What I Learned Losing A Million Dollars

2. Contagion The American Heritage Dictionary defines contagion as the tendency to spread as an influence or emotional state.

Managers and corporate executives can become too attached to a project and personalize it, and they are susceptible to the losses due to psychological factors

it is not a function of a quantity of individuals that determines if a psychological crowd has formed. Rather, it is a function of the characteristics displayed. If a person is exhibiting these characteristics, then he is part of a psychological crowd and is making crowd trades.

people make purchases for only one of two reasons: to feel better (satisfying a want) or to solve a problem (satisfying a need).

Now I was getting somewhere. Why was I trying to learn the secret to making money when it could be done in so many different ways? I knew something about how to make money; I had made a million dollars in the market. But I didn’t know anything about how not to lose. The pros could all make money in contradictory ways because they all knew how to co

losses caused by psychological factors presuppose your ego’s involvement in the market position in the first place, which means you have personalized the market.

Citing Drucker once again, “The first step in planning is to ask of any activity, any product, any process or market, ‘If we were not committed to it today, would we go into it?’ If the answer is no, one says, ‘How can we get out—fast?’”

However, if you continue to do the wrong thing in the market and get rewarded, your profits won’t be linked to any particular recurring set of circumstances or rule following on your part. This will result in what psychologists call a random reward schedule, the strongest form of reinforcement for getting a person to repeat a behavior.

Emotions are neither good nor bad; they simply are. They cannot be avoided. But emotionalism (i.e., decision making based on emotions) is bad, can be controlled, and should be avoided. So instead of examining each of the many individual emotions, this chapter will focus on the entity that epitomizes emotionalism: the crowd.