What I Learned Losing A Million Dollars

by Jim Paul

I’m twenty-three years old! What am I doing? Are these people nuts? I don’t need this responsibility. Jesus Christ! This is scary. My only claim to fame is that I was a master instructor back in Aberdeen, and that was easy. Two years ago I was burning hotel deck chairs for a bonfire on a beach in Daytona, Florida, and now I’m sitting on World War III! I’m nervous about this!”

people for places, places for people. You can do some things and you can’t do other things. Don’t get all upset about the things you can’t do. If you can’t do something, pay someone else who can and don’t worry about it.

If a market is hit with very bullish news and instead of going up, the market goes down, get out if you’re long. An unexpected and opposite reaction means there is something seriously wrong with the position.

when people lose money in the markets, they usually look for a new approach to make money. Obviously, the previous method was defective; it’s never the investor’s or trader’s fault.

Losing money in the markets is the result of either: (1) some fault in the analysis or (2) some fault in its application.

I can’t get out here; I’m losing too much. —LOSER’S FAMOUS LAST WORDS

So between August 1983 and August 1984, I lost all of my money; went $400,000 in debt; lost my membership, my job, my Board of Governor’s seat, my Executive Committee seat, and both of my parents. I lost everything that was important to me except my wife and kids. That was not a good twelve months.

Somehow, the concepts profit and loss get confused with win and lose and right and wrong. But if you lose as a participant of a game, you weren’t wrong; you were defeated.

all losses can be categorized either as (1) internal, such as self-control, esteem, love, your mind, or (2) external, such as a bet, a game or contest, money. External losses are objective, and internal losses are subjective. That is, an external loss is not open to subjective, individual interpretation; it is an objective fact. On the other hand, an internal loss is defined in terms of the individual (i.e., subject) experiencing it. In other words, a loss is objective when it is the same for me, you, and anyone else. The loss is subjective when it differs from one person to another, when it is entirely a personal experience.

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.

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

Very often, market analysts are subject to this pitfall. Having expressed an opinion either on market direction or the value of a particular stock, it becomes difficult, if not impossible, to abandon that opinion. The analyst doesn’t want to be wrong or look stupid; he wants to be right. He is betting.

Man is extremely uncomfortable with uncertainty. To deal with his discomfort, man tends to create a false sense of security by substituting certainty for uncertainty. It becomes the herd instinct.

distinction between the individual and the crowd is that the individual acts after reasoning, deliberation, and analysis; a crowd acts on feeling, emotion, and impulses.

when the market moves against you, you feel obligated to say something to justify your opinion, or, worse, you feel obligated to do something like show the courage of your conviction by adding to a losing position. Participating to be right is betting, and betting for excitement is gambling. In order to be speculating, by definition you must have a plan.

“I can’t get out here, I’m losing too much,” is the worst thing you’ll hear a trader or investor say! What he is saying is: he’s getting absolutely crushed, crucified, and buried, and he can’t get out of the market because he’s getting crushed, crucified, and buried.

all you can do is manage your losses, not predict profits.

we are trying to manage possible scenarios and losses, not predict the future and profits.

When someone asks, “Why is the market up?” does he really want to know why? No. If he is long he wants to hear the reason so he can reinforce his view that he is right, feel even better about it, and pat himself on the back. If he isn’t long, he’s probably short and wants to know why the market thinks the market is up, so that he can argue with it and convince himself that he is right and the market is wrong. He wants to say, “Oh, that’s the reason? Well, that’s the stupidest reason I ever heard.”

I was right. But neither one of us made any money on the deals. So you can be right and lose money. But which is more important? Remember, there are two kinds of reward in the world: recognition and money. Are you being motivated by the prophet motive or the profit motive? In the markets and in business don’t concern yourself with being right. Instead, follow your plan and watch the money.

you can loop back through the first four stages in a vicious circle. You eventually accept the loss, so you might as well set the loss to a predetermined amount and short circuit the Five Stages by going straight to the acceptance stage. Knowing the amount of loss ahead of time reduces the uncertainty factor to nil because you’ve acknowledged and accepted the amount of the potential loss before it occurs.

most people who have prepackaged intellectual positions, views, opinions, and answers on almost every topic, gathered from television, newspapers, newsletters, and conversations. Similar to inserting a cassette into a cassette player, they insert the packaged opinions into their minds and hit the playback button whenever they are asked a question. Some people don’t even wait to be asked; they offer their regurgitated two cents’ worth on every topic they happen upon in conversation.

you don’t predetermine how much you can lose and are willing to lose in the market, the “I’m not wrong” or “I’m not losing” perspective will wipe you out.

If you deviate from your plan and the market starts going against you, what are you going to say when I knock on your door and ask, “Well? Are you having fun? Is this an enjoyable experience?”

you don’t get any money just because you know why the market is going up or down. You only get money if your plan has positioned you to capitalize on the market’s movement, regardless of whether you know why the market is up or down on a particular day.