30 April 2008

What I Learned Losing a Million Dollars - Lessons from Failure, Part 1


I was first made aware of this book by Nassim Nicholas Taleb in his recent bestseller The Black Swan. On page 105, Taleb reviews the shared traits of successful, hotshot millionaires, and the graveyard of failures: courage, risk taking, and optimism. Taleb dismisses the differences between successes' and failures' skills and attributes success to luck. In the midst of this bold statement, the following aside and footnote caught my attention:

"Readers would not pay $26.95 for a story of failure, even if you convinced them that it had more useful tricks than a story of success.*"

*The best noncharlatanic finance book I know is called What I Learned Losing a Million Dollars, by D. Paul and B. Moynihan. The authors had to self-publish the book.

Taleb is a provocative thinker, even though his rambling style prevents many of his ideas from taking purchase in my head. Three things from The Black Swan still loiter around the gray matter:
1. The scalability of some professions over others, specifically law is not scalable unless you're a John Edwards-type (Damn!);
2. The relative frequency of Black Swan events like LTCM, Bear Stearns, 9/11, etc.; and
3. The desire to read the Taleb-endorsed, self-published book on failure by someone named D. Paul.

After several months of library searches, and setting up a saved search on Alibris, I finally got my hands on a copy for a handsome sum about 3x the cover price.

The first half of the book is Jim Paul's personal story, from school to the Army to the trading floor. Eventually, he ruins fifteen years of building up his career and reputation in two-and-one-half months of soybean oil trading. As you can tell by how quickly I glossed over sixty pages of a book that barely makes it past page 170, all the first third does is establish the author's background and bona fides. While that's important, it could've been achieved in an About The Author page. It's another rags-to-riches story told in an easy-to-read style that breezes by because it's just not that compelling. Jim Paul is no Michael Lewis.

Paul wanted to recover from his disastrous bean oil position, and he turned to successful traders and investors like Peter Lynch, William O'Neill, Michael Steinhardt, and Warren Buffett. Paul failed to discover any real consistency in thought amongst these good and great men. With that in mind, here's the hook that draws the reader into the second half of Paul's book:
Obviously, there is no secret way to make money because the pros have done it using very different, and often contradictory, approaches. Learning how not to lose money is more important than learning how to make money. Unfortunately, the pros didn't explain how to go about acquiring this skill. So I decided to study loss in general, and my losses in particular, to see if I could determine the root causes of losing money in the markets.

In the coming days, I'll review and analyze Jim Paul's lessons that arose from his financial failures.

3 comments:

Anonymous said...

I am just wondering how you liked this book. Thanks in advance.

PITRI said...

hi,
i'm enjoying reading the black swan. though i dont really understand. but i like it. it's so theoretical and philoshophycal. not for the laymen like me. lol. but it's fresh and provocative.lol.
please visit my modest site www.phandayani80.blogspot.com
tx

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