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Readers reviews of Practical Speculation

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This is a strange, rambling and embittered book that provides an intriguing range of challenging idea. Don Quixote, quoted often in this book,  spends much of his time tilting at windmills, and Niederhoffer does the same in Practical Speculation. There are no cows too sacred, no commonly held idea that is safe, and no investment approach that is spared in this sustained attack on investment and trading orthodoxy.

 

These challenges are good. We need to reassess what we accept as true about the market before we can make progress in understanding the market. The authors frequently demand  “statistics on the table” and this is a valid request. The results are revealing when applied to many of the accepted market truths, or myths and should give us pause for thought. In the gap between perception and reality there is a potential trading edge.

 

The central theme of the book is that the skeptic who understands the difference between humility and humiliation, wins in the market.

 

I found an eclectic irony throughout the book. Niederhoffer castigates the improper use of statistics, pointing out the difference between co-incidence and correlation. Then he proceeds with sometimes lengthy sections involving detailed examinations of spurious or coincidental relationships presented as a personal definitive solution. The correlation  between baseball statistics and market  seasonality is one. The reader may be forgiven for believing such material is tongue-in-cheek, but the chapter-length exploration of some of these ideas leaves plenty of room for doubt – or unintended irony.

 

Niederhoffer takes tilt at almost every approach to the market, and at times, like Don Quixote, he simply asks the wrong questions based as soundly upon the same type of false assumptions that he vilifies in others. Those familiar with the various investment approaches will spot these shaky foundations quickly. Despite these assumptions, or perhaps because of them, the commentary is able to highlight interesting anomalies that when independently explored, may deliver a market edge, or at the very least, improve our approaches to the market.

 

Niederhoffer, once famous for the stellar performance of his fund,   is now infamous for riding the total collapse of his fund during the 1997 currency crises as he backed his judgment against the judgment of the market. Practical Speculation is the result of this experience and the undercurrent of bitterness, but not self pity, occasionally wells to the surface.  Trader Jim Paul had a similar experience, and his 1994 book What I Learned Losing a Million Dollars making an interesting counter point to Niederhoffer.

 

Do not dismiss this book lightly. It contains many uncut gems. This is a philosophical examination of investing and to a lesser extent trading. These mental gymnastics will keep you on your toes.

 

 

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