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What I Learned Losing a Million Dollars

The story of a man who lost it all

By Jim Paul, Brendan Moynihan
13-minute read
Audio available
What I Learned Losing a Million Dollars by Jim Paul, Brendan Moynihan

What I Learned Losing a Million Dollars (1994) is the story of a trader’s rise to the top and the bad decisions that cost him a fortune. It examines the psychological and behavioral dimensions of market trading and asks why traders sometimes abandon all reason and allow losses to keep mounting until they become unmanageable. It explains not only how losses can be avoided but also why avoiding them is far more important than making money if you want to succeed.

  • Traders who want to understand how psychology might affect their decision-making
  • People who want to understand how we rationalize and justify loss
  • Anyone interested in getting rich by trading

Jim Paul grew up in a poor family in Kentucky. He later became a futures trader and lost a million dollars by making a bad investment decision. Paul went on to work as a vice president at Morgan Stanley.

Brendan Moynihan is the managing director of Marketfield Asset Management as well as a professor of finance at Vanderbilt University. He is the author of Financial Origami: How the Wall Street Model Broke.

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What I Learned Losing a Million Dollars

By Jim Paul, Brendan Moynihan
  • Read in 13 minutes
  • Audio & text available
  • Contains 8 key ideas
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What I Learned Losing a Million Dollars by Jim Paul, Brendan Moynihan
Synopsis

What I Learned Losing a Million Dollars (1994) is the story of a trader’s rise to the top and the bad decisions that cost him a fortune. It examines the psychological and behavioral dimensions of market trading and asks why traders sometimes abandon all reason and allow losses to keep mounting until they become unmanageable. It explains not only how losses can be avoided but also why avoiding them is far more important than making money if you want to succeed.

Key idea 1 of 8

Jim Paul made a fortune but lost everything after failing to face up to mounting losses.

Jim Paul always wanted one thing in life – to make money, as much of it as he could. Decades later, he was on top of the world and had just made $248,000 in a single day. He’d reached the top young and was brimming with self-confidence.

Paul landed a job in futures trading and was soon known to everyone on the Chicago Mercantile Exchange. An imposing six foot three, he had a big voice and wasn’t afraid to bark out orders.

That’s when things started to go wrong. His unshakable self-belief would prove fatal.

Paul was interested in the soybean oil market. Supplies were running low, but demand was buoyant. Prices would rise. Anticipating a spike in the market, Paul bought up positions – a commitment to buy at a later date.

Sure that he’d read the market correctly, he exceeded the limits on positions set by the Chicago Board of Trade. Paul’s conviction was so great that he managed to persuade his customers, friends and even his office assistant to get on board with his plan. Why wouldn’t they want to be part of it? They were all going to be rich!

Then the market started to turn. Paul didn’t budge.

Things had been looking good for months. Now there was political instability and the threat of grain sanctions. Bad weather damaged bean crops.

Soybean prices began to dip, and Paul’s losses started to mount. For months, he lost $20,000 every day.

Both his clients and other traders had already jumped ship, but Paul remained convinced. He knew the market would turn and they’d regret their decision. The writing was on the wall, but Paul was so confident of his skill as a trader that he couldn’t see what was happening. He was about to lose everything.

The end finally came when his manager fired him and seized his assets. By that point, he’d already lost $800,000, half of it borrowed from friends.

So why did Paul stick to his decision when all the evidence was pointing the other way?

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