Victor Niederhoffer's tips to achieve investment success

Victor Niederhoffer was one of the first investors to use statistics and the scientific method to speculate in the financial markets.

Niederhoffer was born in 1943 in Brooklyn and learned how to speculate from an early age while playing board games. He later went on to do his higher studies at the University of Chicago where he wrote his dissertation and PhD on anomalies in the stock market.

Niederhoffer had a very successful career until he made some wrong investment decisions in 1997 prior to which he was even ranked as the top hedge fund manager in the world.
He is also famous for writing best selling books like "The Education Of A Speculator" and "Practical Speculation" along with co-columnist Laurel Kenner.

Traders still use his books as a reference while trading in the stock market. Here are some of the investment lessons that he wrote in his book which can help investors achieve success.

Niederhoffer says the market is always creative in finding a way to make investors eat crow - raw, squawking and fully feathered.

"Always have enough in reserve to meet any conceivable market eventuality," he says.

Niederhoffer says the market cycles are ever-changing so investors shouldn't be stubborn in making investment decisions.

"Just when you’ve found the perfect stream, the fish will stop biting, the weather will change, and other fishermen will appear, reducing the catch," he says.

Niederhoffer says if a question is important, it deserves to be tested which involves counting, and taking account of variability and uncertainty.

"Conventions for settling how much of a difference is enough to differentiate the result from randomness must be decided in advance," he says.

Niederhoffer says almost all portfolios which have stocks held for 10 years or more show returns of at least 8% so investors should try to buy and hold top quality stocks for the long term.

Niederhoffer says investors shouldn't throw in the towel when things look worse, or pyramids when things look best.

"Stocks have a substantial tendency to reverse over all periods. See what the trend followers are doing, and do the opposite," he says.

Niederhoffer says investors should always keep reading as it is a source of invaluable information and learning.

"The ideas in Shakespeare, Cervantes, Twain, Rand, Galton, Darwin and Hugo were canonical when published, and will continue to be so," he says.

Niederhoffer says investors should keep playing games like chess which can keep one's mind sharp and active.

"Checkers and chess are better for market wisdom than browsing through the internet," he says.

Niederhoffer says investors should never be over confident and should always stay informed in the market.

"In no field are there more cranks and charlatans than in the market," he says.

Niederhoffer says investors should follow and pay attention to wise experts as they are much smarter and better versed on the subject than we are.

"Knowledge changes too fast and the level of specialization is too high for any Duo to be anything but behind the form, unless they pay close attention to you," he says.

(Disclaimer: This article is based on Victor Niederhoffer's books "The Education Of A Speculator" and "Practical Speculation" )