Jim Paul and Brendan Moynihan

There are plenty of book on how to become millionaire but nobody speaks about million dollars mistakes. I was intrigued by the title of the book hence I picked it to see what the author has to say and indeed the author does not disappoints.

The excerpts from the book are-

  • You can do some things and you can’t do other things. Don’t get all upset about the things you can’t do. If you can’t do something, pay someone else who can and don’t worry about it.
  • Sometimes, knowing the right people and being in the right place at the right time can make all the difference in the world.
  • Any person who has lost dollars,he goes through the Five Stages of Internal Loss.
    • a. He denies it’s a loss. (“No way! Is the market really down there? Are you sure that’s not a misprint?”) It’s a profitable trade that just hasn’t gone his way yet.
    • b. He gets angry at his broker or his spouse or the market.
    • c. After that he starts bargaining with God or the market—that if he can only get back to breakeven, he will get out of the position.
    • d. Then he gets depressed about the losing position.
    • e. Finally, acceptance comes either because he “wakes up,” the analyst finally puts out a sell recommendation, or the margin clerk blows him out of the position.

Man is extremely uncomfortable with uncertainty. To deal with his discomfort, man tends to create a false sense of security by substituting certainty for uncertainty. It becomes the herd instinct. —
BENNETT W. GOODSPEED, THE TAO JONES AVERAGES

  • When dealing with the risk of the uncertainty of the future, you have three choices: engineering, gambling, or speculating.
    • The engineer knows everything he needs to know for a technologically satisfactory answer to his problems. He builds safety margins into his calculations to eliminate any fringes of uncertainty. Therefore, the engineer basically operates in a world of certainty since he knows and controls most, if not all, of the variables which affect the outcome of his work.
    • The gambler, on the other hand, knows nothing about the event on which the outcome of his gambling depends because the distinguishing feature of gambling is that it deals with the unknown. The gambler plays for the excitement—the adrenaline rush. He isn’t playing to win—he is just playing.
    • The speculator doesn’t have the advantage of the engineer. The rules of natural science will not render the future direction of prices predictable. But the speculator does know more than the gambler because while the gambler is dealing with pure chance, the speculator has at least some knowledge about what determines the outcome of his activity.
  • Speculating is the application of intellectual examination and systematic analysis to the problem of the uncertain future. Successful investing is the result of successful speculation. If your “investment” is a stock, you are depending on the managers of the firm to accurately foresee the market for the goods it produces.
  • The failure to have and follow a plan is the root cause of most of the other “reasons” (or, more accurately, “excuses”) for losing money in the markets. And while you will still lose some money with a plan, you are certain to lose all your money, eventually, without one. You will enter the market and then draw up your possible courses of action on an as-needed basis.
  • Thought-based decisions are deductive while emotion-based are inductive.
    • Inductive puts acting before thinking, establishing a market position and then doing the work, selectively emphasizing the supporting evidence and ignoring the nonsupporting evidence.
    • Deductive thinking, on the other hand, is consistent with the “thinking before acting” sequence of a plan: doing all of your homework/analysis and then, by default, arriving at a conclusion of whether, what, and when to buy and sell.
  • A person’s self image “should not be dependent on particular successes or failures, since these are not necessarily in a man’s direct, volitional control and/or not in his exclusive control.
  • If a person judges himself by criterion that entail factors outside his volitional control, the result, unavoidably, is a precarious self-esteem that is in chronic jeopardy.”
  • Therefore, your self-image should not be a function of what you have accomplished but how you have gone about doing it.

It’s not wise to violate the rules until you know how to observe them. —T. S. ELIOT

  • He knew the difference between being right and doing right, and he avoided emotionalism. That’s what sets the successful decision maker apart from the not-so-successful.
  • Remember, people participate in the markets—all markets—either to satisfy a need (i.e., solve a problem) or to satisfy a want (i.e., make them feel good). Managing risk solves a problem and should never be engaged in to feel good, look smart, or be right.

Overall the book is a good read for investors.
One thought of life should be that there are no mistakes but lessons in disguise for us. The lessons suggested by the author are worth keeping in mind.