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Alternative Market Briefing

Opalesque Book Review: Learning from losses rather than winnings

Thursday, September 12, 2013

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Brendan Moynihan
Benedicte Gravrand, Opalesque Geneva:

Nick Leeson of Barings Bank, Toshihide Iguchi of Daiwa Bank, Yasuo Haminaka (Mr. Cooper) of Sumitomo, John Rusnak of Allfirst Bank, Chen Juilin of China Aviation Oil Corporation, Jerome Kerviel of Société Générale, and more recently, Bruno Iksil of JP Morgan (the London Whale)… were all people who made large trading losses. What goes on in a trader’s mind when he is losing on his positions and yet sticks to them? What are the psychological flaws that lead to such great losses? To know more about it, you could read the second edition of "What I Learned Losing a Million Dollars" (Columbia Business School Publishing), which came out this year.

This book of less than 200 pages was first published 20 years ago, but the story is timeless. Written by Jim Paul (1943-2001), who had a 25-year career in the futures industry, and Brendan Moynihan, editor-at-large for Bloomberg News, the first half of the book tells the story of a trader who made it and lost it. The second half of the book examines the psychological factors behind trading loses, and offers some points to take home.

"The mistakes are timeless and so are the reasons for avoiding them," writes Moynihan. "The book simply identifies the mental processes, characteristics, and emotions – and the losses that accompany them."

The story of Jim Paul, who rose very fast ......................

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