Excerpt from Paul Tudor Jones’s Interview in Reminiscences of a Stock Operator

1. Part of the appeal of [Reminiscences] is Livermore’s journey of self-discovery as a person and as a trader. Have you had the same experience as a trader and portfolio manager, or was your path easier or harder?

Jones: Probably the best lessons to be learned from this book come from his repeated failures and how he dealt with them. In the book I think he lost his entire fortune four or five times. I did the same thing but was fortunate enough to do it all in my early twenties on very small stakes of capital. I think I lost $10,000 when I was 22, and when I was 25 I lost about $50,000, which was all I had to my name. It felt like a fortune at the time.

It was then that my father flew up from Memphis and sat me down in my tiny New York City apartment and began lecturing me as lawyers do. He commanded, “Leave the gambling den behind. Come home and get a real job in a safe profession like real estate.” Of course, I did not, and the rest is history. And real estate these past few years has been about as safe as shooting craps to pay the rent, so I was twice blessed. If I’d have taken my father’s advice, I might have lost all of my money again these past few years in my fifties.

Anyway, I think it’s no coincidence that our greatest champions, our greatest artists, our greatest leaders, our greatest everything all seem to have experienced some kind of gut-wrenching loss. I think their greatness, in part, was fashioned on the crucible of that defeat.

Two years before Lincoln was elected as maybe our finest president, he lost that monumental Senate race to Stephen Douglas. To a certain extent, I think that holds true in my field as well, and I am leery of traders who have never lost it all. I think that intense feeling of desperation that accompanies such a horrifically deflating experience indelibly cauterizes great risk management reflexes into a trader’s very being.