What I Learned Losing a Million Dollars by Jim Paul & Brendan Moynihan

Author:Jim Paul & Brendan Moynihan [Paul, Jim & Moynihan, Brendan]
Language: eng
Format: epub
Tags: Business & Economics, Decision-Making & Problem Solving
ISBN: 9780231164689
Google: NV2rAgAAQBAJ
Amazon: 0231164688
Publisher: Columbia University Press
Published: 2013-04-28T22:00:00+00:00

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When I was in Cleveland managing the office for Jack Salmon’s regional firm, I had an experience that demonstrates this concept of internalizing external losses. One time a lot of my customers got short the lumber market. They were big cash lumber hedgers and knew that market as well as anybody. Their analysis, and mine too, was that the market was over-priced and due for a fall. So we got short. Well, the market rallied sharply. The market opened limit up and stayed limit up for four days in a row. There was no trading in the futures so we couldn’t get out of our shorts. On the fifth day, the market started to trade but we didn’t get out. We wanted to watch the market to see if it would start back down. Well, it didn’t. After a few more days of the market trading during the day but closing limit up, we all got out of our shorts. God, it was awful. It had wiped out 90% of the office equity run.

I called Jack Salmon down in St. Louis. “Look, I just blew up the office. There is no more money; no more business. It’s all gone. I’ve destroyed it.”

“What happened?”

“We were short lumber, and the market kept going up and —”

“Well, whose idea was the trade?”

“It was the customers’ idea, but —”

“Okay, how many lawsuits do we have?”

“We don’t have any lawsuits. These guys are good guys; they’re not going to sue anybody. But —”

“How many debits do we have?”

“We don’t have any debits! Don’t you understand? We lost all the money!”

“Wait a minute. Let me see if I understand this. We have no lawsuits, no debits and no customer complaints.”

“Right.”

“Well, that just means you’ve got to go back to work, boy. You’ve got to pick up the phone again. This is part of the business. This is part of the deal. People get on the wrong side of the market and they lose all their money. Then the broker has to decide, ‘Do I want to stay in the business or get out of the business?’ Want to get out? Get out. Want to stay in? You don’t have any problems — you just have to go back to work.”

Not only had I failed to see that losses were just part of business, but I had gone so far as to personalize someone else’s losses. If only I had known then what I’m writing now. . . .

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