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Practical
Speculation
VICTOR NIEDERHOFFER
LAUREL KENNER
John Wiley & Sons, Inc.
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More Praise forPractical Speculation
“Practical Speculation distills an unusual breadth of hard-won (and costly) ex-
perience and insight into an immensely readable and instructive book. Bulls
and Bears are drawn and quartered alike by the authors’ exquisitely honed
quantitative scalpel.”
Stephen M. Stigler
Professor of Statistics
University of Chicago
“In my judgment, Victor Niederhoffer is the single most insightful speculator
in the world. This new book displays Victor’s unique gift for recognizing the
subtle confluence of seemingly disparate events. Although this book is par-
tially a guide on investment strategy, it is principally a remarkable explanation
of market function.”
Herbert London
John M. Olin Professor of Humanities, New York University
President, Hudson Institute
“Whatever Victor Niederhoffer writes is worth reading—not once but at least
twice. His analysis of markets is as brilliant as it is unorthodox. Readers will
discover a host of nuggets in Practical Speculation that will stretch their minds
and tease their imaginations.”
Lawrence S. Ritter
John M. Schiff Professor of Finance Emeritus
New York University
“Victor Niederhoffer outdoes himself beginning with the first paragraph of
the introduction. Victor and Laurel uniquely see the interrelationships and de-
pendencies among the complex factors that are daily life and are able to inter-
pret observations in terms of how people will react to the sequences of events.
Practical Speculationis an extraordinary insight into the thinking of probably
the most original thinker of our time.”
Kenneth W. Rendell
Founder, Kenneth W. Rendell, Inc.
“Vic and Laurel are breathtakingly insightful. They paint on a global invest-
ment canvas stretching across space and time. This is their dazzling journey
through the art, science, sport, and literature of investing. Don’t risk a penny
on stocks until you have read Practical Speculation.”
Professor Elroy Dimson, London Business School
Co-author, Triumph of the Optimists
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Practical
Speculation
VICTOR NIEDERHOFFER
LAUREL KENNER
John Wiley & Sons, Inc.
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Copyright © 2003 by Victor Niederhoffer and Laurel Kenner. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any
form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise,
except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without
either the prior written permission of the Publisher, or authorization through payment of the
appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers,
MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to
the Publisher for permission should be addressed to the Permissions Department, John Wiley &
Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail:
[email protected].
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created or
extended by sales representatives or written sales materials. The advice and strategies contained
herein may not be suitable for your situation. You should consult with a professional where
appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other
damages.
For general information on our other products and services, or technical support, please contact
our Customer Care Department within the United States at 800-762-2974, outside the United
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Wiley also publishes its books in a variety of electronic formats. Some content that appears in
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our web site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Niederhoffer, Victor, 1943–
Practical speculation / Victor Niederhoffer, Laurel Kenner.
p. cm.
Includes index.
ISBN 0-471-44306-9 (alk. paper)
1. Speculation. 2. Stocks. 3. Investment analysis. I. Kenner, Laurel. II. Title.
HG6041.N52 2003
332.63′2—dc21
2002190747
Printed in the United States of America.
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A fragment
of a wartime speech moved through my mind:
‘We shall fight them in the fields, and in the streets, we shall
fight in the hills; we shall never surrender.’ True then for one
people, it was true always for the whole human race.
—Invasion of the Body Snatchers
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From My New York by Kathy Jakobsen. Copyright © 1993, 2003 by Kathy
Jakobsen. By permission of Little, Brown and Company, (Inc.).
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A C K N O W L E D G M E N T S
T
his book was written from the firing line. Most of the ideas were sub-
jected not only to the pitiless judgment of the market itself but also to the
critiques, often withering, by readers of our columns for CNBC Money,
worldlyinvestor.com, and thestreet.com.
The list of those who helped us accomplish our writing task amid the
daily fray is long. Almost everything in this book benefited from the insights
of our editor at CNBC Money, Jon Markman. Pamela van Giessen, our editor
at John Wiley & Sons, inspired this book and shepherded it through many
iterations.
Our thinking was sharpened and augmented by the daily discussions on
our Speculators’ List, a group of extraordinary individuals who read and re-
sponded to our columns and then accepted our invitation to join a philosoph-
ical e-mail forum in the spirit of Ben Franklin’s junto. We are deeply grateful
to James Goldcamp, who put the list together for us. From an original mem-
bership of fewer than 10 people, the Speculators’ List now encompasses more
than 150 experts on diverse subjects, united by a common interest in markets,
statistical analysis, and mutually beneficial discussion. Dr. Brett Steenbarger,
whose contributions appear throughout this book, was among the early read-
ers who became dear friends. Our thinking and our lives have been enriched
by Gitanshu Buch, Henry Carstens, Duncan Coker, Nigel Davis, “Mr. E,” Bill
Egan, Glenn Escovedo, Ed Gross, Bill Haynes, David Hillman, James Lackey,
John Lamberg, Paul Lewis, Alix Martin, Mark McNabb, Shui Mitsuda, Bipin
Pathak, Tom Ryan, Ken Sadofsky, Dick Sears, Russell Sears, Saurabh Singal,
Don Staricka, Gary Tate, Jack Tierney, and Steve Wisdom, to name only a few.
There are many other eagles too numerous to mention.
v
Description:The follow-up to Victor Niederhoffer's critically and commercially acclaimed book The Education of a Speculator has finally arrived. Practical Speculation continues the story of a true market legend who ran a hugely successful futures trading firm that had annual returns of over thirty percent until
