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Overview
Few people know why bubbles burst and markets crash. Fewer still are able to answer that question, especially those who have been there themselves. Jim Paul is one of those few people, a trader who lost everything in 2008 after doubling down on an investment he knew was bad.
It is often said that before you fall, you need to prepare yourself and have a plan in place. Paul learned this the hard way. When he experienced losses after experimenting with risky investments, he figured out why these mistakes happened through psychological analysis of himself as well as introspection about his actions. An examination of key points will help you learn how to do this so that no loss or setback will ever be experienced again by traders or investors who want to make rational decisions instead of letting emotions get the best of them during turbulent times for their businesses.
The author will also explain how understanding loss is more important than making money, why following the crowd can lead us astray, and what a sound investment strategy is.
Big Idea #1: Jim Paul made a fortune but lost everything after failing to face up to mounting losses.
Jim Paul always wanted to make money, as much of it as possible. He achieved that goal and made $248,000 in a single day. He was young when he reached the top and had lots of confidence.
Paul got a job in futures trading. He became known to everyone on the Chicago Mercantile Exchange because of his height and vocal tone.
Paul was really interested in the soybean oil market. He believed that demand would go up, and supply would go down. Therefore, he bought positions – an investment to buy at a later date.
A man named Paul had a plan to make money by trading in the market. He believed that he’d been correct in his analysis of the situation, and that his plan would work. However, after several months, it was clear that he was wrong. His clients started to leave him because they were losing money and didn’t believe in him anymore. They took their business elsewhere. Even though people who worked with him warned against continuing with this strategy, he remained convinced of its success until the very end when he lost everything and had to declare bankruptcy.
Paul stuck to his decision despite all the evidence pointing in another direction.
Big Idea #2: Understanding loss is a better way to get (and stay) rich than knowing how to make money.
Everyone wants to get rich. There are many ways of doing that, but most books on the subject don’t actually work. No one has found a shortcut for getting rich yet.
Business gurus give advice that sounds good, but it’s often contradictory. One of the most successful investors in history says to diversify your investments. Another billionaire investor suggests you concentrate your investments.
It’s confusing how there are so many different ways to invest and make money. There is one piece of advice that the greatest investors have in common: Don’t lose money! Warren Buffett has two rules for investing. The first rule is never lose money, and the second rule is to never forget rule number one. Bernard Baruch said you should learn how to take losses quickly and cleanly, as well as not losing your initial investment. Jim Rogers built a $300 million fortune with his tips on not losing money.
These investors all took different paths to the top. However, they all knew how to minimize their losses.
When Paul decided to rebuild his empire, he realized that it would be difficult for him to succeed in the future if he didn’t understand how losses should be processed. He also learned that minimizing or avoiding losses is important. The best way of processing them is by learning from those who have dealt with similar situations and knowing what mistakes they made. In the following points, we’ll take a look at some key things that Paul learned about loss.
