Thread by @position_trader

Starting with "What I learned losing a million dollars". Read enough about earning them, might as well also learn about losing them!

"They are like racing fans making the same losing bet on an instant replay"

After initially losing money, we feel that something is wrong with our methods and promptly renew our search for the infallible system. We end up making the same mistakes again and again.

"One of the premises of the book is that the rise sets up the fall; the winning sets up the losing"

You have nothing to lose if you haven't won in the past. Success without a system, or in spite of a system, just sets you up for a big fall.

Already beginning to like the book.

"There are as many ways to make money in the markets as there are people participating in the markets, but there are relatively few ways to lose money in the markets."

I just realized that the book was written way back in 1994! Don't know why but I had assumed that it was a fairly recent one.

"Success always obsoletes the behavior that achieved it" - Peter Drucker

"Personalizing successes sets people up for disastrous failure. The begin to treat the success as a personal reflection rather than the results of capitalizing on a good opportunity, or even just being plain lucky."

Personalize failure, not success.

10% into the book and it is a nice read so far. The author has a knack for story-telling.

"You can do some things and you can't do other things. Don't get all upset about the things that you can't do. If you can't do something, pay someone else who can and don't worry about it".

Do what you do best. Let others do the rest.

"The vast majority of the successes in my life were because I got lucky."

It starts right when you were born, by winning the Ovarian Lottery. But the more successful you become, the easier it becomes to mistake luck for skill.

"There is nothing worse than two people who have the same position talking to each other about the position".

Confirmation Bias.

"One of the oldest rules of trading is: if a market is hit with very bullish news and instead of going up the market goes down, get out if you're long."

The opposite also works for reversals.

"Weekends were welcomed. It was exactly opposite of when I was making money on that trade. When I was making money, I couldn't wait for the market to open. When I was losing money, I couldn't wait for it to close."

For those who think that trading is the best job in the world.

"But I couldn't get out of the market because as long as I had the position on, there was always the belief, the chance, the hope, that I could make back the money. If I got out of the market there wouldn't be any chance anymore."

Been there, done that. Fear of missing out.

"I had gone from having everything on August 31st to nothing on November 17th. I couldn't stand to watch them take all the stuff away, so I took the pictures of my family off the wall, put them in a box and walked out of the office."

Nothing to add.

"It finally occurred to me that maybe studying losses was more important than searching for some Holy Grail to making money."

Aha! The secret. Success is random, while failures are highly predictable. Chapter 5 of the book can be read all by itself and would still be a classic.

"Trying to avoid taking losses altogether is the loser's curse."

More money is lost in trying to avoid losses rather than in taking them.

"Most people equate loss with being wrong and, therefore, internalize what should be an external loss".

You can do all the research, stick to your process and still end up with a losing position. It's not your fault or the fault of your process. Stop taking losses personally.

If you stick to your process, market decisions are profitable or unprofitable. Not right or wrong.

Betting on horses is a discrete activity i.e. it has a definite end. Take losses on discrete activities is much easier than taking losses in continuous activities like investing. If nothing else, there is always hope in investing.

"In betting and gambling games if you stop acting and do nothing, the losses will stop. But when investing, trading or speculating if you're losing and stop
acting, the losses don't stop; they can continue to grow almost indefinitely".

"If you occasionally break the rules and still have an unbroken string of successes, you are likely to compound the problem because you assume that you are better than other people and above the rules."

You are better off starting to trade in a bear market than a bull market.

"Ninety percent of the time an "investment" is a "trade" that didn't work. People start with the idea of making money in a relatively short period of time, but when they start losing money they lengthen their time frame horizon and suddenly the trade becomes an investment."

"In contrast to what most people do, your entry point should be a function of the exit point".

Been guilty of doing this in the initial days. Your exit point defines how much loss you are willing take, not your entry point.

"A preoccupation with wanting to be right, explains people's tendency to focus on why the market is doing what it is doing instead of what it is doing"

The market will do what it wants to do. The right question to ask is what will you do when the market makes its move.

"For the market participant, the last moment of objectivity is the moment before he enters the market, after which he can still do plenty to lose more money."

You are prone to too many biases once you enter a stock which makes it hard to make rational decisions.Plan before entry

"Are you long because you are bullish or are you bullish because you are long?"

Nothing to add.

"Taking either success or failure personally means, by definition, that your ego has become involved and you are in jeopardy of incurring losses due to psychological factors"
You can only take responsibility for your system. You cannot take the credit or the blame for the outcome

Don't confuse being right with doing right. Totally two different things. But they become one and the same thing when ego is involved.

And that brings us to end of the book. I would say the book was ahead of times in quite a few aspects. Well written. Definitely one of the better books that I have read on investing.