Last Updated on November 24, 2020 by Oddmund Groette
It is many years since I read Niederhoffer’s book, but it’s a book I strongly recommend. This is the best book about speculation and trading, in my opinion, although many reviews are negative. They are focusing on that his two hedge funds ended quite badly. However, the book is a bible in important lessons about the markets. Examples are used from everyday life, poker and board games. The last chapter, The Ecology of Markets, is the best analogy I have ever read about the markets. I believe Niederhoffer is well into biology, and he reveals great wisdom and intelligence drawing parallels between the two fields. For those open-minded and willing to think outside the box, this book is a treasure. It has taught me the importance of actually testing hypotheses using a scientific approach. Niederhoffer also writes the following in the preface:
I can’t show you how to make money by parroting systematic trades. But I can show you something more valuable: a way of thinking that will lead you to greater success.
The negatives are that the book is a very tough read with an unconventional style of writing, perhaps way over most people’s heads, and you need some background on how markets work. However, you can feel that he has a lot of energy, wisdom/knowledge and is very competitive. He focuses on his mistakes (this was before his blowup), his upbringing, victories and moments of elation.
I always mark possible quotations when reading a book. This book is so full of them! Here are some random excerpts:
- “Risk taking…is positively correlated with how well we feel about ourselves.” (page 113)
- “One thing is for sure. Among the emotionally charged, you will not find one single long-term winner. Where are they? According to Bacon: “These quiet professionals are quite inconspicuous unless you look for them, because there are so many careless gamblers, crazy amateurs, jumping from one crackpot idea to another betting on hope and fear”. I show this passage to any trader in my office who is showing color or palpitation.” (206)
- I find that Chinese handball has much to teach me about market practices. A limit order is a good tactic for Chinese trading, but a market order works best for handball trading. The direct market order against a quickly moving target frequently leads to a fast rebound against. The game is then over before it starts….I use limits orders. I don’t win fast, but the losses are a lot slower in coming.” (397)
- “…chain smoking, temper tantrums, screaming…these expressions of emotion have within them the seeds of destruction. I enforce a ban against all jocularity and temper tantrums.” (207)
- “Offering advice without expertise is aggressive ignorance.” (188)
- “With the increasing specialization in modern times, born losers are commonplace.” (85)
- “During the 10 years I traded for George Soros, I never heard him speak about a winning trade. To hear him talk, you’d think he had nothing but losers. Conversely, listening to the biggest losers, you’d think they had nothing but winners.” (95)
- “Do not follow the mentally lazy habit of allowing a newspaper or a broker or a wise friend to do our security market thinking.” (114)
- “The best opportunities come out of the clear blue.” (129)
- “The exchange is a market ecosystem.” (353)
- “Oracles, forecasts, and prophecies are a business. They should be evaluated with the same skepticism and savvy that would be applied to a used-car dealership.” (64)
- “The only newspaper I read is the National Enquirer. I don’t own a television, don’t follow the news, don’t talk to anyone during the trading day, and don’t like to read books less than 100 years old.” (ix – preface)
- “My resistance to conformity has been the bedrock of my speculative persona.” (110)
- “…institutional learning, like the Harvard Colleges and Lincoln High Schools of Life – the kind that prepares most of us to become good soldiers, true believers, and conformists.” (110)
- “An incapability of relying on oneself and faith in others are precisely the conditions that compel brutes to live in herds.” A quote from Niederhoffer’s intellectual hero, Francis Galton (136)
If you are just to buy one trading book, this is it. Enjoy!