Personal Finance

The Pain of Financial Loss

Jack checked his email. His computer program designed to read and trade various financial markets had already lost nearly $20,000 of a $50,000 initial deposit… and it had barely been a week. He stared blankly at the screen, “Damn.”

Then he flicked back to the news website he had been browsing and continued catching himself up on the happenings of the world.

It wasn’t until later, in the midst of more procrastination from doing real work, that he realised that it had been a long time since losing any significant amount of money had really caused an emotional reaction. Whether this was a strength or a weakness, had yet to be foreseen.

Jack thought back to one of the formative events of his trading journey so far – a journey that had now spanned 13 years – that had taught him to control the emotion stirred by financial loss…

It was back in 2004, while Jack was still at university. He had been trading naked options for a little while and had made some impressive gains which occurred sporadically between much less impressive losses. The net result had been a modest gain.

It was in the morning of the release of the annual results for one of the Big 4 banks as he sat in his room glued to his screen. He had the day before purchased some at the money puts hoping for a large move down. Despite average reporting numbers, the shares inexplicably bounded higher. His investment had evaporated before his very eyes. He remembered the panic. The shortness of breath. And the total loss of rational thought which led to what he did next…

In a desperate attempt to recover his losses Jack traded in and out frantically as the share price gyrated wildly, trying to overcome the artificial broker spread to eke out a redeeming profit. He had even abused the T+3 settlement rules allowing him to trade more than what he had… and he ended up paying for it by owing $25,000 to his broker in the form of a rather lengthy payment plan. It would take him the better part of two years working part-time to pay it off. It had been a painful lesson.

Much had changed since those days, he had a better understanding of the markets, of how and why it worked. Moreover he had a better understanding of himself and his emotions. He had learnt the hard way what most people know only through clichés: that money is only a means to an end and that the love of money was an evil to be avoided.

Jack no longer had a fear of financial loss. Part of if had to do with the fact that he had become desensitised. The other part was the confidence he had in his ability to make money in more conventional ways. Though, he knew that it would be naïve and premature for him to think that he no longer had any emotion or attachment to money. But he was working on that, too.


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