Tag Archives: Success



An interview of Brendan Moynihan about the book:  http://www.beyondproxy.com/learning-from-losses/

What I liked about this book.

The author bares his soul to reveal his flawed thinking. Also, there are many methods to make money but few ways to lose it.  The single, best technique to improve your investing/trading is having a WRITTEN PLAN that you update during and after the investment. The other trick is NOT to PERSONALIZE success or failure.  Now doing/knowing/living/practicing these precepts is a whole different realm than saying them.

Read the reviews:


I disagree with the negative reviews. In my experience, I know risks rises (for me) after a string of successes.  There is danger in quick, massive success as much as deep failure.

MarketPsych info@marketpsych.com
 MarketPsych Newsletter
MarketPsych Report: Why Not Losing is More Important Than Winning and the Emerging Markets Meltdown

February 02, 2014


Latest NewsFebruary 26, 2014 Dr. Peterson is speaking on “Inside the Global Market Brain” at The Trading Show in San Francisco (and on Quantitative Behavioral Finance at Berkeley’s MFE program).

Recent PressDecember 16, 2013 – Tools Help Investors Wade Through All the Chatter on Twitter — Georgia Wells Wall Street Journal

Why Not Losing is More Important Than Winning

You might never fail on the scale I did,
but some failure in life is inevitable.
It is impossible to live without failing at something,
unless you live so cautiously that you might as well
not have lived at all – in which case, you fail by default.
~ J.K. Rowling

December’s newsletter discussed exponential gains in investing, but truth be told, how we handle losing in life and the markets is more important to our long term prosperity than how we approach winning.  Like the life history of J.K. Rowling, there are many legendary successes that occurred following a series of losses and hardships. Yet, these stories are not reflective of what typically happens in financial markets, where any money lost must be recovered, and the greater the loss, the more arduous the recovery. (Consider that a loss of 50% requires a 100% return to recoup). Minimizing one’s downside is both an essential and an often-neglected half of the investing equation.

For most amateur investors these two words – risk management – are a prelude to drooping eyelids and a suddenly urgent need to check one’s phone.  Yet risk management is ESSENTIAL to good investing.  And risk management is all about minimizing the downside.  As Warren Buffet – not an investing slouch – noted:  Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.  And the best way to not lose money is to identify and prepare for potential losses in advance.

That Losing Feeling

I think I am the single most conservative trader on earth in the sense that I absolutely hate losing money.
~ Paul Tudor Jones

Most of the world’s best investors are exceptionally uncomfortable with losing.  In fact, losses cause physical pain for many.  This stress of losses predisposes investors to the predictable consequences of chronic stress such as premature aging (as they say, traders age in dog-years).  Top investors learn strategies to manage the stress, and they go to great lengths to limit losses.  From painful experience they’ve learned that the market will find any vulnerability in their strategy and exploit it.

Top investors distinguish between losses as a part of doing business, when they were simply wrong despite following their process.  Such losses are part of being a risk-taker.  Most stressful is when a loss is preventable due to poor decision making or a flaw in risk management.

Interestingly, several top investors have told me they do not feel pain if a loss occurred within a properly executed framework.  In Steven Drobny’s excellent book Inside the House of Money, he interviews hedge fund manager Jim Leitner of Falcon Management.  Leitner describes his trading as being absolutely unemotional. “Losses did not have an effect on me because I viewed them as purely probability-driven, which meant sometimes you came up with a loss.”  Leitners attitude reflects an observation of Jack Schwager about top investors:  “You can’t be afraid to take a loss. The people who are successful in this business are the people who are willing to lose money.”

Most investors cannot simply detach from the pain of losses as Leitner does, and they use a variety of coaching, cognitive, behavioral, and biofeedback approaches to limit stress and improve decision making.

Paul Tudor Jones is widely renowned as one of the greatest traders in history. In Jack Schwager’s book Stock Market Wizards, Jones comments on how his life and trading have changed since a large loss he suffered during one of his first years as a professional trader: “Now I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them.” Jones optimizes his mental state during the trading day by reducing emotional interference, and one way of doing that is by cutting painful losers quickly.

The best investors limit their losses to very small amounts in any given bet.  They do this via 1) sizing, 2) identifying the nearest exit and the conditions under which others may try to fit through it (liquidity risk), and 3) appropriately hedging risks such as A) time decay, B) interest rate risk, C) event risk, and D) correlation risk.  Monitoring and planning for such risks has to be a disciplined habit.  As Vince Lombardi famously commented, “You don’t win once in a while, you don’t do things right once in a while, you do them right all the time. Winning is habit. Unfortunately, so is losing.

And that is proper risk management hygiene.  The remainder of this newsletter is about why such hygiene is so difficult.

Going All-In

Today is a good day to die!
~  Sioux battle-cry, Dakotas

The phrase above is the translation of a Sioux battle-cry documented during the Battle of Little Bighorn in 1876, in which General Custer and 268 of his troops were killed by Sioux, Cheyenne, and Arapaho warriors.  The Sioux source phrase is more accurately translated, “I am ready for whatever comes.”  Such an attitude actually improves short-term performance by reducing performance anxiety, but long-term it sets up a dangerous precedent.

Since before the Battle of Little Bighorn to today, American culture has celebrated the risk-takers with the courage to go “all-in.”  This act of heroism – when it succeeds – creates legends, yet when it fails (and often even after it succeeds), it ultimately ends in devastating setbacks.  Taking an irreversible risk is like playing Russian Roulette.  When we succeed, we learn that we’re invincible and are more likely to do it again.  When we fail…

In the Superbowl being played today, the players are risking serious injury including concussive brain damage (mild traumatic brain injury) to win the game.  Of course, that risk is their conscious choice.  Based on the statistics of life outcomes of NFL players, that choice is of debatable wisdom.  According to a Sports Illustrated survey within two years of retirement, 78 percent of NFL players are bankrupt or in severe financial distress.

Forget about winning and losing; forget about pride and pain. Let your opponent graze your skin and you smash into his flesh; let him smash into your flesh and you fracture his bones; let him fracture your bones and you take his life. Do not be concerned with escaping safely… lay your life before him.
~ Bruce Lee

Bruce Lee is a hero and an icon, and he took big risks.  Like the NFL players, taking out-sized risks fueled his ascent.  Yet while this attitude may help win some important battles, if it is not used judiciously (and it almost never is), it often leads to a blow-up. A forensic scientist reviewing Lee’s cause of premature death declared it, “death by misadventure.”

So if all-in risk-taking is problematic, then what is the preferred alternative?

Cultivating Humility

One of the more interesting results from our online personality tests, taken by more than 25,000 people, is that the best investors are humble.  They honestly don’t see themselves as more skilled than others.  As a result, they are more attentive to risks and take time to learn how to improve themselves.

Overconfident investors do not take the time to look for potential threats, because they see themselves as adequately skilled to handle danger.  Humble investors recognize they may be wrong, and they make efforts to limit their downside.

Returning to Drobny’s interview of Jim Leitner, Leitner notes, “…I’m really humble about my ignorance. I truly feel that I’m ignorant despite having made enormous amounts of money.”  Leitner approaches investing as an intellectual game, one that he loves to play. Leitner describes his favorite trade as one in which he made one tick overnight on the Swiss franc by relying on his wits, “…My wife still remembers me jumping up and down in the middle of the night screaming ‘I did it? I did it? … It was the most phenomenal feeling of control and creativity all coming together.”

The humble recognize that they may be wrong.  They have less need to protect their egos.  As a result, they have less fear of looking at what might go wrong in the future.

Via Negativa

[I]n practice it is the negative that’s used by the pros, those selected by evolution: chess grandmasters usually win by not losing; people become rich by not going bust (particularly when others do); religions are mostly about interdicts; the learning of life is about what to avoid. You reduce most of your personal risks of accident thanks to a small number of measures.
~ Nassim Taleb, Antifragile

Taleb notes that “we know a lot more about what is wrong than what is right.”  Such negative knowledge is more robust than positive knowledge.  It is easier for something we know to fail than it is for something we know that isn’t so to succeed.

As a mental process, the search for potential risks should be easier than the identification of opportunities.  Yet once we see potential rewards, the loss avoidance system in our brain declines in activity.  As a result, we become biologically less able to perceive risks.  In order to reverse this cognitive bias, we must make a conscious effort to look for the negative and play the Devil’s Advocate.

Tapping the Power of Losing

To others, being wrong is a source of shame. To me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there’s no shame in being wrong, only in failing to correct our mistakes.
~George Soros

In many fields, failure is a price of doing business.  Witness the successive setbacks of Abraham Lincoln as he made his way to the presidency.  Yet, Lincoln’s failures were all manageable, and none were irreversible.  In fact, political failure if often a prelude to success.  For financial failure, the equation is different.

In order to immunize yourself to losses, it’s important to start by approaching past losses like an objective investigator.  In medicine this is called a morbidity and mortality report, in which everyone on the medical team objectively looks at a medical error to understand what – if anything – could have been done differently.  Judgmentalism is not helpful during this exercise, because it’s impossible to learn while in an accusatory state of mind.

Like Paul Tudor Jones and George Soros above, we can learn from and adapt to our failures.  Keep in mind that a loss that is the result of an objective process is not necessarily a problem.  The key is to identify flaws in the process that can be corrected to improve future decision making.

Risk Management Tools

While we are optimizing our minds for investment risk taking, we can also use new tools that are available – such as MarketPsych’s own!  🙂

Our text analytics data, derived from the real-time firehose of news and social media, is used for Risk Management applications including monitoring event risk, speculative risk, and crowding risk (see below).  If you represent an institutition, please contact us for a presentation on the risk management uses of our data.


Econ Freedom

A Reader Lands Hedge Fund Job

A Reader Sought Advice


Thanks to all the advice offered by other readers, this person landed a job at a multi-billion dollar fund.  I received this letter:

I am more than happy to share my experience – it obviously may not be very useful as each person has a different background/personality but I hope the general rules that I have learned the hard way will prove useful to some.

With that said, here is a summary of my key recruiting pointers:

1.     Email + Call + Meet professionals in the industry – one of my coworkers speaks barely passable English, works under the often-shunned H1B1 visa, and as the appearance of sluggish slacker.  First impression would tell you that he would be the last person in the labor force to land an analyst role at a top investment management firm.  At least that’s what I assumed.  Then one day I was discussing the gloomy job market in finance with him and he mentioned in passing that he had emailed about 100 professionals before finding someone in his Alumni network willing to talk to him.  He has a master’s in financial engineering from UCLA and guess what his teammates are doing? Looking for jobs.  He commented, “of course you can’t find a job if you just submit your resume, come on, who’s going to look at 500 resumes?”  I took a similar approach after having failed miserably with mass-emailing resumes and catchy cover letters.  It’s an approach that worked for me and my coworker and we aren’t the brightest or the most experienced so perhaps it will work even better for others who are brighter/more qualified.

2.     Research the firm + the role – while it’s obvious that you should research the firm that you are interviewing for, it’s less apparent that you must research the role.  Often times the role description will be a bunch of mumble jumble so I have found it helpful to learn about the position from someone in the department before the interview if possible.  This is hard to do in most cases so the next best alternative is to write down what interviewers tell you and rapidly build up your knowledge during the interview.  I have found that especially when interviewing with more senior people, they are much more interested in your knowledge about the role than your skills and intelligence.

3.     Leverage recruiters – I tailored my linked-in profile to the investment management/hedge fund industry.  My hunch is that recruiters heavily leverage LinkedIn to find candidates and big companies often use recruiters to screen candidates.  Therefore, recruiters can be your best friends in getting a job if you are open to them, respect them, and seek their advice.  My recruiter gave me a list of common questions that the firm was known to ask and it sure is a lot easier going into a test knowing most of the questions.  Also, it’s helpful to have someone who already has a relationship with the firm and knows all the do’s and don’ts to follow-up on your behalf.

4.     Be aware and mindful of interview taboos – I went into one important interview (for me at least) with a cup of coffee and found out later that it was a big taboo because it makes you look like a tool.  If you are like me, this kind of stuff is not obvious so make sure to google interview don’ts before you go in.

5.     Be open-minded – I went into interviews originally with the mindset that I just want to do investment research, I don’t want to build pretty power points or do grunt work.  This prevented me from passing up many good opportunities.  Then one day I realized that I was too damn closed-minded and decided to not jump to conclusions and try to get every interview I can.  If it worked, then great, and if not, then I got free practice.

6.    Be realistic – in the end, I’ve learned that unless you have certain experiences/credentials/connections, some jobs are simply not for you.  For example, hedge fund managers will not talk to you if you don’t have sell-side experience.  It boggles my mind why 100+ hours, adderall-charged work weeks spent making Powerpoints prettier and building simple spreadsheets translates to business acumen or investing prowess but reality says otherwise and reality must be respected.  As an aside, I feel that many of the seemingly meaningless hurdles designed into the corporate ladder is because the managers had to go through the same hurdles so unless you’re a genius, why should you be granted a shortcut?  The answer seems to be either play their game or do it on your own, which I think is vastly more preferable if you have the gumption.

I hope this is helpful.  Keep in mind that what I have described above is what I found to be useful in landing a corporate job and I suppose does not apply to someone who wants to start his/her own fund.  If I had to boil what I have learned down to one sentence, it would be: respect reality and act accordingly. 

Please feel free to share the above/parts of the above with your readers in any way that you see fit.  I only wish to remain anonymous.

p.s. I found this blog on Charlie Munger, check it out! http://mungerisms.blogspot.com/