Sometimes the cat once burned sits on the stove again

In case you have somehow missed it, there’s a must-read profile of twice dusted hedge fund manager Victor Niederhoffer in this week’s New Yorker magazine.

Niederhoffer, who previously lost it during the 1997 Asian currency melt down, had to close two of his funds last month after huge losses. Sometimes we think a manager who has gone through such a tough experience is automatically more worthy of trust. If they’ve blown up from too much leverage and risk taking before, surely they’ll do better next time? As Niederhoffer’s recent experience shows, that’s not always the case. New Yorker reporter John Cassidy describes how, during August’s market turmoil, the hedge fund manager blew it for the second time:

Some of his investments had lost a lot of their value, and the value of others was difficult to determine. There were so many moving parts in his portfolio that he wasn’t sure where he stood. When a trader can’t meet his margin requirements, he is at the mercy of his creditors. As Niederhoffer’s financial situation deteriorated, ADM Investor Services, a Chicago-based brokerage firm that caters to futures traders, ordered him to liquidate some of his options positions. Working late into the night, Niederhoffer berated himself for leaving himself so exposed. Referring to the margin calls, he said to one acquaintance, “I shouldn’t have been in the position where it could have had such an impact.” Despite the lessons of 1997, and the precautions he had taken, he was again in over his head.

Niederhoffer and some of his colleagues and friends also have a fascinating online conversation going at his blog, Daily Speculations. No mention of Cassidy’s article, though.

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