What I Learned Losing a Million Dollars

What I Learned Losing a Million Dollars

JIM PAUL
BRENDAN MOYNIHAN
Copyright Date: 2013
Pages: 192
https://www.jstor.org/stable/10.7312/paul16468
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  • Book Info
    What I Learned Losing a Million Dollars
    Book Description:

    Jim Paul's meteoric rise took him from a small town in Northern Kentucky to Governor of the Chicago Mercantile Exchange, yet he lost it all -- his fortune, his reputation, and his job -- in one fatal moment of excessive economic hubris. In this honest, frank analysis, Paul and Brendan Moynihan revisit the events that led up to Paul's disastrous decision and examine the psychological factors behind bad financial practices in a number of economic sectors.

    The book begins with the unbroken string of successes that helped Paul achieve a jet-setting lifestyle and land a key spot with the Chicago Mercantile Exchange. It then describes the circumstances leading up to Paul's $1.6 million loss and the essential lessons he learned from it -- primarily that, although there are as many ways to make money in the markets as there are people participating in them, there are very few ways to produce a loss. People lose money in the markets either because of errors in their analysis or because of psychological barriers preventing the application of analysis. While all analytical methods have some validity and make allowances for instances in which they do not work, psychological factors can keep an investor in a losing position, causing him to abandon one method for another when the first fails. Paul and Moynihan's cautionary tale concludes with strategies for avoiding loss, tied to a simple framework for understanding, accepting, and dodging the dangers of investing, trading, and speculating.

    eISBN: 978-0-231-53523-6
    Subjects: Business, History, Finance

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. FOREWORD
    (pp. vii-x)
    Jack Schwager

    One paradox I often pose to my audiences in talks about the elements of successful trading concerns the dichotomy in human thinking as it relates to trading versus everything else. Specifically, I use the following example: No sane person would walk into a bookstore (assuming you could still find one these days), go to the medical section, find a book on brain surgery, read it over the weekend, and then believe he could walk into an operating room on Monday morning and perform successful brain surgery. The operative word here is “sane.” Yet how many people do you know who...

  4. PREFACE TO THE COLUMBIA EDITION
    (pp. xi-xii)
  5. PREFACE
    (pp. xiii-xx)
    Brendan Moynihan
  6. PART ONE REMINISCENCES OF A TRADER

    • [PART ONE Introduction]
      (pp. 1-4)

      I made $248,000. In one day, a quarter of a million dollars. The high was unbelievable. It’s literally like you expect God to call up any minute and ask if it’s okay to let the sun come up tomorrow morning.

      I had a special desk that was a copper pedestal coming out from the floor, and on top of it was a giant 3’ x 6’ x 7” piece of mahogany. The tabletop looked like it was suspended in midair. The credenza was a matching piece of wood bolted to the wall, also looking like it was suspended in midair....

    • 1 FROM HUNGER
      (pp. 5-10)

      I got my first job when I was nine years old. One of my classmates was a caddy at a local country club near Elsmere, Kentucky. One day he asked me if I wanted to be a caddy too, and I said, “Sure.” My parents thought it was a good idea since it would teach me the value of a dollar. I thought it was a great idea since I would get to keep the dollars.

      This was the beginning of my love affair with money. As a result of working at the country club, I learned just how important...

    • 2 TO THE REAL WORLD
      (pp. 11-31)

      I sold the ’56 Chevy to pay for college. Neither of my parents had been to college so it was sort of a big deal to them that I was going. I used the money from the car and my savings account to pay my way through college. The whole time I had been working, my parents had forced me to put 10 percent of whatever I made in a savings account that they controlled.

      I was accepted to the University of Kentucky in 1961. At the time, state law mandated that if you graduated from a Kentucky accredited high...

    • 3 WOOD THAT I WOULD TRADE
      (pp. 32-39)

      A year after I started working for Cohan the firm decided to start something called regional trade units. The home office told us that if we were going to be in this region and do futures business, we had to be in Cleveland. I believed them. That was a mistake. I should have stayed with Ed Cohan. Unfortunately, he didn’t tell me that was possible until it was too late. Cohan was the proverbial 500-pound canary; he could do whatever he wanted. If he had told the higher-ups that he wanted me to stay, I would have been able to...

    • 4 SPECTACULAR SPECULATOR
      (pp. 40-58)

      I will never forget the first day I made $5,000 trading. I felt exactly the same way I did the first day I made five dollars caddying when I was ten years old. To make the five bucks, I caddied all day long. I made five dollars for ten hours of carrying a golf bag. Fifty cents an hour. It was the greatest feeling in the world. Then there was the first day I made $10,000. Same feeling. Then the first day I made $20,000, and so on.

      I remember one Thanksgiving I was at home in Kentucky with my...

    • 5 THE QUEST
      (pp. 59-66)

      Not only did I lose all of my money because of the stupid way I handled the bean-oil position, but I also discovered that I’d never really been a trader. Sure, I had made money in the markets, but it turned out that I really didn’t know how or why I had made it. I couldn’t duplicate the profits when I had to make a living strictly by trading. The money I’d made over the years “trading” wasn’t because I was a good trader. I’d made money because of being a good salesman, being at the right place at the...

  7. PART TWO LESSONS LEARNED

    • [PART TWO Introduction]
      (pp. 67-72)

      What started as a search for the secret to making money had turned into a search for the secret of how not to lose money. Why is it is so important to learn how not to lose? Because 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. Given the myriad of how-to methods, you could spend a lifetime trying, and failing, to make money with each one because you don’t know how not to lose. On the other hand,...

    • 6 THE PSYCHOLOGICAL DYNAMICS OF LOSS
      (pp. 73-84)

      In mid-October 1983, while the bean-oil position was blowing up in my face, I got a call from my mom. “Dad is going into the hospital for exploratory cancer surgery. It shouldn’t be a big deal and they don’t expect a problem, but they have to take a look,” she said. She called back the next day after the surgery, and the news from the doctors was that the cancer had spread through his whole body and he had six months to live. They’d given him a full colostomy and he would start going to start chemo-radiation therapy immediately.

      Two...

    • 7 THE PSYCHOLOGICAL FALLACIES OF RISK
      (pp. 85-99)

      One day in the summer of 1981, my partner Larry Broderick and I met in Las Vegas with one of our best customers—Conrad Pinette, a French Canadian and the manager of a very large lumber company in Canada. He was very wealthy and a big baccarat player. We got to Vegas and checked into the Hilton, since that’s where Conrad liked to stay. This was the first trip to the Las Vegas Hilton for Larry and me, and they didn’t know us from Adam’s off ox; but they knew Conrad. He was a very big player and they loved...

    • 8 THE PSYCHOLOGICAL CROWD
      (pp. 100-114)

      One day in the summer of 1980, my partner Larry Broderick called me and said, “Hey, Jim, my stockbroker just called me with a tip, and we gotta buy this stock.” Some company I can’t even remember the name of (I told you I made investments that I couldn’t remember) was a rumored takeover candidate. The broker said the “talk” was if the takeover happens, it would probably be within sixty days and probably at $60 a share. At the time, the stock was at trading $25.

      So we checked to see if there were options on the stock. The...

  8. PART THREE TYING IT ALL TOGETHER

    • 9 RULES, TOOLS, AND FOOLS
      (pp. 117-144)

      The final irony of this story is that the bean-oil market turned shortly after I blew out in November 1983. If I had been able to stay in the market a little longer, by May 1984 my 540 spreads would have been worth $3,200,000. In hindsight, however, I don’t think it would have made any difference. Sooner or later I was going to lose all of my money, and the later it was, the more I was going to lose. If I had ridden through that valley of death and come out the other side with $3,200,000, somewhere along the...

  9. CONCLUSION
    (pp. 145-151)

    In 1965 Steve McQueen starred inThe Cincinnati Kid, the classic poker movie of all time. In the climactic scene of the movie, Steve McQueen (The Kid) and Edward G. Robinson (The Man) play a final hand of five-card stud. The Kid is trying to dethrone The Man in a winner-take-all five-card-stud poker game that has lasted several days and eliminated all of the other players.

    With three cards dealt, McQueen’s two up cards are a pair of tens, and he bets heavily, $1,000. Robinson is showing the queen and the eight of diamonds. That is a lousy hand for...

  10. POSTSCRIPT
    (pp. 152-160)

    In the preface, we saw that Henry Ford personalized his successes and lost nearly a billion dollars by following his opinions to the bitter end. But Henry Ford wasn’t the only businessperson who personalized his successes and then suffered a huge loss.

    Sir Freddie Laker, the British entrepreneur, started a no-frills transatlantic airline service, Skytrain, in 1977. Laker’s story is the classic one of a factory tea boy who, through hard work and effort, turned himself into a jet-setting millionaire. In order to achieve fortune and fame, he had taken on both the U.S. and British governments and the International...

  11. APPENDIX
    (pp. 161-162)
  12. NOTES
    (pp. 163-168)
  13. BIBLIOGRAPHY
    (pp. 169-170)