Stephen Kearney – Book Review – February 2022 – What I learned losing a million dollars

Review by
Stephen Kearney

Fairly early on in life Jim Paul began to notice something: he was a special guy, a cut above the rest and brighter than most. He always seemed to be rewarded for ignoring convention, either through ignorance – he didn’t even know the rules existed – or because he could he could see no point in keeping them – the rules, that is.

This was how he moved from a relatively poor background to becoming very rich. Of course there were a few steps in between, starting from his first job as a nine year old caddying at a country club on the other side of the tracks. That’s where he found the new world, a world of people much richer than his parents who drove super nice cars like Cadillac Eldorados instead of the crummy Chevrolets in his neighbourhood. This made a very big impression, an impression that hardened and developed in the coming years. “As far as I could see, it wasn’t what you did for a living that was important in life;” he says “it was how much you got paid for doing it.”

He set out to make money and learned lots of tricks along the way including how to win at cards. In the best American tradition, he worked his way through college. There he engaged in the uber American ritual of joining the fraternity – and got his pledge pin by simply asking for it. He didn’t know he was supposed to wait to be invited; he was meant to be passive, not active: “We were breaking the rules and we didn’t even know it.”

He explains the knock-on effects

Not having to do any more grunt work as a pledge sort of set me apart from the other pledges. I was also beginning to think of myself as a little different from most people; I succeeded at just about anything I did. I had followed the rules of the game in freshman English and succeeded. Then I had unknowingly broken the rules for entering a fraternity but still succeeded. I was a little different.

Clearly he was beginning to feel he had the “magic touch”.

And so it went on. With his desire for money, his awareness of his own (high) ability and his innate magic touch, trading on the stock-market was his obvious route. True to form that worked out too. His instincts served him every time and he made money hand over fist. Of course in the best traditions of a good story, a few things went wrong along the way but he was always able to recover and move on. He had the magic touch after all. He couldn’t fail. As he put it

I looked at myself and I said “Goddam. Life in the fast lane.” Life was great, and I didn’t think it could get any better. But it did.

Indeed, his success was creating a feeling of near omnipotence, so much so, he says, that he wouldn’t have been surprised if God had asked him for permission to allow the sun to come up the next day. Paul just knew he was, quite simply, a truly exceptional guy – with millions to prove it. His exceptionalism was matched by his instinct, that intangible ‘feel’ for the market, that certain something that all the truly great investors have. Other people can read books but these guys can read the market. And he just knew he was one of those. He was a trader! His instincts were always right; if his gut told him to buy, it had to be right. And it always was. Yes, sometimes a stock he bought might have gone down in price but he was not going to sell like all the other stockbrokers in an attempts to cut their losses. No, this was his position, his personal position, and he was holding it. His personal commitment meant that his position would recover. And it always did. Sure, it sometimes might have taken a little longer and gone down further than he expected but it always came back and moved into profit. He just knew. A true investor had the guts to hold a position, unlike those brokers who chickened out and sold out early. And true investors were always eventually rewarded by holding their position because the market would always come right. Guys with guts were rewarded. He just knew! And others knew that he knew and invested accordingly. They knew he had that special something – just like those who invested with Bernie Madoff.

And then one day the market didn’t come right. But Paul wasn’t worried. His ever-right instinct told him to hold. And he did just that: day after day, week after week. He went on holding and holding because he knew the market would turn, simply because he felt it. He knew he had the touch, after all. Well, he might have had the touch alright, but not the right one. The magic wasn’t working any more. He was bust! He lost the lot – and pretty well everything he had.

Paul was devastated. His entire self belief was on the line. How could this have happened to a guy whose instincts were always right and had served him so well?

Once he got over the personal shock, unlike many others who became ruined, he genuinely tried to figure out what had happened and what had gone wrong with his talent. It was quite a moment of truth when he realised he didn’t have any – talent, that is. What he had mistaken for talent had been sheer, blind luck. He wasn’t an exceptional guy after all, just a lucky one and that luck had run out.

He then began looking at the wreckage of his life. Where had all the money gone? Yes, he remembered spending loads like there was no tomorrow – remember he used to think that “life was great ……… and it couldn’t get any better. But it did”. So, he had been spending money like it was going out of style but now he couldn’t even remember what he had spent it on.

And then he realised something else: “I had been a good salesman and at the right place at the right time, and not a trader.”

So now he tried burrowing into what had really happened and how the system actually worked. He started reading the books of very successful traders, two in particular, whom he admired. Their books carried lots of information and do’s and don’ts, all of it very sensible. There was just one snag. Both books flatly contradicted each other. Yet, both traders were highly successful – and rich. You can sense his bafflement. But Paul was persistent and dug deeper.

Essentially, this is what the book is all about, as the title suggests. The once great “trader” ate a lot of humble pie and takes us through his lessons, including learning to avoid emotional involvement in his trades. But there’s a lot more, of course, effectively told over 160 pages in a fairly easy to read style. My only real complaint would be some of intricacies of the financial markets can be a bit much for the general reader or, in plainer English, a bit boring.

Overall though, this book is a good read even if you never plan to go anywhere near the stock market or its environs. The tale of self discovery, of a man with an outsize ego having to face the fact that he was nowhere near as clever, knowledgeable or talented as he thought he was, but yet willing to re-start from scratch, is in its own way, quite an inspiring one, even if you don’t like his stock-in-trade. If only some of our politicians with their own outside egos could do the same.

Incidentally Paul was eventually able to re-establish himself financially. Out of curiosity, I checked to see where he is now. Well he isn’t. He was killed in New York on September 11, 2001 in what is now commonly known as “nine-eleven”.
What I Learned Losing a Million Dollars review © Stephen Kearney August 2022