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The Cruel Sea

By Tom Dyson, publisher, The Palm Beach Letter
Monday, June 5, 2006

In the early eighteen hundreds, whales gave us light.

There was no kerosene, gas or electricity in those days, so the people used whale oil to light their houses. They turned it into candles or burned it in lamps.

They also used whale oil to make shoe polish, margarine and soap. Baleen is a hard, flexible bone material found in whales’ mouths. They used baleen to make umbrella ribs and carriage springs.

You could say whales were as important to nineteenth century society as oil fields are to us. The men who hunted them – the whalers – were the heroes of their day.

Captain George Pollard is the most famous whaling boat captain of all time. But it wasn’t for his ability to kill whales in the South Pacific. It was for his two spectacular failures.

On August 12, 1819, Pollard led the whaling ship Essex from Nantucket Harbor with twenty sailors. It took him six months to round the bottom of Argentina and arrive in the rich whaling grounds two thousand miles off the coast of Peru. He was right on time; spring is the best time of year for whaling...

Disaster struck on November 20, 1820. A massive sperm whale rammed the Essex twice and sunk her. At sea in three whaling boats – the small rowing boats they used to harpoon the whales – the crew drifted eastward with scarcely any food or water.

Men began to die. Shipmates ate their bodies. They were rescued after three months at sea. Only eight survived. Herman Melville based a book on the voyage. He titled it Moby Dick.

Three years later, Pollard led a second expedition from Nantucket. But in February 1823, his new boat struck a coral reef and foundered.

Pollard returned to Nantucket a loser and ended his days as the town night watchman.

Victor Niederhoffer is one of Wall Street’s most talented traders. In the 80s and 90s, he averaged 35 percent annually. In 1994, BusinessWeek magazine named him the best U.S. commodities fund manager.

In 1997, he blew up his account. Here’s how Bloomberg described it:

Niederhoffer, 62, used to be one of the most prominent hedge fund managers in the U.S. He made a fortune during the 1980s and '90s, trading out of his New York office and chalet-style mansion in Weston, Connecticut. Then Niederhoffer lost it all -- his $130 million fund and most of his own savings -- when his bets on the markets went wrong.

Niederhoffer became a Wall Street pariah, the butt of black humor and gossip. Brokers refused his business, he says. When he walked into the Four Seasons restaurant in Manhattan, the whispers would start...

The good news is... Niederhoffer is back. Investors gave him $2 million in 2002 and he’s already rallied it into a new $346 million hedge fund called the Matador Fund.

Last year he posted a 56% return and Matador is up an average 41% a year since inception!

What does Niederhoffer have to do with Captain George Pollard?

According to Bloomberg, the story of Captain Pollard is Victor Niederhoffer’s favorite. He even has a painting of the Essex hanging over the grand piano in his New York mansion...

“In America, people get a second chance,” Niederhoffer says in the article.“They don't get a third.”

Niederhoffer sunk his ship once. He was a great trader who made a mistake. His respect for Pollard tells me he’s learned from that mistake. I conclude Niederhoffer is an even better trader than he was before.

Niederhoffer’s new fund, Manchester Partners LLC, is open to American investors. I have no idea how new investors can join, but I’ll try to find out.

Good investing,

Tom Dyson

Market Notes


Equity Office Properties (EOP)… office REIT
Campbell Soup (CPB)… soup
Kraft Foods (KFT)… food
CPI Corp. (CPY)… Sears photo booth operator
Oceaneering (OII)… oil services
Walt Disney (DIS)… entertainment
Enerplus Resources Fund (ERF)… oil
Smith & Wesson (SWB)… persuasion instruments
Cattle, Hogs, Ethanol


Huaneng Power (HNP)… Chinese electricity producer
Standard Pacific (SPF)… homebuilding
Centex (CTX)… homebuilding
St. Joe (JOE)… Florida real estate
James River Coal (JRCC)… coal
Bandag (BDG)… tires
Electronic Arts (ERTS)… video game giant
Sugar, Lumber, Coffee, Aluminum, Lead

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