What I Learned Losing a Million Dollars — The Summary
FOREWORD.
Successful trading is not about discovering a great strategy for making money but rather a matter of learning how to lose.
PREFACE
Success can be built upon repeated failures when the failures aren’t taken personally; likewise, failure can be built upon repeated successes when the successes are taken personally.
“People fail for the most part because they shoot themselves in the foot. If you go for a long time without shooting yourself in the foot, other people start calling you a genius.” — An Wang
1. FROM HUNGER
2. TO THE REAL WORLD
If you’re focusing on it like: “This is a game and all these clowns are doing is trying to drive me crazy,” it isn’t hard. > Failures not taken personally.
3. WOOD THAT I WOULD TRADE
4. SPECTACULAR SPECULATOR
예상치 못한 부대비용: The minute you buy one of these [expensive horses], the cash register just starts running. We had to transport it over to the stables, pay for room and board, pay the bet, and pay for training.
5. THE QUEST
“My basic advice is don’t lose money” — Jim Rogers
“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing in making money is not letting your losses get out of hand” — Marty Schwartz
“One investor’s two rules of investing: Never lose money. Never forget rule #1.” — Warren Buffett
“The majority of unskilled investors stubbronly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.” — William O’Neil
“Learn how to take losses quickly and cleanly. Don’t expect to be right all the time. If you have a mistake, cut your loss as quickly as possible.” — Bernard Baruch
Learning how not to lose money is more important than learning how to make money.
If you learn why people lose and thereby control losses, profits will follow.
6. THE PSYCHOLOGICAl DYNAMICS OF LOSS
External loss: sucjh as a bet, a game or contest, money. External losses are objective.
Internal loss: self-control, esteem, love, your mind.
Decision making is not about right or wrong. In hindsight, decisions might be good or bad but not right or wrong. With regard to the markets, only expressed opinions can be right or wrong. Market positions are either profitable or unprofitable, period.
An example of personalizing market positions is people’s tendency to exit profitable positions and keep unprofitable positions. It’s as if profits and losses were a reflections of their intelligence or self-worth.
The Five Stages of Internal Loss: 1) Denial, 2) Anger, 3) Bargaining, 4) Depression, 5) Acceptance
Net profit이 +여도 가장 높았을 때에 가격에 묶여 위의 5개의 스테이지를 겪을 수 있다.
Discrete events vs. Continuous processes: 게임 같은 discrete event에서는 손실이 나도 자동으로 끝나기 때문에 한계가 있지만, 시장 같은 continuous process는 손을 대지 않으면 손실은 계속 커진다. 계속 지속적으로 합리화할 수 있다.
So as long as your money holds out, you can continue to kid yourself that the position is a winner that just hasn’t gone your way yet.
7. THE PSYCHOLOGICAL FALLACIES OF RISK
Risk, exposure, and probability: 시장에서의 사건은 unique, non repeatable event이다. 그래서 frequency probability를 사건에 붙일 수 없다. 할 수 있는 건 amount of exposure를 결정하는 것, 어떤 가격에 다다를 확률을 구할 수는 없다.
There are two kinds of reward in the world: recognition and money. Are you in the market for recognition, congratulating yourself for calling every market move ahead of time and explaining the move after the fact, or are you in the market to make money?
시장은 돈이다. 맞기 위해서 있는게 아니다.
8. THE PSYCHOLOGICAL CROWD
Crowd의 성격: a sentiment of invincible power, contagion, suggestibility
돈을 많이 잃은 사람의 심리상태: 들어갈 준비가 됨, 엄청나게 소문에 관심이 많음, 소문을 들으면 엄청 빠져듬, 그걸 계시로 여기며 행동함.
다른 사람한테 시장에 대한 이야기를 하면 거기에 개인적인 명예와 자존심이 엮이기 때문에 심리적인 요인이 끼어듬.
9. RULES, TOOLS, AND FOOLS
Rule을 어기고도 계속 성공하면, 문제를 더 키움. 나는 다른 사람들과 다르며 rule 위에 있다고 착각함. 현실이나 실패를 인정하려 하지 않음. 자아가 과해짐. 항상 맞을 것 같음. 상황이 안 좋아도 다시 좋아질 거라고 확신함. 그러다 핵폭탄 맞음.
성공적인 트레이더: Predicting을 하지 않는다. Forcasting market direction을 하지 않는다. “if..then” rule을 통해서만 움직임.
사람들은 처음에는 단기간의 트레이드로 들어갔다가 돈을 잃으면 갑자기 투자모드로 변해서 원래 투자를 하려던 것 처럼 행동함. 90%의 투자는 돈 잃은 트레이드임.
멍청한 소리: 'Some people say cut your losses, but I’ve already lost too much. Luckiliy, I don’t need the money right away’ 돈 필요할 때 갑자기 오르나?
너무 많이 잃어서 못 빠져나온다는 이야기는 시장을 personalize했다는 말임.
멍청한 사람들은 투자에서 멈추는 지점을 투자한 후에 정함. 그리고는 그 지점을 계속 바꿈. 들어가기 마음을 먹기도 전에 정해야함. 빠져나올 지점을 먼저 정하고 들어갈 지점을 정해야함. Your entry point should be a function of the exit function.
"If we were not commited to it today, would we go into it?”
옳고 싶고, 맞추고 싶은 욕구를 참아야함. 거기에 집중하면 지금 시장이 어떻게 움직이는지가 아니라 왜 그렇게 움직이는지에 집중하게 됨. 왜 움직이는지가 왜 중요함? 자기합리화의 도구일 뿐임. 운 좋아서 맞았다고 돈 뺏기지 않음. 결과가 중요함.
Loss를 미리 정하면 이미 그걸 감안하고 받아들였기 때문에 불확실성을 줄일 수 있음.
If you don’t have some means of stopping the continuous process, nothing is locked in — profit or loss — and you’re leaving yourself open to being pushed and pulled around by fluctuating prices, random news events, and other people’s opinions.
Similar to inserting a cassette into a cassette player, they insert the packaged opinions into their minds and hit the playback button whenever they are asked a question.
모든 것에 대해 의견이 있다는 건 crowd mentaility에 있다는 것. 진짜 의견이 있는 사람은 어떤 것에 대해서는 "I don’t know”라고 말할 수 있는 사람.
Taking either success or failutre personally means, by definition, that your ego has become involved and you are in jeopardy of incurring losses due to psychological factors.
시장 참가자를 평가하는 기준: by the degree to which you objectively defined the parameters/conditions that would constitute an opportunity and how well you adhered to them. Develop a plan from a method of analysis, implement the plan via rules, and then follow the rules.
이런 거 없이 시장에 들어가는 건 가격표가 없는 메뉴를 시키고 웨이터가 내 카드를 가져가서 계산하게 만드는 것과 같다.
POSTSCRIPT
What you have to understand as a speculator, entrepreneur, or manager is that there is a fine line between perseverance because you think the idea is a good one and perseverance because you think the idea is a good one.
