From a New Yorker piece on investor Victor Niederhoffer:

“[Niederhoffer's friend] Keeley believed that assessing a developing country’s economic prospects involved not only meeting with the C.E.O.s of leading companies but studying the lengths of discarded cigarettes—the theory being that the wealthier people are, the longer their butts—and the state of the brothels. After a couple of months in Asia, he reported to Niederhoffer that the brothels in Bangkok had recently become much cleaner and safer, and that Thailand was an excellent place to invest.

This is the same friend that lives for 6 months of the year in the California desert without a phone or electric power.

The investment was poorly timed, right before the Asian financial crisis in 1997. In retrospect, Niederhoffer admits:

“… Mainly I didn’t have a proper foundation for my investment there. I had no knowledge of the country. I’d never even visited the country. All I had done was finance a trip by Bo Keeley to the brothels there.”

Niederhoffer has a history of success (and failure) on Wall Street since the 1970s, having raised millions in capital from investors and delivered years of solid returns wrapped around a couple of complete wipeouts.

As much confidence as Niederhoffer has in his investment system or decision-making process, the overwhelming impression one is left with is the complete lack of system. He admits his system may not be the best, but that any system is better than no system if you understand its limitations, a belief I cannot admit to sharing.

I actually begin to question whether past information can be used to predict the future at all. We live in a world of information yet understand little about how to interpret or use it. Niederhoffer is really just guessing with a lot of money backed with some history of how his past guesses have turned out. Not all investors take his approach, but overall I think that while investors are a general understanding or ways to process the known unknowns through our theories of valuing risk and reward, it is the lack of appreciation for the impact of the unknown unknowns that really cause broader financial mistakes.