Rating: 
Summary: Valuable Advice from Two Experienced Pros
Review: I am an economist from the New York area. Long-term investment in the stock market has been quite profitable for most, but attempts to augment those returns by active speculation is not as easy and has cost many far more than they had hoped to gain. As Prof. Milton Friedman has observed, what we assume to be true that is false is far more dangerous than not knowing and knowing that one does not know. Part of the problem is that they are many myths and unproven widely held assumptions that can lead the speculator astray. Even a good number of professionals fall prey to such misconceptions. Victor Niederhoffer and Laurel Kenner's excellent collaboration exposures many of these fallacies and then goes on to show how an aspiring speculator should go about testing and thinking about how to make money. While they provide some useful ideas, cautioning to be aware of ever changing cycles, what they really provide is a way of going about the process and do so in a way that an investor with just the basic understandings of the market can probably follow easily. Victor has no need to write this book. Although he is quite frank in discussing his own investment debacle in 1997, he has been able to recover from that event. His many years of investing have given him experience and understanding of markets that few can match. While providing useful advice, he is not giving away any magic formulas or secrets. I have personally known him for a good number of years and believe him to be a most honorable and generous man. He has gained much from the relatively free economic system of this country and in the spirit of Benjamin Franklin is willing to share some insights with others so that they too can be enriched by this land of liberty and its ordinary people that he so loves. The reader of this book will most likely learn many valuable lessons and be able to avoid many mistakes that might otherwise be very costly. In my opinion, it is a most worthwhile book for any amateur or professional who is serious about speculating. Some who have reviewed this book point out that some of the points they make are well known. One writes a book for many people, not just one. For many readers, most of what is written therein will be new and useful. For those more experienced much of what they read will not be new, but that is hardly a reason for them to ignore any book that contains familiar material if there are some new gems of wisdom that will be most worthwhile even for them. That is highly likely to be the case with this book because I found many such gems of wisdom and experience. There is also some criticism of some sections dealing with such topics as Alan Greenspan, for example. I even find myself in agreement with some. But just as there are no perfect people there are no perfect books. We do not reject people because they are not perfect or we would have no one to associate with. Likewise we should judge a book by its overall contribution to our knowledge. On this score, this book ranks most highly. This is not a book written in such a way that if will offend no-one but is an honest, tell it like I see it book written by two people with great insights. Those few (and they are few) parts of the book that do not do as well can be glanced over. The attacks on such methods as technical analysis are quite sound and anyone who feels otherwise is just deceiving themselves. Readers will find that most of what is said in this book is not just a matter of assertions but is backed up by the numbers and careful analysis laid out for the reader to see for themselves. The authors do not ask their readers to accept what they have to say on the basis of faith but to test for themselves as they should do with all investment ideas if they wish to prosper. The authors show you how to do just that. There is more to learn than what they reveal, but perhaps they might be persuaded to write more in the future if their current effort is well received.
Rating:
Summary: Highly recommended !
Review: I read Practical Speculation and I liked it a lot. I also read the first book, The Education of a Speculator, which is a great book too, though a little less practical in the short term. I like the style of writing and I guess that's why I always read the author's weekly columns on money central. Being the positive person I am, I am reading with 2 outcomes in mind; 1. to enjoy myself 2. to learn something from it. I reached these 2 outcomes easily, because the book really has a lot of 'funny' stuff as well as practical stuff! I can hardly believe that somebody cannot get something positive out of this book for themselves. I have met a few people in life who always look why something doesn't work instead of why something would work. Same thing with dealing with other people; you can catch them doing something right or scoff at them doing something wrong. And what do most people do..? Exactly! Same applies for reading a book. The book is not perfectly written maybe, so is nothing in life. I enriched my life too with the book recommendations which I otherwise would not have bought, like The triumph of the Optimists, which content surprised and impressed me a lot. Summarized; whether you are investing or trading, small or big, experienced or not, I highly recommend you to read this book, life will never be the same again afterwards ! If you are an open-minded person, after having read this book, you will definitely change at least something in your future approach to the markets.
Rating: 
Summary: Enjoy Niederhoffer and Kenner's Investment Puzzle
Review: Don't misunderstand, this is not a textbook with a systematic coverage of all areas of investing. Instead we are invited to sit in with N&K as they discuss just a few investment topics, one per chapter. We don't get definite answers to be memorized for the next CFA exam, instead we get a glimpse of how two smart people generate and test investment ideas. Briefly (and this is my personal interpretation) you have to be very creative, even a little wild in your hypothesis generation; anything goes at this stage, from baseball analogies to greek mythology. But then, you have to be very disciplined and methodical in testing and evaluating those ideas; statistical inference now rules and only empirical evidence, not hearsay, is acceptable. Be artistic and open-minded first to come up with the idea and then scientific and skeptical later to see if the idea will actually work - that's the N&K approach. They show this to you by example, over and over, and I found it very instructive (but that does not mean you and I will be able to do the same, in fact it sounds pretty hard). One problem is that the book can be obscure at times. How many readers will figure out that Chapter 1 is a hilarious parody of a famous short story by Maupassant? Just like Chapter 1 of The Education of a Speculator was an almost word for word knock off of 'The old man and the sea' by Hemingway. I laughed out loud when I figured that out, but I also wonder what other clever passages I may have completely missed. The authors may have overestimated my perspicacity at times; still it adds to the fun when I can, as another reviewer said, 'get the joke'. Overall, a good read for those willing to work a little to put together the Niederhoffer & Kenner puzzle.
Rating:
Summary: The best book on speculation I've read since his last one!
Review: Pick a book, any book, on trading or investment, and you'd be lucky to come up with even two or three concrete pieces of information to help you with, well, trading or investing. By contrast, this book by Niederhoffer & Kenner is full-to-the-brim. Readers should pay close attention to the core themes here - take a scientific approach to your trading and forget about all the hocus-pocus that is constantly being thrown at you (charting, waves, etc, etc). And if you just adhere to some of his trading guidelines in chapter 14 then your trading should improve henceforth. Niederhoffer is not your
average bear, or should I say bull, as he seems to have a bias to the long side - as does the market, another point many traders should consider. In his own trading he enjoyed great success until he took a knockdown punch in '97. But he's back on his feet and offering the wisdom he gained from battling the market for so many years. It would be wise to take it.
Rating: 
Summary: Terrible
Review: This is a book of very low quality, It seems to have been written just to get Niederhoffers name back in the press. Niederhoffer is a failed hedge fund manager, from the old school of high risk funds. This style of funds returns are only due to the effects of leverage. These funds typically outperform for 5 years or so, and then blow up. Niederhoffer promotes the use of statistics in analyzing the market in this book, but all of his studies are just good examples of Data Mining. As a trader at a hedge fund, I am always open to learning new things about the market, but when I tried to replicate the studies in this book, I found all of their results to be insignifacant from a statistical point of view. Most undergrad college kids who have taken statistics 101 could spot the flaws in his "research" Most of the writers of five star reviews on this page must either be Niederhoffers friends, or have no knowledge of how to do good statistical research. This book is the worst kind, as it tricks people who dont know better to follow Niederhoffer to the poor house.
Rating:
Summary: Is that all there is?
Review: Victor Niederhoffer is an interesting character. A champion squash player in his youth, he acquired a PhD in statistics from the University of Chicago, then embarked on a spectacular second career as a hedge fund manager, one of the most successful in the business - until getting demolished in 1997 in the Asian crisis (and then whacked again after 9-11). "Practical Speculation" contains the collected thoughts of this sadder but wiser warrior and his co-author, Laurel Kenner.
The book falls into two parts, one critical the other constructive. In the first, the authors take aim at several targets. Their criticisms of financial journalist Alan Abelson, who took a bearish position throughout the 90s are well on the mark. The advice of most pundits is barely remembered by their readers from one column to the next, so it is good to see a case where years of opinioneering are clearly laid out and contrasted with what actually happened. The results are not flattering for Abelson. Anyone who had acted on his utterly erroneous views and shorted the market starting in the early 90s' would either have gone broke or given up in despair well before the long-predicted bear payoff finally arrived in early 2000.
The criticisms of Warren Buffett and Alan Greenspan are not so well-aimed. While investors can be judged on whether they make or lose money, there is no similar objective criterion for evaluating the performance of a central banker. Did Greenspan cause the Nasdaq to crash? Is it ever appropriate for the central bank to attempt to deflate incipient bubbles? There is no clear answer to these questions, consequently it is hard to make definitive criticisms. The authors' claim that Greenspan was "albeit unintentionally, a part of the meme that led to the World Trade Centre attack" is both muddled and silly. Generic observations concerning the puffery of corporations and analysts, as well as the vacuousness of the media, will not come as news to any adult. Niederhoffer and Kenner are on firmer ground when they go after technical analysis. This metastasizing hydra of ill-defined and untested methods is a paradigm example of the medieval mentality that pervades the markets. Although clothed in the trappings of analysis, with a bow-tie of a scientific-sounding name, technical analysis lacks the defining feature of a scientific enterprise, namely the evaluation of clearly-defined and testable propositions. Truth is established on the basis of anecdote and rumour. The practitioners of the various methods have made millions. Or they know someone who has. Niederhoffer and Kenner back-test a number of propositions, to predictably disappointing results.
In the more constructive second half of the book the authors explore various other possibilities for exploiting the markets, including a two-year lag in stock prices, a lag between real estate values (REIT) and stock prices, the volatility index (VIX), Value Line ratings and even a link between the number of home runs in baseball and the level of the market. While the authors caution against several well-known statistical pitfalls they also miss a few points. Markets are not time-homogeneous. There are very few market statistics which appear to be constant over time. The correlation between the Dow and the Nikkei, for example, might have one value over one five year period, and a different one over the next five-year interval. But neither of these is necessarily a good estimate of the "true", that is time-invariant, correlation, because there probably isn't one. The value produced by the combined ten-year interval isn't a better estimate, it is just the time-average of a moving target. To paraphrase the usual disclaimer, past estimates of correlation are no guarantee of future values. The Nikkei and the Dow, after sharing a rising trend for decades diverged suddenly in the 1990s when the former crashed while the latter soared. Similar abrupt deviations from expected correlations are what sunk Long-Term Capital. Statisticians call this "change of regime." Traders call it getting hammered.
A further problem with the authors' more "scientific" approach is how to deal with conflicting signals. Suppose you have tested both the VIX and the index-REIT correlation and are satisfied of their predictive power. What happens when one of these indicators says sell and the other says buy? You have to follow one, but which one and on what basis? You're then right back in with all the other ,.. er, technical analysts, who don't have any sound empirical justification for what they are doing.
Occasionally the authors veer off into what is more or less mumbo-jumbo, such as Niederhoffer's confused engagement with Richard Dawkins' already murky notion of the meme. The chapter on "market thermodynamics" is little better. The authors also claim that we can gain valuable lessons about the market from tennis, chess, fishing, even welding, but the only thing these various examples prove is that our state of understanding of the markets is in disarray. And consider these "lessons" in reverse. Does anyone imagine that they will become a better tennis player by reading stock charts or consulting Alan Greenspan's biography?
Niderhoffer and Kenner's core belief appears to be in the inexorable upward long-term tendency of the markets. This is certainly reasonable, but it can hardly be called speculation. "Practical Speculation" read closely is really an argument against speculation. There is no edge. All you can do is get a diversified portfolio and sit on it. Sound advice certainly, but hardly what the title advertises.
Finally, it has to be added that this is not a well-written book. The authors are continually changing person from "we" to "one of us" to "I" and the plethora of references to various extraneous topics does little except give the impression that they are trying to showcase their wide general knowledge. The best observations are of a negative kind, and contain little that has not been said before. "Practical Speculation" contains little about speculation and not much that is practical. Worth reading only if you have nothing better to do.
Rating:
Summary: One of the worst investment books I've ever read
Review: Given the accomplishments of Victor Niederhoffer I find it
difficult to understand how he could have written such a terrible
book. The authors have structured the book into two parts: the first
part is supposed to tell you about all the lies, propaganda and
negative thinking that you, as an investor are subject to. The
second part is supposed to give you a foundation for "scientific"
investing. The book fails miserably in both sections. There is
only a single decent chapter, "How to Avoid Spurious
Correlations" in the second half of the book. The opening chapter is titled "The Meme" and is an unreadable
rehash of the history of the market (and the world) from
1997 to 2002. I find it hard to understand why this chapter
was included. Things get a little better after this, but not
much. The authors attack "value investing" in a shallow fashion
without addressing any of the newer work that has followed
Graham and Dodd. They also attack technical analysis, which
is certainly an easy target. They have a whole chapter that
attacks an editor of Barron's, who apparently guilty of the
thought crime of holding consistently negative views about the
market. Except for the single chapter on statistics, the second half
is no better than the first. The authors provide no help for an investor
who seeks to build a portolio and understand its risks. There
is a chapter that equates the laws of physics with the market,
but is nothing more than analogy. There is a vast literature on investing. Save your money and
buy another book.
Rating:
Summary: You'll never see the whole picture without knowledge.....
Review: by Rich Bubb, 6/1/3
During and after reading Practical Speculation, I was struck by many emotions. In other words, almost everything I knew and had been previously told about investing was stripped down to the simple truth and laid bare for examination. And the picture was not pretty. Initially, I felt trepidation and felt that the journey I was going to be Learning-Through would be formidable. In context it was. In content it was. In level of understanding presented by the authors, it couldn't have been simpler. But is that not the hallmark of superior authors intending to cultivate knowledge in their readers? (BTW: Laurel and Victor also write a weekly column on moneycentral.com titled: The Speculator.) After shredding sycophantic trading and investing voodoo and hoodoo practiced by the most hyped and ballyhooed Wall Street has to offer, I am eternally in their debt for their opening a window through which one can see the reality of investing and the Market. Not investing without a hope of making a return, not investing without a hope of comprehensibility, and not investing based on hocus-pocus bs. You can easily get that type and level of impostor-knowledge in ill thought out books, websites, and seminars almost anywhere these days. For instance, their chapter on Earning Propaganda delineates in a straightforward manner what works, with the data to back it up, on page after eye opening page (sources always included for those so inclined to do their own checking, and you are welcome to do so. And get into the habit of checking, you'll wonder how you stumbled along without it after a while!). The chapter on what works, and what does not, regarding Technical Analysis lays bare the truths to look at, and demystifies TA to such a degree, it is amazing to me that many Wall Street charlatans are not tarred and feathered by their now severely poorer followers. At one point I remember I was thinking, "OK, so what does work?" That was so succinctly answered on page 105ff that I started memorizing. No, I won't tell you what it is. Read it for yourself. You were just told where the gold is, mine it yourself. The beauty of this volume of knowledge is summed up not at the end of the book, but at the end of nearly every convention shattering chapter. Every shattered myth, bar none, is exposed and debunked; illuminated with evidence, data, facts, intelligence, and honesty. When I was starting "The Finale" chapter, I had an intuitive sense I wouldn't be reading a generalized summation of everything previously explained. I did not. Taking it to another level sounds cliche, but the authors succeeded exponentially to redefine Finale. If the message were musical notes, the resulting crescendo and lucidity of vision are symphonic. For instance, there is an email from "the indefatigable Dr. Brett" that is [IMHO] Beyond Brilliance (see page 350-351) on "Revisiting Complexity in Trading Systems." You cannot find this level of genius anywhere all in one text, at any price. And note the email title begins ith "Revisiting", as in "go there again". [One wonders what the Initial Visit was like?] With chapter titles like: How to Avoid Spurious Correlations; The Future of Returns; The Periodic Table of Investing; Market Thermodynamics (one of my favorites); and News Flash: Computer Writes Stock Market Story, and others throughout, the buyer of this book has nothing to fear. Why, there right on the back cover is a money back guarantee by the publisher of Bottom Line Personal. Checkout "Product Details", then "Look Inside This Book!" on this [Amazon's website], then look at middle of pic of back cover. Seen one of those on ANY OTHER book on investing lately? Heard that at an investing seminar lately? Read that anywhere on a subscription service investment website lately? Disclaimer: I am NOT a stock market professional. Just a Pedestrian Investor, a very appreciative one. Thanks Laurel & Vic!
Rating:
Summary: condescending erudition as means of scoring points
Review: It is my impression that Niederhoffer believes he is back on the squash court scoring points against people like Graham for its own sake and not to explicate investment principles. His exegesis of laws of thermodynamics, the history of King Canute, and theories of probability distributions seem intended to show how smart he is and not to communicate anything useful. Ben Graham, like many brilliant people, has said some dumb things. Niederhoffer wrenches them out of context and neglects the fine results of Tweedy Browne and Buffett who use Grahamian metrics.
Rating:
Summary: Analytical Analysis and Measurement eliminates ignorance
Review: Having been classically trained at Major US Invesmtent Banks to focus on "Value Oriented Propositions" in a world of abundant capital and after intially purisuing a career in "Enlightened Speculation" I realize now more than ever that there needs to be a systematic examination of all market propostions and I believe that PRACTICAL SPECULATION does an amazing job of evaluating and weighing "perceived market wisdom" and provides the reader with a strong framework for Analyzing and Measuring market propositions. To use a football analogy, there is only so many times that you can allow the wide reciever to run the down and out pattern and when you adjust to this pattern the reciever will of course turn one in to the post in resposne. The market is no different but it is useful to know the success of each pattern and to try and understand and differentiate between casual relationships and material causation. On a perosnal note, while not required reading to understand and implement the lessons of PRACTICAL SPECULATION, it is useful to understand that wisdom and knowledge are only gained through hard work, study, and experience. The EDUCATION OF a SPECUALTOR by Vic Neiderhoffer is the story of how one market legend accumulated the knowledge necessary to help the rest of the poor struggling souls.
Practical Specuilation will help you to remove the element of chance in your investment returns.
|
