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In our continued conversation with Roy Niederhoffer, we discuss risk management, drawdowns, why negative correlation is so important to Roy, and what gets him out of bed every morning (and what keeps him awake at night). Learn more about how to create a balanced and diversified portfolio or what it takes to be a manager.

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In This Episode, You\u2019ll Learn:

• What has changed by the fact that more and more trading decisions are made by computers instead of humans.
• The issue of model decay in Roy\u2019s field.
• Why he has constructed his trading program the way that he has.
• His ten-step process from idea generation to putting it into the system. The research process laid out.
• How his firm does research.
• How position sizing plays a role in the short term space.
• How he keeps model slippage to a minimum.
• Risk management and how Roy deals with it.
• When to use discretion to reduce risk.
• What he learns from going through a drawdown.
• How he keeps investors in the firm during a tough time.
• How he personally deals with drawdowns.
• How he measures the effectiveness of his research.
• If his risk tolerance went down once he had more money under management.
• What the biggest challenge is for Roy in the short term management space.
• What investors are not asking him during due diligence.
• What makes him go into work everyday.
• Books that Roy recommends reading for managers and investors.
• How the office environment affects how investors perceive a firm.
• About downside protection and negative correlation.

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Resources & Links Mentioned in this Episode:

• Roy mentions the Extraordinary Popular Delusions and the Madness of Crowds.
• He recommends Reminiscences of a Stock Operator.
• Roy highly recommends Thinking, Fast and Slow.

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