What I Learned Losing A Million Dollars

by Jim Paul

smart people and wise people. Smart people learn from their mistakes and wise people learn from somebody else’s mistakes. Anyone reading this book has a wonderful opportunity to become wise because I am now very, very smart.

The high from “being right” the market and making all that money is unbelievable. It cannot be duplicated with drugs. You are totally invincible. You are impervious to all pain. There’s nothing bad in the world.

This book will not instruct you on the specifics of how to confront your fears or how to “get in touch with your feelings and emotions.” It will not reconcile your ego’s legitimate internal psychological needs with your participation in the markets. I don’t have a battery of tests for you to take to determine your particular psychological profile or your internal conflicts. I don’t have a test to determine if you should be participating in the markets at all. I am not, nor do I pretend to be, a psychologist.

The chapter introduces the five types of participants in the markets: investors, traders, speculators, bettors, and gamblers.

Market losses are external, objective losses. It’s only when you internalize the loss that it becomes subjective. This involves your ego and causes you to view it in a negative way, as a failure, something that is wrong or bad.

Since psychology deals with your ego, if you can eliminate ego from the decision-making process, you can begin to control the losses caused by psychological factors. The trick to preventing market losses from becoming internal losses is to understand how it happens and then avoid those processes.

An example of personalizing market positions is people’s tendency to exit profitable positions and keep unprofitable positions. It’s as if profits and losses were a reflection of their intelligence or self-worth; if they take the loss it will make them feel stupid or wrong.

1. Denial

2. Anger

3. Bargaining

4. Depression

5. Acceptance

gambling creates risk while investing/speculating assumes and manages risk that already exists.

Professional gamblers are actually speculators

Betting and gambling are suitable for discrete events but not for continuous processes. If you introduce the behavioral characteristics of betting or gambling into a continuous process, you are leaving yourself open to enormous losses.

The first psychological fallacy is the tendency to overvalue wagers involving a low probability of a high gain and to undervalue wagers involving a relatively high probability of low gain.

Fifth is people’s tendency to overestimate the frequency of the occurrence of infrequent events and to underestimate that of comparatively frequent ones after observing a series of randomly generated events of different kinds with an interest in the frequency with which each kind of event occurs.

Emotions are neither good nor bad; they simply are. They cannot be avoided. But emotionalism (i.e., decision making based on emotions) is bad,

One of the most incomprehensible features of a crowd is the tenacity with which the members adhere to erroneous assumptions despite mounting evidence to challenge them.6 So when an individual adheres to a market position despite

Participating to be right is betting, and betting for excitement is gambling.

Preoccupation with being right means you’re betting, which personalizes the market and is the root of losses due to psychological factors.

The formula for failure is not lack of knowledge, brains, skill, or hard work, and it’s not lack of luck; it’s personalizing losses, especially if preceded by a string of wins or profits. It’s refusing to acknowledge and accept the reality of a loss when it starts to occur because to do so would reflect negatively on you. APPENDIX JIM ROGERS formed one half (George Soros was the other half) of the phenomenally successful Soros Fund.