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Nuggets of Wisdom from “What I learned losing a million dollars”

In these turbulent times, people often look outwards for help. There are many information outlets that promise great riches in the market, but Jim Paul, author of “What I learned Losing A Million Dollars”, teaches us the opposite: how not to lose money. So in saving you, my dear reader, the mental hassle of reading the book, I read it for you.

My Quarantine Life

Nugget of Wisdom #1

Make a plan. If there is one lesson to take away from this book it is this: MAKE A PLAN. The five steps to a plan are as follow

  1. Decide what type of market participant you’re going to be
  2. Select a method of analysis
  3. Develop Rules
  4. Establish Controls
  5. Formulate a plan

“Depending on what your goals or objectives are on the continuum of conservative to aggressive, you will decide whether you are an investor or speculator, which in turn will help you decide what markets to participate in, what method of analysis you’ll use, what rules you’ll develop and what controls you’ll have.”

Reading these rules, and seeing how I broke all of them frequently, explains many of my market losses. Executing this plan does is not necessarily profitable but it does mitigate losses. This prevents you from continuing to stay in a bad position because you believe you are right. The method outlined above removes the emotional part of capital allocation and paramaritizes a continuous process into a discrete event. Adhering to this plan

The plan you develop “is a script of what you can expect to happen based on your particular method of analysis and provides a clear course of action if it doesn’t happen; you have prepared fo different scenarios and know how you will react to each of them.”

It matters less what the plan is then the fact that you have a plan. In this way the market is predictable because you will be prepared for whatever course the market takes.

Nugget of Wisdom #2

The market is indifferent to your ego. It does not pass judgment on whether you were correct or wrong. All it does is state the market value of your position, that is it. When trading, or investing remove any sense of ego and don’t consider an unprofitable decision as wrong, simply treat as what it is: an unprofitable position.

“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 want to know why the market thinks the market is up.”

This problem is a symptom of not having a plan. By understanding the criteria that you would exit a position before you enter the position, mitigates the possibility of maintaining a poor position.

So what is the one piece of advice this book offers: MAKE A PLAN.

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