About two years ago LB and I received an email from someone who had read our books. In this letter the trading describes how after reading our books he had turned $100,000 into $11,000,000 – I stopped reading at this point and wandered off thinking off course you had, you read my book. All would have been well and good if the email had ended at this point but it didn’t. The $11,000,000 figure was the value of their portfolio at the beginning of the year and a few months later their portfolio was not zero but less that zero because they had a series of margin calls that they had to meet.
The purpose of their email was to ask for a loan for $1,000,000 because they had a proven track record – a proven track record of turning $11,000,000 into sod all in the space of a few months. The interesting thing about this email was not the request for money but rather that this person had no understanding of what had happened to their fortune. According to the author the blame for everything that had occured lay squarely at the feet of market makers who were for some reason unreasonably setting prices according to their pricing models and exchanges who were unreasonably demanding that margin calls be made.
There was absolutely zero self awareness that at the centre of this disaster was one individual who was responsible for the entire cock up. It was not the fault of the market makers, they were just doing their jobs nor was it the fault of the exchanges who were simply making certain that the exchanges functioned efficiently.
Interestingly though the thing that intrigued me was not the self denial and delusional behaviour. I see that every morning at the gym when I see fat bastards wander around the gym aimlessly for hour and then go and have a big arse muffin and hot chocolate for breakfast because they deserve it. What stumped me was the total lack of a pain threshold, surely at some point in this debacle most of would have gone – f#$k I started with $11 mil now I have $8mil, I might bugger off to Tahiti for a few months and clear my head. Apparently not, apparently the kamikaze is alive and well.
This raises the question what is your pain threshold? Do you have a shut off valve in your trading thats stops you from driving your account into the ground.
