, I went have believed it. And that, 530 00:47:03,640 --> 00:47:09,320 Speaker 1: to me is the greatest compliment that I ever received, 531 00:47:09,360 --> 00:47:13,720 Speaker 1: that he was able to say that his daughter would 532 00:47:13,920 --> 00:47:21,440 Speaker 1: UM find a proper home in my multivariate time series 533 00:47:22,400 --> 00:47:28,640 Speaker 1: programs and analyzes. Now, some of those statistics again are 534 00:47:29,120 --> 00:47:33,120 Speaker 1: again not very meaning focus. They were it's a lot 535 00:47:33,160 --> 00:47:35,799 Speaker 1: easier to make money when you're trading a few contracts 536 00:47:36,000 --> 00:47:41,640 Speaker 1: UM then when you're trading a lot. But my experience 537 00:47:41,719 --> 00:47:48,280 Speaker 1: for soros Um was not altogether positive in the sense 538 00:47:48,400 --> 00:47:55,200 Speaker 1: that he he liked UM not only to have me 539 00:47:55,320 --> 00:47:59,320 Speaker 1: trade for him, but he would trade parry passu. He 540 00:47:59,480 --> 00:48:02,680 Speaker 1: liked to call it for his fund on the things 541 00:48:02,760 --> 00:48:07,080 Speaker 1: I was trading with, plus parry pessu for his own accounts. 542 00:48:07,480 --> 00:48:09,920 Speaker 1: So in other words, he would piggyback your trades. So 543 00:48:10,080 --> 00:48:12,839 Speaker 1: there would be when I'd make a trade, and and 544 00:48:12,880 --> 00:48:16,239 Speaker 1: then it was also my own trades. So if I 545 00:48:16,320 --> 00:48:21,000 Speaker 1: made a trade UM, the quid pro quol was I'd 546 00:48:21,000 --> 00:48:22,919 Speaker 1: make the same trade for him give him the same 547 00:48:22,960 --> 00:48:30,200 Speaker 1: prices and for the fund and for his own account. 548 00:48:30,760 --> 00:48:34,840 Speaker 1: So there were three levels of trades. Might my trades 549 00:48:34,960 --> 00:48:42,080 Speaker 1: might have been in those days for a stated um 550 00:48:42,400 --> 00:48:48,640 Speaker 1: market value of thirty million, but for his fund would 551 00:48:48,680 --> 00:48:52,560 Speaker 1: be for two hundred or three hundred million, and UH 552 00:48:52,760 --> 00:48:59,600 Speaker 1: comparable for for his own accounts. So when I traded UH, 553 00:48:59,719 --> 00:49:03,640 Speaker 1: if I traded twenty contracts for myself, did be two 554 00:49:03,719 --> 00:49:10,719 Speaker 1: hundred before d for um the Parry Patsu boys. So 555 00:49:10,800 --> 00:49:15,319 Speaker 1: it got to be so I was always when I 556 00:49:15,400 --> 00:49:20,040 Speaker 1: had a position, I was always frightened because how was 557 00:49:20,120 --> 00:49:23,360 Speaker 1: I going to get out of these this position? Because 558 00:49:23,719 --> 00:49:28,440 Speaker 1: when I did in those days a fifty contract um 559 00:49:29,680 --> 00:49:35,799 Speaker 1: the position you know, five million market value in in 560 00:49:35,920 --> 00:49:42,160 Speaker 1: bonds or ten million in currencies was was big. I 561 00:49:42,280 --> 00:49:47,040 Speaker 1: had to two hundred, five hundred, sometimes a billion that 562 00:49:48,000 --> 00:49:49,600 Speaker 1: I had to go in front of me. So I 563 00:49:49,680 --> 00:49:59,400 Speaker 1: became very very much. That has to affect your execution. 564 00:50:01,239 --> 00:50:04,879 Speaker 1: It made me very short term oriented. When I had 565 00:50:04,880 --> 00:50:09,719 Speaker 1: a profit, I was very quick to take it and 566 00:50:09,760 --> 00:50:12,840 Speaker 1: I was very quick to get in when and you 567 00:50:12,880 --> 00:50:15,840 Speaker 1: can't get into to a big position like that unless 568 00:50:15,840 --> 00:50:18,359 Speaker 1: it's going the opposite way. So when the market went down, 569 00:50:18,400 --> 00:50:21,720 Speaker 1: i'd buy it. When I went up and I became 570 00:50:21,840 --> 00:50:28,920 Speaker 1: I thought the Federal Reserve should have paid me a 571 00:50:29,080 --> 00:50:35,920 Speaker 1: endowment because I maintained equilibrium and homeostasis in all the markets. 572 00:50:35,920 --> 00:50:39,040 Speaker 1: If it ever, you're creating liquidity where there was none. 573 00:50:39,360 --> 00:50:50,200 Speaker 1: I created equilibrium. I prevented moves away from the the normal, 574 00:50:52,040 --> 00:50:57,760 Speaker 1: the normal workings and the balance the harmony of the markets. 575 00:50:57,800 --> 00:51:01,160 Speaker 1: The markets are always in harmon and if one gets out, 576 00:51:01,239 --> 00:51:04,800 Speaker 1: then the Federal Reserve would or the central banks would 577 00:51:05,560 --> 00:51:10,399 Speaker 1: try to um reduce the disharmony. But instead of they're 578 00:51:10,440 --> 00:51:13,080 Speaker 1: having to work, I was doing it for them, and 579 00:51:13,520 --> 00:51:19,600 Speaker 1: very frequently UM when I traded, the central banks of 580 00:51:19,719 --> 00:51:25,920 Speaker 1: Japan and and of Germany would be trading it exactly 581 00:51:26,080 --> 00:51:29,920 Speaker 1: the same time. And not not only because they were 582 00:51:29,960 --> 00:51:33,600 Speaker 1: trying to equilibrate, but also because in those days they 583 00:51:33,600 --> 00:51:40,280 Speaker 1: had squawk boxes, and the squawks boxes would immediately um 584 00:51:40,520 --> 00:51:43,600 Speaker 1: lead to they're doing exactly the same thing. So I 585 00:51:43,680 --> 00:51:51,000 Speaker 1: became very um, very much um A a dis dis 586 00:51:51,040 --> 00:52:00,640 Speaker 1: equilibrium UM homeostatic um playing trader, and that is no good. 587 00:52:01,080 --> 00:52:03,279 Speaker 1: So let's talk a little bit about the comeback, which 588 00:52:03,360 --> 00:52:07,600 Speaker 1: I think people are gonna find I'm going into that comeback. 589 00:52:09,760 --> 00:52:17,680 Speaker 1: I realized, my brother, it's a lot smarter than I am, 590 00:52:18,000 --> 00:52:21,520 Speaker 1: a lot more successful than I am. He's now the 591 00:52:22,000 --> 00:52:25,400 Speaker 1: chair of the New York City Opera, which she brought 592 00:52:25,440 --> 00:52:30,399 Speaker 1: out of bankruptcy. When he plays twenty two different instruments. 593 00:52:31,960 --> 00:52:40,279 Speaker 1: He's brilliant, very fine guy like my father. But he 594 00:52:40,440 --> 00:52:46,719 Speaker 1: once said to me, Now, look suppose you were in 595 00:52:46,760 --> 00:52:51,880 Speaker 1: a situation where whenever you made a trade, UM, you 596 00:52:52,000 --> 00:52:54,400 Speaker 1: told it to someone else and he traded a hundred 597 00:52:54,520 --> 00:53:01,359 Speaker 1: times as much as you, and UM, for that UM, 598 00:53:02,239 --> 00:53:08,680 Speaker 1: you received ten percent of the profits. Um. What what 599 00:53:08,800 --> 00:53:11,839 Speaker 1: would that do to your executions? And would you make 600 00:53:11,960 --> 00:53:16,760 Speaker 1: or lose money? And I said no, I went, I certainly, 601 00:53:17,400 --> 00:53:20,840 Speaker 1: if I had to trade a thousand contracts rather than fifty, 602 00:53:20,920 --> 00:53:29,560 Speaker 1: I certainly the give up the vague would be bit 603 00:53:29,640 --> 00:53:35,000 Speaker 1: as spread would certainly reduce my profits to zero. And 604 00:53:35,000 --> 00:53:40,520 Speaker 1: he says, so why are you doing it? And at 605 00:53:40,560 --> 00:53:47,680 Speaker 1: that time, I fortuitously realized that I was doing the 606 00:53:47,719 --> 00:53:51,080 Speaker 1: wrong thing. With sorrows gave him. I said, look, we 607 00:53:51,200 --> 00:53:54,880 Speaker 1: gotta stop this. We'll still still play tennis and chest together, 608 00:53:55,000 --> 00:53:58,640 Speaker 1: and I love you. But that said unfortunately, and his 609 00:53:59,160 --> 00:54:04,840 Speaker 1: first book UM before are before he seven relations with me, 610 00:54:04,920 --> 00:54:07,160 Speaker 1: He wrote, I was the only guy who ever gave 611 00:54:07,239 --> 00:54:12,120 Speaker 1: him back his money and stopped UM, stopped trading from 612 00:54:12,120 --> 00:54:16,000 Speaker 1: while I was still way ahead, so that that that 613 00:54:16,080 --> 00:54:22,520 Speaker 1: was true. But in any case, after and after two 614 00:54:22,640 --> 00:54:31,960 Speaker 1: thousand and seven, I realized that it was dysfunctional, harmful 615 00:54:32,040 --> 00:54:37,799 Speaker 1: for me. Two have a UM, A fund that I 616 00:54:37,840 --> 00:54:41,279 Speaker 1: do much better trading for myself. And that's the only 617 00:54:41,320 --> 00:54:45,360 Speaker 1: thing I do. I trade for myself. I have a 618 00:54:45,400 --> 00:54:51,360 Speaker 1: bunch of very loyal and competent assistance I have. I 619 00:54:51,400 --> 00:54:54,319 Speaker 1: have no I have no fund, and I have no 620 00:54:54,440 --> 00:55:00,520 Speaker 1: desire to have a fund. I have no UM. But 621 00:55:00,640 --> 00:55:03,759 Speaker 1: post seven, you had quite a staff of statisticians and 622 00:55:03,840 --> 00:55:09,160 Speaker 1: mathematicians working with you trying to pick something up. Well, 623 00:55:09,200 --> 00:55:13,279 Speaker 1: I'm talking about after two thousand seven. Okay, Now, from 624 00:55:13,880 --> 00:55:16,760 Speaker 1: seven to two thousand seven, it was a roller coaster 625 00:55:16,840 --> 00:55:19,640 Speaker 1: of it was. It was a pretty good UM. It 626 00:55:19,719 --> 00:55:23,000 Speaker 1: was a pretty good run. As I say twice during 627 00:55:23,040 --> 00:55:26,600 Speaker 1: that period, I was voted the best trader in the world. 628 00:55:26,600 --> 00:55:30,480 Speaker 1: I got trophies, and you managed to rebuild your fortune 629 00:55:30,600 --> 00:55:33,080 Speaker 1: quite You recovered most of, if not all, of your 630 00:55:33,120 --> 00:55:40,960 Speaker 1: losses from if I'm remembering the story correctly. You know, 631 00:55:41,080 --> 00:55:45,080 Speaker 1: again it was from a very small, small base, uh, 632 00:55:46,040 --> 00:55:52,000 Speaker 1: nothing to be ovally proud of. But in any case, 633 00:55:52,080 --> 00:55:56,920 Speaker 1: I did have a good run uh to two thousand seven, 634 00:55:57,000 --> 00:56:01,560 Speaker 1: but I made some terrible mistakes there also made them 635 00:56:01,640 --> 00:56:06,000 Speaker 1: very so, very bad errors. So let's talk about those 636 00:56:06,000 --> 00:56:10,600 Speaker 1: eras briefly. If I could sum those up, it's essentially 637 00:56:11,480 --> 00:56:15,800 Speaker 1: you embraced risk and used a lot of leverage, and 638 00:56:16,760 --> 00:56:19,360 Speaker 1: you're at that point at the mercy of your brokers. 639 00:56:19,960 --> 00:56:22,719 Speaker 1: Even if your trades, some of your trades that didn't 640 00:56:22,760 --> 00:56:25,279 Speaker 1: work out, had you had the ability to hold onto 641 00:56:25,320 --> 00:56:29,120 Speaker 1: them for another six months, would have been how about 642 00:56:29,120 --> 00:56:33,520 Speaker 1: another six hours? Six hours? So what do you do? 643 00:56:33,640 --> 00:56:39,000 Speaker 1: You had a very um, a very good summary. I'm 644 00:56:39,000 --> 00:56:46,719 Speaker 1: I'm very impressed that you were able to encompass the 645 00:56:46,719 --> 00:56:56,880 Speaker 1: the gestalt, the gist of of my downfall. However, downfall 646 00:56:57,000 --> 00:57:00,239 Speaker 1: and recovery, however, I think you gotta mention with the 647 00:57:00,320 --> 00:57:06,200 Speaker 1: down in the up You can't ignore them. However, there 648 00:57:06,239 --> 00:57:16,960 Speaker 1: are some grave uh technicalities involved in my downfall, and 649 00:57:17,040 --> 00:57:23,360 Speaker 1: the technicalities have to do with the fact of what 650 00:57:24,280 --> 00:57:29,880 Speaker 1: is called flexionic activity. I'm actually searching for that phrase 651 00:57:30,000 --> 00:57:35,240 Speaker 1: right now. Yeah, look, at Janine Woodell. Anyway, a flexion 652 00:57:35,440 --> 00:57:42,200 Speaker 1: is someone who has his hand in many different areas 653 00:57:42,200 --> 00:57:47,720 Speaker 1: in the government, as someone who's a consultant, who's a politician, 654 00:57:48,680 --> 00:57:52,880 Speaker 1: who's on the board of he's on the board of 655 00:57:52,960 --> 00:58:00,800 Speaker 1: various um and and geo's. It's a professor at a university, 656 00:58:01,000 --> 00:58:07,760 Speaker 1: he's a he's a writer for the big publications. And 657 00:58:07,800 --> 00:58:12,440 Speaker 1: there are a lot of them, a former a former 658 00:58:12,520 --> 00:58:18,160 Speaker 1: executive at a big military firm or a big lobbyists. 659 00:58:19,680 --> 00:58:24,240 Speaker 1: So the flexions are people that you can't they're very flexible. 660 00:58:24,320 --> 00:58:30,600 Speaker 1: You can't really pin what they're position is. And anyway, 661 00:58:30,640 --> 00:58:36,240 Speaker 1: there were flexions in the markets that I traded, and 662 00:58:36,360 --> 00:58:47,400 Speaker 1: these flexions were on the margin committees and the market 663 00:58:47,480 --> 00:58:52,160 Speaker 1: making committee, and the trades that I put on they 664 00:58:52,160 --> 00:58:56,720 Speaker 1: were regrettably only two or three market makers. So you 665 00:58:56,800 --> 00:58:59,760 Speaker 1: really don't have a lot of flexible. The normal bid 666 00:59:00,080 --> 00:59:05,800 Speaker 1: spread is fifty to the kinds of things I traded. 667 00:59:05,920 --> 00:59:11,880 Speaker 1: Might be UM bid it a half and offered it seven. 668 00:59:13,160 --> 00:59:15,520 Speaker 1: Doesn't sound like much, and if you do it in 669 00:59:15,600 --> 00:59:20,760 Speaker 1: terms of volatility, it might be like percent qualitity versus 670 00:59:20,800 --> 00:59:23,960 Speaker 1: twenty nine percent. But I meanwhile, it's a bit ass 671 00:59:24,000 --> 00:59:26,080 Speaker 1: spread so that if you try to get out of 672 00:59:26,120 --> 00:59:29,480 Speaker 1: these positions at any time, and often I had a 673 00:59:29,560 --> 00:59:33,520 Speaker 1: position with market value of a hundred million or more, 674 00:59:33,960 --> 00:59:38,400 Speaker 1: the immediately lose fifty million dollars. Now, when the market 675 00:59:38,520 --> 00:59:43,960 Speaker 1: goes against you, the people on this market making um 676 00:59:45,440 --> 00:59:49,160 Speaker 1: uh pit we're also on the margin committee, so they 677 00:59:49,160 --> 00:59:54,280 Speaker 1: would raise the margins, which happened to me by um 678 00:59:54,320 --> 00:59:58,840 Speaker 1: fifty for front by a fifty percent to by fifty to. 679 01:00:00,640 --> 01:00:05,360 Speaker 1: Whenever the market had a had a decline of half 680 01:00:05,360 --> 01:00:11,920 Speaker 1: a percent or more, they raised the margin. So that 681 01:00:12,440 --> 01:00:17,560 Speaker 1: and then of course when uh they also set the 682 01:00:17,600 --> 01:00:22,440 Speaker 1: prices and often um the market would stay the same, 683 01:00:22,600 --> 01:00:26,440 Speaker 1: but the underlying market would stay the same, but the 684 01:00:26,480 --> 01:00:29,720 Speaker 1: prices of my options, which I was short, would often 685 01:00:30,440 --> 01:00:37,840 Speaker 1: go up by My investors were very upset because the 686 01:00:37,880 --> 01:00:40,640 Speaker 1: market hadn't moved. And as they'd say, you know, when 687 01:00:40,640 --> 01:00:43,800 Speaker 1: the market goes down, you know you make five or 688 01:00:43,800 --> 01:00:47,720 Speaker 1: ten percent. Uh Ma, market goes up, you make five 689 01:00:47,800 --> 01:00:51,440 Speaker 1: or ten percent. One market um goes down, you lose 690 01:00:51,480 --> 01:00:59,640 Speaker 1: twenty in a daycal and how could that be happening? Well? Um, 691 01:00:59,760 --> 01:01:03,360 Speaker 1: what was I I couldn't get out of the positions 692 01:01:03,440 --> 01:01:08,200 Speaker 1: because there was a fifty normal bit as spread if 693 01:01:08,200 --> 01:01:11,560 Speaker 1: you ever tried to liquidate, it would be a hundred 694 01:01:11,600 --> 01:01:14,960 Speaker 1: or two let alone. What would happen if if you 695 01:01:15,160 --> 01:01:18,000 Speaker 1: had to liquidate during a panic, and let's put some 696 01:01:18,040 --> 01:01:20,600 Speaker 1: flesh on the bones as to the margin you with 697 01:01:20,720 --> 01:01:22,800 Speaker 1: futures trading at the time, you would put up one 698 01:01:22,840 --> 01:01:26,360 Speaker 1: percent and then they'd raise that one percent mid trade 699 01:01:26,920 --> 01:01:29,600 Speaker 1: down the road when we hit some turmoil to two 700 01:01:29,720 --> 01:01:32,520 Speaker 1: or three or four percent. The quadruple, Well, you have 701 01:01:32,640 --> 01:01:36,760 Speaker 1: to put up that qualitatively. What what you say is true. 702 01:01:36,800 --> 01:01:46,560 Speaker 1: But between the unfortunate um and very reasonable uh dissatisfaction 703 01:01:46,880 --> 01:01:53,520 Speaker 1: of my investors who uh well withdrawing funds, the tremendous 704 01:01:53,680 --> 01:01:59,800 Speaker 1: um bit ass spreads, the um, the raising of margins, 705 01:01:59,840 --> 01:02:06,840 Speaker 1: the setting of prices UH that were totally out of 706 01:02:06,920 --> 01:02:11,560 Speaker 1: line with what what they should have been in terms 707 01:02:11,560 --> 01:02:16,120 Speaker 1: of normal volatility and pricing, plus about ten other mistakes 708 01:02:16,160 --> 01:02:20,439 Speaker 1: I made. I was able to shoot myself in the foot, 709 01:02:20,480 --> 01:02:27,760 Speaker 1: did myself, and and I was I was forced to 710 01:02:28,200 --> 01:02:32,640 Speaker 1: um and to say nothing of the clearing firms who 711 01:02:32,680 --> 01:02:37,040 Speaker 1: were very upset by the potential for great losses. Fortunately, 712 01:02:37,840 --> 01:02:42,280 Speaker 1: in the case of two thousand seven seven, there was 713 01:02:42,920 --> 01:02:47,600 Speaker 1: not any my clearing firm made a fortune from my trades, 714 01:02:47,880 --> 01:02:53,680 Speaker 1: and I was able. I ended up and the whole. 715 01:02:53,680 --> 01:02:57,800 Speaker 1: But I, of course, I had made hundreds of millions beforehand, 716 01:02:58,400 --> 01:03:04,120 Speaker 1: and you know, in in total um, in total um, 717 01:03:04,160 --> 01:03:07,800 Speaker 1: it was profitable. But so it was. It was a 718 01:03:07,840 --> 01:03:10,720 Speaker 1: tragedy and a tobacco But what I'm getting to was 719 01:03:11,400 --> 01:03:16,280 Speaker 1: that was it no more, no more bit spreads, no more, 720 01:03:16,360 --> 01:03:19,880 Speaker 1: no more being forced to liquidate. And in a panic 721 01:03:19,960 --> 01:03:24,040 Speaker 1: where a hundred million dollars of positions I had in 722 01:03:24,120 --> 01:03:26,480 Speaker 1: order to get out would of course me four hundred million. 723 01:03:26,920 --> 01:03:31,280 Speaker 1: I don't have a hedge fund, and I'll never I'll 724 01:03:31,320 --> 01:03:34,400 Speaker 1: never go down that road again. Let me say one thing. 725 01:03:34,720 --> 01:03:39,240 Speaker 1: That's the real story about why I lost, not what 726 01:03:39,400 --> 01:03:42,680 Speaker 1: nasty to tell of says, or not what the spreads 727 01:03:43,080 --> 01:03:47,000 Speaker 1: spreads and the and the flexions. We have been speaking 728 01:03:47,000 --> 01:03:51,560 Speaker 1: with Victor Niederhoffer. George Soros is trader of author of 729 01:03:52,160 --> 01:03:55,520 Speaker 1: Education of a Speculator. You can check out my daily 730 01:03:55,600 --> 01:03:58,120 Speaker 1: column on Bloomberg View dot com or follow me on 731 01:03:58,160 --> 01:04:01,640 Speaker 1: Twitter at rid Halts. I'm Barry Ridolts. You're listening to 732 01:04:01,800 --> 01:04:04,400 Speaker 1: Masters in Business on Bloomberg Radio.