Lessons from “What I learned by losing a million dollars” book: issue 1

In the July of 2020, I read What I learned by losing a million dollars book. I blogged a quote that I loved from that book. But there are many nuggets of wisdom and life lessons in the three chapters in the second section of the book titled Lessons Learned.

While this book is about the author’s personal story of how he lost money in the US stock markets, I think the psychological processes he explained in chapters 5, 6, and 7 are universal and equally applies to life as well. i.e. if we swap the words business and markets with life in the following book notes, the principles the author is teaching still hold.  So I borrowed this book again from the library to re-read and take and share notes primarily for myself and for any others interested.

This post is the first in this series to read and share what I believe are important takeaways from this book.

Instead of sharing all the book notes in one large post, I will make a series of smaller posts with the quotes and lessons I would like to remember. I hope you will find them helpful too!

Chapter 6: The Psychological Dynamics of Loss

In this chapter the author explains what happens when a business or market loss gets personalized. He also explains the difference between external, objective losses and internal, subjective losses.

Most people equate loss with being wrong and, therefore, internalize what should be an external loss.

In the financial markets, people tend to have difficulty actively (as opposed to passively, as in the case of the fruit-dealer who expects that two out of one hundred apples will rot and light-bulb manufacturer who knows that two out of three hundred bulbs will break ) taking losses. This is because all losses are treated as a failure; in every other area of our lives, the word loss has negative connotations.

People tend to regard the words loss, wrong, bad, and failure as the same, and win, right, good, and success as the same.

For instance, we lose points for wrong answers on tests in school. Likewise, when we lose money in the market we think we must have been wrong.

Most of the time lose or loss is associated with games. Somehow, the concepts profit and loss get confused with win and lose and right and wrong. But if you lose as a participant of a game, you weren’t wrong; you were defeated. If you lose as a spectator of a game, you must have placed a bet (or expressed an opinion) on the game’s outcome and you lost money (or were wrong), but you were not defeated.

I am still processing the above notes since I first read them some months ago, and I will continue to ponder over these notes for the foreseeable future.

In the next post I will share some notes on external vs. internal losses.


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