Quotes from Jim Paul

the rise sets up the fall; the winning sets up the losing

People fail for the most part because they shoot themselves in the foot. If you go for a long time without shooting yourself in the foot, other people start calling you a genius.

the herd instinct and crowd behavior arise out of our desire to replace uncertainty with certainty

Broadly speaking, the decision-making process is as follows: (1) Decide what type of participant you're going to be, (2) select a method of analysis, (3) develop rules, (4) establish controls, and (5) formulate a plan.

Are you long because you are bullish or bullish because you are long?

It is the loss side on which you must focus first

One investor's two rules of investing: Never lose money. Never forget rule #1. (Warren Buffett)

Experience is the worst teacher. It gives the test before giving the lesson.—UNKNOWN

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.

There are three main characteristics that describe the mental state of an individual forming a part of a crowd. As you will see, the same characteristics can also be exhibited by an individual making investment and trading decisions. 1. A Sentiment of Invincible Power

2. Contagion

3. Suggestibility

The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.20 (William O'Neil)

So when an individual adheres to a market position despite the mounting losses, he is a crowd.

One of the most incomprehensible features of a crowd is the tenacity with which the members adhere to erroneous assumptions despite mounting evidence to challenge them.6 So when an individual adheres to a market position despite the mounting losses, he is a crowd.

If you have ever had a position on and intended to do one thing but actually did something else, then you were a member of the psychological crowd and made a crowd trade—whether you knew it or not. Otherwise, you would have done what you originally intended.

Remember, 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.

TWO PSYCHOLOGICAL CROWD MODELS Delusion Model

The Illusion Model

TWO PSYCHOLOGICAL CROWD MODELS Delusion Model The delusion model describes the process an individual becoming part of a psychological crowd before he has a position on. (1) Expectant Attention (2) Suggestion Made (3) Process of Contagion (4) Acceptance by All Present.

The Illusion Model The illusion model accurately describes the process of an individual becoming part of a psychological crowd after he has a position on. (1) Affirmation (2) Repetition (3) Prestige (4) Contagion

That taught me that there are people for places, places for people. You can do some things and you can't do other things. Don't get all upset about the things you can't do. If you can't do something, pay someone else who can and don't worry about it.

It finally occurred to me that maybe studying losses was more important than searching for some Holy Grail to making money.

in the words of the father of contrary thinking, Humphrey Neil, "The crowd is most enthusiastic and optimistic when it should be cautious and prudent, and it is most fearful when it should be bold."7 On