Victor Niederhoffer
Encyclopedia
Victor Niederhoffer is a hedge fund
manager, champion squash
player, bestselling author and statistician
.
Victor Niderhoffer was born in Brooklyn to a Jewish family. His father, Arthur, graduated from Brooklyn Law School but went to work in the police. Victor’s mother, Elaine was a teacher. Niederhoffer 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 to 1990. 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. Soros held Victor in such high esteem that he sent his son to work for him to learn how to trade.
and of Market Microstructure Studies
. He used innovative methods to search for 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.
manager in the world. In 1997, Victor published a New York Times bestselling book, The Education of a Speculator.
(the second largest point decline to date in index history), forced Niederhoffer Investments to close its doors. In a lawsuit that Niederhoffer later filed in the U.S. District Court for the Northern District of Illinois against the Chicago Mercantile Exchange
, where he traded option
s, he alleged that floor trader
s 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.
awarded 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.
From 2000-2003, Niederhoffer co-wrote with financial writer Laurel Kenner
a widely read weekly column on the markets for CNBC
MoneyCentral. 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, were told in the 1997 best-selling book The Education of a Speculator.
On his website 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 billionaire
s or multi-centimillionaires, including Monroe Trout
, Toby Crabel
, Jake Burton Carpenter, Stu Rose
, John Hummer
, and Roy Niederhoffer
(Victor's younger brother), all of whom are money managers or entrepreneurs.
Victor Niederhoffer employs promising young 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.
player and is a member of the squash hall of fame. Niederhoffer had never played squash when he entered Harvard University in 1960, but he 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).
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 and one son.
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
manager, champion squash
Squash (sport)
Squash is a high-speed racquet sport played by two players in a four-walled court with a small, hollow rubber ball...
player, bestselling author and statistician
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
.
Victor Niderhoffer was born in Brooklyn to a Jewish family. His father, Arthur, graduated from Brooklyn Law School but went to work in the police. Victor’s mother, Elaine was a teacher. Niederhoffer studied statistics and economics at Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
(B.A. 1964) and the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
(Ph.D. 1969). He was a finance professor at the University of California, Berkeley
University of California, Berkeley
The University of California, Berkeley , is a teaching and research university established in 1868 and located in Berkeley, California, USA...
(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
George Soros
George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
. Niederhoffer became a partner of Soros and managed all of the fixed income
Fixed income
Fixed income refers to any type of investment that is not equity, which obligates the borrower/issuer to make payments on a fixed schedule, even if the number of the payments may be variable....
and foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
from 1982 to 1990. 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. Soros held Victor in such high esteem that he sent his son to work for him to learn how to trade.
Academia
As an academic at Berkeley in the 1960s, Niederhoffer wrote a number of influential papers on anomalies in stock market behavior. His paper Market Making and Reversal on the Stock Exchange (1966) made Niederhoffer the father of Statistical ArbitrageStatistical arbitrage
In the world of finance and investments, statistical arbitrage is used in two related but distinct ways:* In academic literature, "statistical arbitrage" is opposed to arbitrage. In deterministic arbitrage, a sure profit can be obtained from being long some securities and short others...
and of Market Microstructure Studies
Market microstructure
Market microstructure is a branch of finance concerned with the details of how exchange occurs in markets. While the theory of market microstructure applies to the exchange of real or financial assets, more evidence is available on the microstructure of financial markets due to the availability of...
. He used innovative methods to search for 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.
Returns
Niederhoffer Investments returned 35% a year from inception through 1996, when MAR ranked it the No. 1 hedge fundHedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
manager in the world. In 1997, Victor published a New York Times bestselling book, The Education of a Speculator.
1997 losses
In 1997, Niederhoffer Investments was not finding many opportunities for investments 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. Niederhoffer decided to buy Thai bank stocks, which had fallen heavily in the Asian financial crisis, his bet being 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 AverageDow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
(the second largest point decline to date in index history), forced Niederhoffer Investments to close its doors. In a lawsuit that Niederhoffer later filed in the U.S. District Court for the Northern District of Illinois against the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
, where he traded option
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
s, he alleged that floor trader
Floor trader
A floor trader is a member of a stock or commodities exchange who trades on the floor of that exchange for his or her own account. The floor trader must abide by trading rules similar to those of the exchange specialists who trade on behalf of others. The term should not be confused with floor broker...
s colluded to drive the market down that day to force him out of his positions. Traders at the time said Refco
Refco
Refco was a New York-based financial services company, primarily known as a broker of commodities and futures contracts. It was founded in 1969 as "Ray E. Friedman and Co." Prior to its collapse in October, 2005, the firm had over $4 billion in approximately 200,000 customer accounts, and it was...
may have been responsible for as much as $35 million of Niederhoffer's losses.
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 MarHedgeMarHedge
MARHEDGE is a semi-monthly financial newsletter. It was first circulated in 1994, originally under the name HEDGE. The journal has also gone by the name Managed Account Reports LLC....
awarded Matador Fund Ltd. and Manchester Trading, two funds managed by Niederhoffer, the prize for best performance by a Commodity Trading Advisor
Commodity trading advisor
A commodity trading advisor is an asset manager who follows a set of systematic investment strategies in futures contracts and options on futures contracts. The advisors originally operated predominantly in commodities markets, but today they invest in any liquid futures market. They are...
(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.
From 2000-2003, Niederhoffer co-wrote with financial writer Laurel Kenner
Laurel Kenner
Laurel Kenner is a financial writer and commentator in New York City whose columns have appeared on CNBC Money, worldlyinvestor.com, and TheStreet.com...
a widely read weekly column on the markets for CNBC
CNBC
CNBC is a satellite and cable television business news channel in the U.S., owned and operated by NBCUniversal. The network and its international spinoffs cover business headlines and provide live coverage of financial markets. The combined reach of CNBC and its siblings is 390 million viewers...
MoneyCentral. He and Kenner
Laurel Kenner
Laurel Kenner is a financial writer and commentator in New York City whose columns have appeared on CNBC Money, worldlyinvestor.com, and TheStreet.com...
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, were told in the 1997 best-selling book The Education of a Speculator.
On his website 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 billionaire
Billionaire
A billionaire, in countries that use the short scale number naming system, is a person who has a net worth of at least one billion units of a given currency, usually the United States dollar, Euro, or Pound sterling. Forbes magazine updates a complete list of U.S. dollar billionaires around the...
s or multi-centimillionaires, including Monroe Trout
Monroe Trout
Monroe Trout, Jr. is a retired financial speculator and hedge fund manager profiled in the book New Market Wizards by Jack D. Schwager. His father is Monroe E. Trout, Chairman Emeritus of American Healthcare Systems....
, Toby Crabel
Toby Crabel
William "Toby" Harrison Crabel is a United States self-made millionaire commodities trader. The Financial Times called Crabel "the most well-known trader on the counter-trend side" He is the fund manager of "Crabel Capital Management". Crabel Capital Management ranked number 101 out of 196 funds...
, Jake Burton Carpenter, Stu Rose
Stuart Alan Rose
Stuart Alan Rose is CEO and Chairman of the Board of REX American Resources Corporation, an NYSE-traded company focused on alternative energy - particularly ethanol - and other industrial investments. REX American is the successor to Rex Stores Corp. — a Dayton, Ohio-based electronics company he...
, John Hummer
John Hummer
John Hummer is a venture capitalist and retired professional basketball player who was an original member of the Buffalo Braves after starring for the Princeton Tigers men's basketball team...
, and Roy Niederhoffer
Roy Niederhoffer
Roy Gary Niederhoffer is an American hedge fund manager and philanthropist. Since Niederhoffer founded R. G. Niederhoffer Capital Management, Inc. in 1993, his funds have been noted for their strong performance in difficult periods. The R. G...
(Victor's younger brother), all of whom are money managers or entrepreneurs.
Victor Niederhoffer employs promising young 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.
Squash
Niederhoffer was a winning hardball squashHardball squash
Hardball squash is a format of the indoor racquet sport squash which was first developed in North America in the late 19h century and early 20th century. It is sometimes referred to as being the "American version" of the sport...
player and is a member of the squash hall of fame. Niederhoffer had never played squash when he entered Harvard University in 1960, but he 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
Sharif Khan
Sharif Khan is a retired professional squash player. He is widely considered to be one of the all-time great players of hardball squash . He was the dominant player on the hardball squash circuit throughout the 1970s...
in the final of the North American Open
United States Open (squash)
The United States Open squash championships is an annual squash tournament sponsored by U.S. Squash. The championship was inaugurated in 1954 as an opportunity for professionals and amateurs to compete against each other...
(the only time that Khan failed to win the title in the 13-year period between 1969 and 1981).
Other activities
Niederhoffer is also the founder of the NYC Junto, a libertarianLibertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...
group hosted on the first Thursday of every month since 1985. He is an enthusiast of Ayn Rand
Ayn Rand
Ayn Rand was a Russian-American novelist, philosopher, playwright, and screenwriter. She is known for her two best-selling novels The Fountainhead and Atlas Shrugged and for developing a philosophical system she called Objectivism....
. The NYC Junto focuses on libertarianism
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...
, objectivism
Objectivism (Ayn Rand)
Objectivism is a philosophy created by the Russian-American philosopher and novelist Ayn Rand . Objectivism holds that reality exists independent of consciousness, that human beings have direct contact with reality through sense perception, that one can attain objective knowledge from perception...
and investing and was inspired by the Junto hosted by Benjamin Franklin
Benjamin Franklin
Dr. Benjamin Franklin was one of the Founding Fathers of the United States. A noted polymath, Franklin was a leading author, printer, political theorist, politician, postmaster, scientist, musician, inventor, satirist, civic activist, statesman, and diplomat...
in Philadelphia from 1727 to 1757. He has six daughters and one son.
External links
- Daily Speculations The Web site of Victor Niederhoffer and Laurel Kenner
- Writings Writings of Victor Niederhoffer
- The Education of a Speculator Book Reviews
- Article mentioning lawsuit
- Inside a hedge-fund meltdown Article
- Victor Niederhoffer Squash Hall of Fame Profile
- NYC Junto founded by Victor
- Blowing Up A Malcolm GladwellMalcolm GladwellMalcolm Gladwell, CM is a Canadian journalist, bestselling author, and speaker. He is currently based in New York City and has been a staff writer for The New Yorker since 1996...
2002 article about the investment strategy of Niederhoffer, and the opposite strategy used by Nassim TalebNassim TalebNassim Nicholas Taleb is a Lebanese American essayist whose work focuses on problems of randomness and probability. His 2007 book The Black Swan was described in a review by Sunday Times as one of the twelve most influential books since World War II....
. - The Blow-Up Artist A John CassidyJohn Cassidy (journalist)John Cassidy is a British-American journalist and author. He is a staff writer at The New Yorker and a contributor to The New York Review of Books, having previously been an editor at The Sunday Times of London and a deputy editor at the New York Post...
2007 profile of Niederhoffer featured in The New Yorker